A new report on energy efficiency from McKinsey finds that the United States could save $1.2 trillion from stationary uses of energy (excluding transportation etc) through 2020 by investing $520 billion in improvements like sealing leaky building ducts and replacing inefficient household appliances with new, energy-saving models. It would also cut the country’s projected energy use in 2020 by about 23% and more than offset the expected growth in energy use that would be expected otherwise in the United States. Homes account for about 35% of the possible gains in end-use efficiency, industrial sector accounts for 40% and the commercial sector for 25%.
It has for some time now been thought that one of the most effective approaches to address energy efficiency is by way of imposing energy efficiency benchmarking and standards for electrical appliances and equipments. The McKinsey report points attention to the success of such national programs like EnergyStar in the US, Top Runner (continuously tightening standard) in Japan, and the A (most frugal) to G labels in Europe, in increasing energy efficiency standards in electrical appliances.
The challenge is with getting consumers to make up-front investments in energy efficient technologies or energy optimizing equipments and appliances whose benefits are either diffused over a long time or are not salient. Most often such benefits are in the form of lower electricity costs which do not evoke the same attraction for consumers.
Incentives to consumers to make the upfront investments comes in many forms. In Britain, the Landlord’s Energy Saving Allowance offers landlords tax incentives to add insulation to the buildings they rent out. Another approach, in application in the US, allows homeowners to pay for energy-efficiency improvements or solar panels gradually, through higher property taxes. One of the most effective approaches would be to provide high visibility (or inconveniencing, say with an alarm which rings or a shut-down trigger every time the consumption rate exceeds the acceptable standard!) real-time information to consumers about the electricity consumption of the appliances they use.
I had blogged earlier about an experiment in Sacramento, California to nudge consumers to reduce their electricity consumption. Similar approaches could be adopted to nudge people to barter their older and inefficient home electrical appliances for more energy efficient ones. Such sales can be incentivized by offering tax breaks or even price rebates (like that being given under the cash for clunkers program to phase out old automobiles).
Since people are more averse to loss than attracted to similar sized gains, it may be more effective to penalize inefficient energy consumers than offer the attraction of energy savings. A parameter similar to the power factor can be used to measure the inefficiency in power consumption relative to the connected load and heavy surcharges can be imposed on such consumers.
David Leonhardt proposes the use of stimulus spending to weatherize homes, cash for "caulkers", and improve home energy use efficiency.
Update 2 (2/4/2010)
New energy efficiency norms for water heaters in the US is available here. See also vehicle greenhouse gas emission norms here.