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The Invisible Energy Bonanza: Creating Wealth Out Of Nothing

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New real-world case studies show the energy-saving potential in the world's buildings, vehicles, and factories is severalfold larger and cheaper than normally assumed. Few business leaders have noticed, but the emerging integrative-design efficiency revolution holds supply-side investments at risk.

 

Three guesses: is this blog about a new, cheaper renewable technology? a cheaper, safer nuclear fission or fusion technology? a new technology to extract more fossil fuel at lower cost?

None of the above. It’s about neither energy supply nor new technology. It’s about a more important but far less familiar story: how smarter design can better apply existing technologies to create radical energy efficiency at far lower cost. That gamechanging linkup creates a potential new compet­i­tor to all forms of energy supply. Every year, it could save the world many trillions of dollars’ worth of fossil fuels more than it costs. Indeed, some savings are better than free: they can actually make buildings, vehicles, and factories cheaper to construct.

Conventional ways to save energy are actually the world’s largest energy “source” today. Millions of small improvements over the past few decades—insulation, weatherstripping, better motors and engines, recovering waste heat, more-frugal chemical reactions, all the myriad fruits of careful engineering—add up to efficiency gains that now provide more global energy services than oil or any other fuel. Of the vast energy savings so far in producing each dollar of GDP, roughly two-thirds came from smarter technologies, one-third from shifts in the composition of economic output and in human behavior.

 

Rocky Mountain Institute

The graph shows how since 1975, the United States got about 30 times (or from more-efficient technologies alone, roughly 20 times) as much energy from savings as from doubling renewable output. U.S. and global energy savings are now reducing energy intensity three times as fast (or efficiency technologies alone roughly twice as fast) as the stunning growth in renewables—which nonetheless get nearly all the headlines. Why? Renewables are conspicuous and easily understood. Efficiency is far bigger but gets no respect. Try this simple thought-experiment:

If someone had discovered yesterday that the world has several times more oil than had been thought, and at a cost several times lower, it would be in today’s front-page headlines, steeply trending on social media, and all over the evening news. The new oil’s owners would suddenly be richer and more powerful, their competitors less. And awash in more oil for longer, the world would face more energy disruption, conflict, corruption, pollution, and climate change.

While nobody has discovered such an oil bonanza overnight, a trend I’ve been nurturing for decades reached an important milestone on September 18, 2018, when my scientific article assembled powerful evidence for a previously unnoticed phenomenon. The paper documented a severalfold increase in the size and affordability of a global energy resource with three gratifying properties: it’s already bigger than oil, even before it gets severalfold bigger still; it’s cheaply available to everyone everywhere; and its widespread use could profitably decrease conflict, corruption, pollution, and climate change. It’s also more fun for the engineers.

This new energy resource went virtually unreported because it’s neither a fuel to be burned nor a gadget to be sold, but simply a better way of designing every­thing that uses energy—buildings, vehicles, factories, appliances, equipment—to do more and better work using less energy, less money, and more brains. This bonanza is invisible because, unlike barrels of oil or lumps of coal, energy itself is invisible, and the energy we don’t even need or use seems to verge on imaginary. But its value is real and huge: the International Energy Agency says that saved energy cut global costs by $2.2 trillion in 2016 alone, including $1.1 trillion in China and $0.5 trillion in the United States. That global saving was worth twice the GDP of Australia—yet it’s just scratching the surface of the savings now available, worth buying, and just greatly enlarged.

Even if we can’t see energy itself, can’t we see the devices that save it? Not easily. You can see an oil refinery, but not the better catalysts and heat-recovery systems inside. You can see solar panels on roof­tops, but not the thermal insulation beneath them that keeps people warmer in winter and cooler in summer. You can see wind turbines, but not the advanced materials that make their blades longer, stronger, and more efficient, nor the elec­tronics and software that make them more productive and valuable. You can see a car, but not its lighter materials, sleek underside to cut air resistance, and better propulsion systems. You may look closely enough to spot new LED lights, but you might not notice if better lighting design has made them more visually effective, or if controls dim or extinguish them whenever daylight suffices. Wherever you look, you won't see energy efficiency—yet it is the foundation of our prosperity and security.

Many people think of energy efficiency as static, as if whether you have an energy-efficient house were a binary question like whether your house has a garage. But in fact, efficiency’s untapped potential is highly dynamic. That's not just because technologies improve, but also because we’re learning better ways to choose and use them. The best new and old office buildings lately doubled their energy efficiency in five years, not because their technologies got twice as good, but because designers combined and applied them twice as effectively.

On September 18, 2018, a rigorous compilation of empirical evidence across all sectors of the economy showed that the scope for technological energy savings has long been underestima­ted and its cost overestimated by at least two- or three-fold, often more. Moreover, exploiting this invisible bonanza can often yield the same increasing returns that drive renewable energy’s stunning pace: the more you buy, the cheaper it gets, so you buy more, so it gets cheaper. Just as nobody expected the cost of solar and wind to nosedive, speeding adoption so their cost drops further, almost nobody has realized that modern energy efficiency can do the same thing. This second shoe to drop in the efficiency-and-renewables revolution is the best news in many years for climate, health, prosperity, and national security. It's the biggest underreported energy story of 2018, and the most important stage-setter for energy in 2019 and the years to come.

The ability to save more energy at lower cost is most obvious in buildings. In the early 1980s, my own house (now ripening its 75th passive-solar banana crop high in the Rockies despite outdoor temperatures that used to dip below –40˚) showed how superinsu­lation and superwindows add less construction cost than they subtract by eliminating the heating system, so net construction cost falls slightly (and fuel cost vanishes). The key to a cheap-to-construct building turned out to be costly windows, insulating as well as 16 or even 22 sheets of glass—and from optimizing the whole building as a system, not each part singly.

The Financial Times reports 1.8 million square meters of such passive buildings certified in Europe during 2011–18 (two-thirds of the German ones from fixing up old buildings). Experi­enced European practition­ers have cut the extra construction cost to about zero, plus or minus a few percent. In fact, extensive European data marshalled by the Intergovernmental Panel on Climate Change’s Fifth Assessment Report proved that in diverse buildings—big and small, new and old, hot- and cold-climate—energy savings around 80–90% needn’t cost materially more than small or no savings.

So buildings, which use two-fifths of America’s energy and nearly three-fourths of its electricity, don’t follow the freshman-economics theory that saving more energy must cost more (diminishing returns). Neither do other energy-using systems. My September 18 article shows that similarly big and cheap savings are also proven and available in vehicles, factories, and equipment, spanning all sectors and nearly all uses. How? Not by adding more or fancier equipment, but by using less and simpler equip­ment—by taking stuff out and optimizing system sizing and design. Fatter pipes with less friction make pumps and motors five- to tenfold smaller, more than paying up front for the fatter pipes. Lighter, more streamlined cars need smaller engines, and if electric, they save costly batteries, helping pay (or, in my carbon-fiber car, entirely paying) for the lightweighting. Redesign­ing energy-using devices as whole systems, not as a pile of isolated parts, can offset efficiency’s costs not just with avoided energy costs over time but also with lower capital costs up front. Integrative design thus creates a new normal: bigger savings at lower capital costs. That’s called increasing returns. It makes traditional economic models blow up. It deeply disrupts energy markets.

Apparently this design-driven energy-efficiency revolution wasn’t considered newsworthy. Energy suppliers, though, will discover it the hard way as customers get radically more efficient, energy sales and revenues dwindle, forecasts and business models collapse, and these unforeseen outcomes seem mysterious. But business innovators preferring foresight to mystery may wish to read the peer-reviewed paper “How Big Is the Energy Efficiency Resource?” published September 18, 2018 in the respected scientific journal Environmental Research Letters, where it’s available for free. By year-end, it had been downloaded 6,605 times and its four-minute video abstract viewed 157 times. That’s a pretty exclusive club—but only until the word spreads.

If my 1976 Foreign Affairs paper reframing the whole energy problem (later independently assessed as the only accurate foresight into energy demand in 2000) was a Richter 8 earthquake that knocked things down, my 2018 Environmental Research Letters paper feels like a Richter 7 that shakes things up. Four decades’ experience confirms that energy efficiency is the least visible but most potent driver of supply/demand balance. Now the unheralded news is that energy-saving technologies can become far more powerful and affordable when combined using whole-system design. As Aristotle taught, the whole is more than the sum of the parts: well-integrated efficiency technologies can save far more energy, at far lower cost, together than separately.

Thus integrative design that optimally chooses, combines, times, and sequences an artful bundle of efficiency technologies can greatly speed and enlarge their savings of energy and money. Market actors who first master and scale such integrative design will win. Those who ignore its power will lose. Competition between megawatts and negawatts will work inexor­ably, whether we foresee it or not. Integrative design can be a formidable competitor to supply growth—and an asymmetrical one, because once designers master and refine integrative techniques, they’re not likely to forget them and return to dis-integrated old design methods. And the pervasively emerging mashup of energy with ubiquitous sensors and information technology, enabling device-to-device transactions secured by blockchain, makes integrative design even more versatile and effective.

Business media have a responsibility to speed this understanding before pre-stranded assets reach systemically dangerous scale. Yet a recent 10-page feature on decarbonization in one of the world’s leading business newspapers devoted a mere nine sentences to generally vague mentions of efficient energy use. Readers would never guess that efficiency is far outpacing the other 98% content of the article (chiefly renewables). Another recent column by a distinguished economic commentator hyperlinked a 13-word mention of energy efficiency to a release about the September 18 article, but in the context of efficiency (alone) being “inadequate.” (Of course nobody had claimed it could replace all supply.) Neither paper, nor their main competitors, noticed the integrative-design article as news. The only online services in the top 10 Google hits on its title were Physics World, Utility Dive, Renewable Energy World, and Energy Now. And Google preceded them all with a quaint ExxonMobil ad, “Fueling the Future: The Quest for Efficiency,” which is not about efficiency but about how new hydrocarbon fuels can help turbo­chargers accelerate cars faster. Those cars will become roadkill in the mid-2020s as battery-electric cars, which outaccelerate them but cost less to run, start beating their sticker price.

As an energy observer and author with a half-century track record, I feel obliged to warn when important news is getting overlooked at investors’ peril, creating systemic risk of vaporizing vast energy supply investments and asset valuations by overlooking new demand-side compet­itors. Energy investors need to pay attention before painful history repeats itself. Integrative design makes the already large overhang of unbought energy efficiency much bigger than we thought—and such simple design ideas can spread at the speed not of infrastructure but of Twitter.

Supply-side investments traditionally seemed low-risk: regulators often set prices while users’ effici­en­cy rose at a modest and measured pace, typically slower than economic growth. But today’s custom­ers are figuring out how to buy less energy, use it far more productively, and even make their own. Now this bypassing of traditional suppliers will accelerate. The solid bedrock of durable energy sales by incumbent vendors is starting to crack and shift. Queasiness is appropriate. Alertness is essential. Reallocation is wise. Energy efficiency is transforming itself and the entire energy sector. Demand will be just as dynamic as supply, and the future will belong to the super­­efficient. Readers of some traditional sources of energy insight may be the last to know.

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