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Value of Energy Efficiency
In economic terms, the “value of energy efficiency” should be measured as the return on investment (ROI) from expenditures on energy efficiency improvements.
Unfortunately, energy efficiency investments have been quite difficult to measure in total. The reason is that these investments take a multitude of different shapes and forms. Consider the variety of industry sectors that have made noteable strides in improving energy efficiency, such as architecture, transportation, manufacturing, industrial equipment, and consumer appliances.
To begin to estimate the size of the energy efficiency market, let’s consider consumer appliances. According to the American Council for an Energy-Efficient Economy (ACEEE), initial sales estimates of Energy Star® products alone accounted for nearly $100 billion worth of product shipments in 2004. Moreover, the aggregate Energy Star share of those markets is roughly 33%, suggesting that the total energy service infrastructure investment is in the neighborhood of $300 billion annually!
Once the investments in energy efficiency have been estimated for all industry sectors and have been added together to get an overall market size for energy efficient products and services, there is little doubt that total annual energy efficiency investments will easily surpass the roughly $100 billion spent annually in the United States on conventional energy supply infrastructure. Much more work needs to be done to provide a comprehensive picture of the size and scope of the “energy efficiency economy.”
Energy efficiency savings have also been difficult to quantify. However, we have seen several estimates that show that the benefit from investing in energy efficiency has the potential to meet or exceed all of the growth in U.S. energy demand.
One thing is certain—as the price of energy rises, investments in energy efficiency will become more attractive. Additionally, intangible benefits, like slowing the production of greenhouse gases and global warming, will continue to become more socially desirable.
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Here are two complimentary articles from NHI about the importance of energy efficiency and energy conservation. Click on the links to open the articles.
Productivity of Growing Global Energy Demand: A Microeconomic Perspective. The McKinsey Global Institute, November 2006.
- Executive summary (PDF format; 130 KB)
- Full report (PDF format; 2.1 MB)
Abstract: To date, the global debate about energy has focused too narrowly on curbing demand. Instead, the best way to meet the challenge of growing global energy demand may be to focus on energy productivity, which reconciles both demand abatement and energy-efficiency.
Global energy demand will grow more quickly over the next 15 years than it has in the last 15. Demand could grow at a rate of 2.2 percent per year, boosted by developing countries and consumer-driven segments of developed economies. This acceleration will take place despite global energy productivity continuing to improve by 1.0 percent a year.
McKinsey Global Institute’s case studies indicate that there are plenty of viable opportunities to boost energy productivity that could translate into a deceleration of global energy-demand growth to less than 1 percent a year. But shifting this demand will require new policies that target various large end-user segments and encourage higher energy productivity.
Making the Most of the World's Energy Resources, by Diana Farrell, Scott S. Nyquist, and Matthew C. Rogers. The McKinsey Quarterly, 2007 Number 1. (PDF format; 261 KB)
Abstract: Demand for energy is set to grow rapidly during the next 15 years, unless governments, businesses, and consumers take advantage of the many substantial, economically viable, and technologically proven opportunities to boost energy productivity.
