Efficiency Is Our Best Untapped Energy Source

By Carole Bass, Yale Environment 360. Posted December 5, 2008.

CB:What are the top three things the federal government needs to do right now to get the rules right?

AL: Well, I won’t include the utility reform I referred to earlier, which is technically called decoupling and shared savings, because that’s done by state utility commissions. However, the federal government could certainly encourage that, as it has encouraged many other previous utility reforms, without preempting state authority. And if that happened, that would be the most single powerful lever in getting utilities excited and engaged in efficiency, rather than averse or at least indifferent to it because it hurts their profits.

Second, to get efficient cars on the road quickly, the federal government should incubate at a state and regional level and then take nationwide a system of size-neutral and revenue-neutral "fee-bates". A fee-bate is a combination of a fee and a rebate. When you go to the dealer to buy a vehicle of the size you want, there are more and less efficient models on offer. Under a fee-bate system, the less efficient ones would pay a corresponding fee, that would then be used to pay a rebate on the more efficient ones. This widens the price spread between more and less efficient models, enough so that you will pay attention to lifecycle fuel savings, not just the first year or two. It’s a more powerful method than either fuel taxes or efficiency standards. Unlike standards, it rewards continuous innovation and improvement, and it makes more profit for the automakers. That’s because, in order to move their vehicles from the fee zone to the rebate zone, they add technology content that tends to have a higher profit margin than the rest of the vehicle.

The third important thing I’d suggest is to de-subsidize the entire energy sector systematically. We should be paying energy costs through our energy bills, not through our tax bills. Right now, there’s over a century of encrusted and assiduously lobbied-for and defended subsidies to almost every kind of energy. They’re very lopsided. They favor supply over efficiency and big over small, nonrenewable over renewable, nuclear over everything. And they cause enormous distortions in private investment and consumption decisions. This is, of course, consistent with the policy framework I suggested a moment ago, in which all technologies should compete on merit, not by lobbying power.

CB: How important are (the recent) elections in moving in the direction you’re talking about?

AL: Well, we’ll see. And I should emphasize, RMI is completely apolitical and nonpartisan. The candidates had quite different energy platforms. Voters have chosen one, and if that’s what they get, I think it would be constructive. Remember, though, that many of the big energy choices are not made in Washington, although that matters. For example, most gas and electric utilities are regulated very largely at the state level.

CB: What would be the first concrete thing that President Obama and/or the new Congress ought to do here?

AL: It’s not for me to say what their political priorities should be. I’ve given you at least a quick sketch of the big three things. Actually, if you look at move.rmi.org/oilendgame, you’ll find our detailed, Pentagon-co-sponsored study of four years ago, Winning the Oil Endgame. And that explains exactly how to save half the oil and gas at average costs of roughly 12 bucks a barrel and under a dollar per million BTU. And you’ll find in there a slate of innovative policy measures, going well beyond fee-bates, to support rather than distort the business logic that makes it very profitable to get completely off oil, led by business, at an average cost of $15 a barrel.

Similarly, if you look at our economist book six years ago, Small is Profitable -- that’s smallisprofitable.org -- you’ll find a pretty complete agenda for reforming the electricity system to let big and small technologies compete fairly, with huge advantage to the public.

CB: Can you give us a couple of real-life success stories that you’ve experienced in the private sector?

AL: A well-known one, with Texas Instruments, was their new chip-fab -- that is, a microchip-making plant -- in Richardson, Texas. It was built in Texas, not China, because, together, we were able to cut out 30 percent, or $230 million, of capital costs, while saving a lot of energy and money. Our next fab design after that, by the way, will save about two-thirds of the energy and half the capital costs. Our latest data center design saves about 80 percent of the energy and 15 to 50 percent of the capital cost, depending on whether they buy anyway the chillers they will no longer need.

Or, we had a recent design for a mine that will use no fossil fuel and no electricity; it runs on gravity. We’re working on a refinery that will probably need no natural gas, no electricity and no outside water, but cost less and work better.

These examples are among a much larger list, totaling over $30 billion worth of facilities in 29 sectors, that we’ve recently redesigned for radical energy efficiency with our private-sector partners. And in the retrofit projects we typically save 30 to 60 percent of the energy with two- or three-year paybacks. But in the new facilities we save more -- typically 40 to 90 percent -- and the capital cost almost always goes down. That’s because we use integrated design to get expanding, not diminishing returns. That is, we make very large energy savings cost less than small or savings. If you want to know how, please go to rmi.org/Stanford.

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