Energy Efficiency can lead the economic recovery

Given the worldwide freefall in sales for everything from hair dryers to electrical motors and from boilers to the building trades, which has depressed industrial production and commodity prices and led to steep rises in joblessness, incentives to improve energy efficiency offer a wiser recovery strategy than unemployment subsidies and attendant social unrest. Ramping up energy efficiency could help stave off the bankruptcy of companies and industries, and thus ward off deindustrialisation. Shuttering a plant is quick and easy.  Replacing skills lost from plant closures is long and expensive.

Giving incentives for more energy-efficient cars, light bulbs, building insulation, boilers, electrical motors, and home appliances would create a ‘virtuous circle.’ So that when this crisis ends, the economy will be more energy efficient.  The good news is we do not need to reinvent the wheel. Highly-efficient products are already on the market. But politicians must exhibit stronger political will by quickly passing energy-efficiency laws with acceptable standards. That is the foundation on which we can construct a successful global strategy.

Two main pathways must be followed in parallel: increase energy efficiency by using the same  products and services but consuming less energy; and reduce final energy consumption through changes in personal behaviour – taking mass transport instead of the car,  using less lighting, space heating and air conditioning – but changing habits  is a long way off.

The first goal is near at hand. In energy efficiency, every watt counts, and must be saved at every link in the energy chain: from extraction of oil, gas, coal, uranium, and other sources, to transformation into heat and other forms of energy especially electricity, to transportation and distribution of energy,  and ultimately to the reduction of energy used by appliances, equipment, and machines.

Huge energy efficiency improvements can be achieved in electricity production, especially by replacing old power plants with new, high-efficiency plants with the latest technologies. The around 13,000 terawatt hours (13 trillion of kilowatt hours) produced worldwide by 3,100 gigawatts (3.1 billion kilowatts) of thermal plants could be reached, theoretically, with one-fourth less installed capacity – annual savings of around 2.5 billion tons of CO2 emissions and 0.8 billion tons of oil equivalent of fossil fuel consumption.

However, because of lost time for power production during a plant closure, the expense of building a new plant, and the need for load shedding during the transition phase, replacing old plants is very difficult, especially for developing countries, where energy demand is rapidly growing, and high load growth must be satisfied. Revamping and retrofitting also reaps energy savings, too, but far less than replacing old plants.

But the fastest gains in energy efficiency will be made by the end consumer, by households and businesses alike.  Using Italy as an example, there are the six areas where the greatest energy savings can be practically achieved, according to a 2008 study by Italy’s largest business association, Confindustria*: transport, accounting for 27% of Italy’s total final energy consumption referred to primary energy in tons of oil equivalent, where a 10% savings can be easily reached; space heating and cooling of homes and buildings, one fifth of total energy, where a 20% reduction is possible; lighting, including street lighting, a 6% country share where savings of 30% are wholly realistic; appliances and consumer electronics for home use and offices – a 9% share of energy where 17% savings are possible; electrical motors and drives with an 18% share and the real possibility of a 10% cut in energy use; and finally, heat used by industry, with an 18% share and where an 8% cut in energy use is possible. This would add up to around USD 10 billion in savings per year on the Italian energy bill, considering an oil price of $50 a barrel. Not to mention other gains: lower CO2 emissions, greater security of supply, and better competitiveness.

On the business side, three main sectors are responsible in industrialized countries for three quarters of electricity consumption: motors, 45%, lighting, about 15%, and home appliances and consumer electronics, also around 15%. Global energy consumption of electric motors is around 9000 TWh per year; 11% of this can be saved during the product life cycle of a motor, the initial investment accounts for 2% of total costs, electricity consumption 95%. Unfortunately, most decisions are based on bargaining down the purchase price and often opting for a cheaper motor with higher electricity losses.  In industry, advanced automation systems to optimize energy efficiency are now available in many sectors, including cement, oil and gas, petrochemicals, and power generation.

So with all these benefits, from lower CO2 production to billions if not trillions of dollars saved in lower energy bills that go directly to the bottom line, why is energy efficiency more talk than action, you might wonder.  Nonetheless, talks are accelerating on energy efficiency. Indications are that Russia and China are also now placing a high priority on energy efficiency.

Part of the reason for not enough action is that gains are difficult to tally, because energy efficiency improvements are spread across thousands of sectors and billions of consumers. At the same time, information is sorely lacking. In businesses and in families, short-term cost considerations hold sway in investment planning, and a life-cycle approach to investment decisions is more the exception than the rule.

To turn this situation around, communication and information are even more important than incentives. This is a point to which governments should take note. Starting now, as new products enter the market and new buildings are
sketched on the drawing board, it is absolutely essential for governments to pass laws requiring that only the most energy-efficient products are adopted. For fleets of cars and trucks, boilers, motors, home appliances, and insulation for existing buildings, incentives are urgently needed to replace old, inefficient models and to refurbish buildings. These incentives should be implemented based on a cost and profit analysis that incorporates environmental costs.

Practically speaking, reaching quickly international accord and binding trading procedures that involve the World Trade Organization are probably a ways off. But in the interim, national and regional agreements should base their energy efficiency policies on accepted standards and binding targets for energy efficiency.

What is more, controls are needed against counterfeit labelling, with severe penalties for manufacturers who mislabel their products, such as factory closures. Only recently here in Italy, upon inspecting   some   motors with a high-efficiency label it was found only few that met this standard.

The faster governments and consumers act, the better chance we have to bring the deepest economic slowdown since the Great Depression to a halt.


By Alessandro Clerici, Honorary Chairman of WEC Italy
and Senior Consultant to the CEO of ABB Italy.

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