The Energy Efficiency Trap and GHG-reductions

Energy efficiency as a single objective is a trap, because it prevents us from pursuing renewable energy and truly make inroads against GHG-emissions. Any user of energy, and that's all of us, would want his systems to be efficient. But if your energy systems are 80-90% based on fossil fuels, and you subsidize energy efficiency without further qualification, you are subsidizing the fossil fuel industry. Allegedly this is not what we're trying to do, but it is what we are doing, and the shareholders of ConEdison, Exxon/Mobil, Shell OIl, BP and others thank you very much for your support. I'm doing it for them here, because they seldom acknowledge all of these subsidies. But, energy efficiency grants and other financial subsidies should stop, if anybody, it's the carbon energy industry who should offer financial incentives to their customers to become more efficient, as a matter of customer retention.

There are in fact two columns to the energy decision for a property, which in an existing building amount to either the status quo, which usually means fossil fuel based, and the alternative being predominantly renewable energy based, with the ideal case being net zero. Regardless of which strategy you pursue you want to be efficient. The difference is that with energy from the grid your payback from efficiency comes from reduced energy bills in the future, whereas with renewable energy, the payback is a reduction in the installed capacity you need in the first place.

The Energy Efficiency Trap

In his recent book, The Efficiency Trap, Prof. Steve Hallett gives a vivid and in-depth analysis of the problem that the pursuit of efficiency achieves the opposite of what we want to achieve, namely making carbon energy cheaper, so we use more of it, and use it longer, when the point was finding an alternative. Hallett goes well beyond the Jevons paradox, which says that demand goes up as efficiency improves, and MORE THAN offsets the efficiency gains. Hallet's outlook is based on natural cycles - his background is botany and he thinks in biological cycles of development - and the picture he paints is none too encouraging, as the world is still stuck in the confusion that energy efficiency is green. It isn't. It is very, very brown, if not actually black, and certainly bleak.

Diminishing returns from energy efficiency

The behavioral analysis offered by Steve Hallett is important to understand first. Analytically, there is also the simple economical fact of diminishing returns from successive investments in energy efficiency, so it is an absolute dead-end from an investment point as well. This fact becomes really problematic very quickly because you tend to make different decisions about efficiency in the two columns, although some will be shared between the two. The end result is that you need to decide first things first, and that means a make or buy decision between carbon energy or renewable energy. Economically, this is a make or buy decision, since renewable energy moves energy from liability to asset, and it is capital-intensive up front. In more cases than people think however, 30 years of free energy beats "investments" in energy that offer a 10-25% reduction of your bills.

The compound returns of renewable energy retrofits

Not only does energy efficiency come with diminishing returns, renewable energy offers potential for valuable engineering synergies, and therefore compound returns. The example in a typical apartment building is the geothermal DHW system I discussed in my last post. A smart replacement strategy would be to provide the hot water in such a building with a geothermal system, probably with a natural gas second stage heat. You are giving the boiler another few years of useful life, but when it goes you can then switch to a solar thermal system, which can replace that gas backup heat for the hot water, and provide HVAC for the whole building as well. In the interim, when the time is right you could generate your electrical requirements in part or in whole from either a building mounted wind turbine or from solar PV (that could be via a hybrid thermal/PV system), and then your geothermal pre-heat could act as your own energy storage, giving you higher returns than selling back to the grid.

How the green movement was hi-jacked by energy efficiency

With the big oil price shocks going back to the 1970's, the logic was developed that said a dollar invested in reducing demand for energy had higher returns than increasing supply. Later, when global warming and GHG-reductions became an increasingly important issue, the carbon energy industry latched on to the idea that energy efficiency theoretically also would reduce GHG-emissions. Not only is this not true because of the effects of the efficiency trap and the financial fact of diminishing returns on investment, It also provides a very short-sighted strategy whereby carbon energy competes with renewable energy, so we continue to make the wrong decisions.

Energy efficiency and bad business planning

For the most part, building owners seem to evaluate their energy options based on payback of equipment based on marginal energy savings, and as a result the more capital-intensive projects never get done. As a business planning tool, payback may give me a good view of the potential of one technology or another, but unless I am doing a 30 year cash-flow model of my property, I will not catch the potential for engineering synergies, and the long term cash flow effects of free energy. And unless I consciously model the two alternatives, I will make the wrong decisions about energy efficiency. Another example: if our building can generate its own electricity, and switch to electric cooking, an enormous amount of indoor air pollution can be eliminated, and we can specify tighter windows, and use some heat-recovery ventilation. If you went down the energy efficiency road, the best you might have done is specify a tankless gas hot water heater,

Conclusion

Global climate change policies need to change. Serious progress with Greenhouse gas reduction will depend on prioritizing renewable energy, and dropping the confusion with energy efficiency as an "alternative energy strategy," when instead energy efficiency only preserves the status quo.