Boosting Prosperity: Reducing the Threat of Global Climate Change Through Sustainable Energy Investment
Report Number	E963
Author Info	Douglas H. Ogden
Details	The Intergovernmental Panel in Climate Change (IPCC), an international group of 2,500 climate scientists assembled under the authority of the United l\lations to monitor global climate, recently released a report documenting the causal link between human activity and global climate change. The IPCC report declares that the 6 billion metric tons of carbon emitted into the atmosphere globally each year are indeed heating the planet. Because economic growth and energy consumption have historically marched in lockstep, there is great concern that policy measures aimed at reducing fossil-fuel use could constrain future prosperity. Fortunately, the world need not choose between catastrophic climate change and economic growth. A host of new technologies offers the means to simultaneously boost the economy and reduce greenhouse gas emissions. So while some argue that cutting U.S. carbon dioxide emissions could be a costly drag on the economy, this report provides dozens of case studies that show the opposite: the reduction of carbon dioxide emissions can be a beneficial side effect of profitable business choices. A. Energy Efficiency and Renewable Energy Increase Economic Growth While Decreasing the Threat of Global Climate Change History shows that the United States can increase economic growth while cutting energy consumption. From 1973 to 1986 Gross Domestic Product (GDP) grew 35 percent while the energy consumed per unit of GDP fell to 2.4 percent per year. By the end of this period, Americans were saving over $150 billion each year through improved energy efficiency, and had avoided a 50 percent cumulative increase in carbon emissions. Moderating energy use is fundamental to solving the global climate change dilemma. Since 1986, however, low fossil fuel prices in the U.S. have encouraged an increase in energy consumption. Today, Americans spend $505 billion per year on energy, and U.S. carbon emissions have reached an all-time high: 1,394 million metric tons in 1994, accounting for 25 percent of the global total. Unless decisionmakers place greater emphasis on efficiency and renewable energy, these trends will continue. The U.S. Department of Energy (DOE) projects that with current trends and policies, energy use could increase to about 104 quadrillion Btu (quads) per year by 2010, up from 85 quads today. Given this rise in demand and resultant increases in energy prices, this could translate to a national energy bill in 2010 of about $950 billion-and an increase in carbon emissions of 17 percent. At a global summit held in Rio de Janeiro in 1992, the United States was one of 154 nations and the European Community to sign the United Nations Framework Convention on Climate Change. The framework stipulates international commitments to cut greenhouse gas emissions, including carbon dioxide emissions, to 1990 levels. Despite this commitment, U.S. carbon emissions are continuing to grow at about one percent per year. B. Energy Efficiency and Renewable Energy Markets Are Growing Rapidly, and Creating Jobs The United States has barely scratched the surface of energy saving opportunities available in the economy. The global market for energy efficiency has grown to over $80 billion annually, and is expected to reach $115 140 billion annually by 2015. The American Council for an Energy-Efficient Economy (ACEEE) estimates that U.S. efficiency improvements consistent with a 2.4 percent annual reduction in national energy intensity (the rate achieved in the U.S. during 1973-1986) could create a net increase of nearly 500,000 jobs by the year 2000, and nearly 1.1 million new jobs by 2010. (Energy intensity measures energy use per dollar of GDP, and reflects how efficiently goods and services are produced.) The majority of new jobs nationwide would be created as money saved on power bills is recirculated into the economy and spent on additional products and services. Investments in energy efficiency can lower consumers' energy bills, reduce energy costs, cut oil imports, increase the net number of jobs, and boost incomes-all while cutting carbon dioxide emissions and reducing the threat of global climate change. C. Numerous Case Studies Demonstrate That Carbon Dioxide Emissions Can Be Cut While Adding to U.S. Prosperity When they invest in energy efficiency, U.S. businesses improve their bottom line by lowering their energy bills, and boost their productivity and increase their competitiveness --all while cutting greenhouse emissions. 1. Industrial Energy-Efficiency Successes U S industries spend $121 billion per year on energy and consume about a quarter of all U.S. energy. Several studies show that industry could cut its energy intensity by 11 to 38 percent between now and the year 2015. When businesses improve their manufacturing processes to use energy and raw materials more efficiently, productivity, profitability, and employment often increase. At the same time, carbon dioxide emissions and environmental compliance costs typically fall. 3M Corporation: 3M has cut its energy use per unit of production in half over the last 20 years, reducing overall emissions by one-third. The company has worked aggressively to achieve an ambitious but practical corporate goal: cut energy use per unit of production and per square foot of building space by 20 percent. It has pledged to implement all energy-saving projects with a 15 percent or greater return on investment (a payback period of six to seven years). Energy cost-cutting has made the company more competitive and more productive. 3M is also marketing a new "dual cure coating" process that is used for aircraft topcoats and primers, and for coatings for the backing of high-temperature electrical tape. The new coatings could eliminate an estimated 236,000 metric tons of volatile organic compounds (VOCs) annually-7.5 percent of U.S. total emissions. Because the new process requires less energy, it could also reduce carbon dioxide emissions by an estimated 2 million metric tons a year. By 2010, the cumulative energy savings could be greater than all the electricity used in all the commercial establishments in the state of Iowa in 1995. Dow Chemical: Dow Chemical's Louisiana Division, whose 2,400 employees in more than 20 plants make chemicals such as propylene, began a yearly contest in 1982 to find energy-saving projects that paid for themselves in one year and that required a capital investment of less than $200,000. The first year, the contest produced 27 winning projects that required a total capital investment of $1.7 million and produced an average return on investment of 173 percent. The 1983 contest had 32 winning projects requiring a total capital investment of $2.2 million and providing a 340 percent return on investment-producing an annual, ongoing savings of $7.5 million. The yearly contest was so successful that Dow changed the rules to eliminate the $200,000 limit and to include savings from all kinds of waste reduction, not just energy. For 575 projects implemented throughout the 1980s, the average return was 204 percent (audited). After ten years and nearly 700 projects, the 1992 contest had 109 winning entries that enjoyed an average return of 305 percent; the 1993 contest generated 140 projects with an average return of 298 percent. 2. Utility Industry Efficiency Successes America s utilities provide roughly $260 billion each year in energy services to homes, businesses and industries-a figure that represents 5.2 percent of the gross national product (GNP). At the same time, U.S. utilities emitted approximately 500 million metric tons of carbon in 1993, or about 36 percent of the annual U.S. total. This figure has dropped from where it would have been had not a wide array of electric utility energy-saving programs saved the U.S. economy billions of dollars. From 1989 to 1993, utility investments in energy-efficiency programs tripled to about $3 billion per year. These investments reduced national generation in 1993 by 44,000 gigawatt-hours, 1.6 percent of total U.S. generation. These savings cut consumers' utility bills by nearly $4 billion that year, while reducing carbon dioxide emissions by approximately 27.8 million metric tons. Utility efficiency programs in California provided net benefits of $2.2 billion during the period from 1990 to 1994. In 1994, the average cost of saved kilowatt-hours was less than 2 cents per kilowatt-hour-less than the wholesale price of power produced by the cheapest new generating plant. New York utility programs delivered $1.4 billion in net benefits to customers between 1990 to 1994. In the Pacific Northwest, efficiency programs during 1995 saved more than 900 average megawatts of electricity at an average cost of 2 to 2-1/2 cents per kilowatt-hour, saving retail consumers $2 billion. The efforts avoided more than 5 .35 million metric tons of carbon dioxide emissions. In Wisconsin, utilities achieved a cumulative reduction in energy demand from 1988 to 1994 of 2,959 gigawatt-hours, while reducing carbon dioxide emissions by 1.8 million metric tons. From 1995 through 2013, projections show, Wisconsin utility efficiency programs could reduce electricity usage by 5,152 gigawatt-hours, preventing more than 3.1 million metric tons of carbon dioxide emissions. In Massachusetts, programs at three major utilities delivered net benefits of nearly $400 million between 1990 and 1993. Market uncertainties due to proposed utility industry restructuring are currently causing utilities to cut back on all long-term investments, including efficiency. However, the newest utility restructuring models-from California and New England-indicate that energy efficiency investments will continue. The most profitable course for future, still-regulated distribution companies will be to select the lowest-cost option to meet energy needs. A recent report projects that utility efficiency programs will deliver 3 percent of electricity demand annually by the year 2000, avoiding 45 million metric tons of carbon dioxide emissions. 3. Efficiency Successes in Buildings, Equipment, and Appliances The U.S. could cut energy consumption in buildings by 33 to 50 percent by the year 2015, simply by investing in cost-effective, commercially available technologies. Substantial progress in building efficiency has been made already. Improved building codes, energy-efficient designs, retrofits, and improved equipment and appliances have stabilized energy intensity in the commercial sector, and have reduced energy intensity in residences. Offices and homes now get the same services-lights, heating, air-conditioning-using less energy than in the past. But much more energy waste can be trimmed. a. Successful Building Design Energy design decisions are long-lasting. The median lifetime for commercial buildings is between 50 and 70 years. The potential for savings is high. A reasonably attainable 30 percent improvement in U.S. building efficiency would reduce energy bills by $75 billion annually in 15 years. Energy-efficient building and office design can significantly increase worker productivity. By improving lighting, heating, and cooling, workers are made more comfortable and productive. An increase of 1 percent in productivity can provide savings that exceed a company's entire energy bill. Lockheed Missiles and Space Company: One of the most successful examples of efficient design for a commercial office building is Lockheed Missiles and Space Company's Building 157 in Sunnyvale, California. A central atrium in the 600,000 square-foot office brings daylight deep into the building, saving Lockheed about 75 percent on its lighting bill. Since daylight generates less heat than office lights, peak air-conditioning has been cut substantially. Overall, the building runs with about half the energy costs of a typical building of similar size. Although the energy-efficient improvements added roughly $2 million to the building's $50 million capital costs, the energy savings, worth nearly $500,000 per year, paid for themselves in a little more than four years. More important, however, have been productivity improvements. Russell Robinson, manager of Facility Interior Development, reports that productivity is up while absenteeism has declined. According to Don Aitken, chairman of the Department of Environmental Studies at nearby San Jose State University, "Lockheed moved a known population of workers into the building and absenteeism dropped 15 percent." Aitken led numerous tours of Building 157 after it opened, and was told by Lockheed officials that the reduced absenteeism paid 100 percent of the extra cost of the building in the first year. The architect, Lee Windheim, has learned that productivity rose 15 percent on the first major contract done in the building. b. Lighting Retrofits Lighting accounts for 19 percent of all electricity sold in the U.S. and costs consumers nearly $40 billion per year. The best light bulbs on the market use only a quarter as much energy as conventional incandescent light bulbs and last ten times longer, each preventing the burning of as much as 400 pounds of coal, and saving consumers more than $35 net on their electricity bills over the life of the improved bulb. If energy-efficient lighting were installed everywhere profitable to do so, America's demand for electricity would drop by more than 10 percent. This would result in annual reductions of 1.3 million metric tons of sulfur dioxide, 600,000 metric tons of nitrogen oxides, and 202 million metric tons of carbon dioxide. That's a reduction in carbon dioxide emissions equivalent to taking 44.5 million cars off the road. These reductions represent 12 percent of all U.S. utility emissions. Boeing Corporation: Boeing has been a participant in the Environmental Protection Agency (EPA) Green Lights program to promote energy-efficient lighting. Lighting upgrades have cut electricity use by 25 to 90 percent in several million square feet of Boeing's facilities, with a 53 percent annual return on investment. Boeing's upgrades have saved 130,000 megawatt-hours, have paid for themselves in just two years, and have cut carbon dioxide emissions by 18,070 metric tons per year. They have also reduced annual emissions of other air pollutants, including sulfur dioxide (down 4,536 metric tons) and nitrogen oxides (down 1,815 metric tons). The new lighting has improved workers' abilities to detect manufacturing defects by 20 percent. According to Lawrence Friedman, Boeing's conservation manager, the savings from catching errors early, while difficult to measure, are estimated to exceed greatly the cost of the energy-efficient upgrades. c. Efficient Appliances and Equipment Appliance and equipment standards are saving consumers $1.9 billion annually, and ultimately will save consumers $132 billion net over the lifetime of products purchased by 2030, providing a ratio of total benefits to costs of 3-to-1. Past and necessary future appliance and equipment standards could cut residential electricity use 7 percent by the year 2015, saving about 80,000 gigawatt-hours and 21,000 megawatts annually, and avoiding approximately 50.6 million metric tons of carbon dioxide per year. Whirlpool's "Golden Carrot" Super-Efficient Refrigerator: Refrigerators consume 20 percent of all residential electricity, and average about 685 kilowatt-hours per refrigerator each year. To encourage manufacturers to develop and market refrigerator-freezers that are substantially more efficient, a group of electric utilities formed a consortium-the Super Efficient Refrigerator Program, Inc. (SERP)-that put up a $30 million pot of incentive money. In June 1993, SERP selected two semi-finalists-including Whirlpool. Energy and carbon savings from the Golden Carrot refrigerator are substantial. Compared to an owner of a 1978 model, each owner of a Golden Carrot refrigerator saves $135 per year in electricity while cutting carbon emissions by two-thirds. Lawrence Berkeley National Laboratory: The U.S. Department of Energy program at the Lawrence Berkeley National Laboratory (LBNL) has made enormous contributions to national energy efficiency by contributing to the development of electronic ballasts and low emissivity, or "Low-E," windows. Electronic ballasts, virtually unknown in the mid-1970s when LBNL's research began, now capture a 24-percent share of the ballast market. Cumulative energy savings attributable to electronic ballasts from 1988 to 1993 total $400 million By 2015, use of electronic ballasts could avoid environmental emissions of approximately 157,000 metric tons of sulfur dioxide, 144,000 metric tons of nitrogen oxides, and 73 million metric tons of carbon dioxide. Today, Low-E windows have captured 36 percent of the U.S. windows market, boasting $600 million in annual sales. By 1993, the cumulative energy savings to the U.S. was $760 million, and will reach $17 billion by the year 2015. By that year, Low-E windows are projected to prevent, through avoided electricity generation 142.000 metric tons of sulfur dioxide, 129,000 metric tons of nitrogen oxides, and more than 64 million metric tons of carbon dioxide emissions. Energy-efficient building codes, building designs, retrofit investments, and equipment and appliance standards all contribute to greater business competitiveness and economic growth-while helping to avoid carbon dioxide emissions. 4. Successes in the Transportation Sector The combustion of fossil fuels in America's transportation sector consumed 35 percent of the nation's energy in 1990 and produced more than 32 percent of U.S. carbon dioxide emissions. Transportation will be the fastest growing source of U.S. carbon dioxide emissions over the long term-by far-unless Americans take aggressive steps to build efficiency into transportation systems. Two-thirds of total U.S. oil consumption goes to transportation, and each day Americans use 4 million more barrels of oil for transportation than the U.S. produces. The United States imports half the petroleum it uses, a fact that contributed $56 billion to the U.S. trade deficit in 1994, and the trend is upward. The gap between what we use and what we produce is projected to rise to 9 million barrels per day by the year 2010. Dependence on oil imports threatens U.S. national security, making our economy vulnerable to foreign cartels, price swings, supply disruptions, and foreign wars. Transportation energy use accounts for about half of all air pollution emissions in the U.S. and more than 80 percent of air pollution in cities. Highway vehicles alone account for 26 percent Of u s emissions of VOCs, 32 percent of nitrogen oxides, and 62 percent of total carbon monoxide. The American Lung Association estimates that America spends $50 billion each year on health care as a direct result of air pollution. Fortunately, fuel efficiency has improved substantially in the transportation sector during the last 20 years, and efficiency gains are far from exhausted. Federal Corporate Automobile Fuel Efficiency (CAFE) requirements for new vehicles are one of the major energy-policy success stories of the past 20 years. CAFE standards doubled automobile fuel efficiency from 14 miles per gallon (mpg) to 27 mpg between 1975 and 1985. The standards, which have not been improved since the mid-1980s, are presently saving nearly 3 million barrels of oil per day-which corresponds to $50 billion of consumer savings and 150 million metric tons of greenhouse gas emissions avoided annually. Working prototypes could easily double vehicle fuel efficiency, while electric and hybrid-electric vehicles-if incentives are created to spur market development -could usher in a new age of clean transportation, powered by renewables-derived electricity. General Motors Corporation: Many manufacturers are moving ahead with electric vehicle production. General Motors originally unveiled its Impact model in 1990. The Impact, with a composite body and stiff aluminum frame, incorporates an advanced electric motor, electronic controls, regenerative braking, and aerodynamic streaming. The energy cost of running an Impact is only a quarter that of a gasoline-powered car. The driving range is about 100 miles using its 1,100 pounds of lead-acid batteries. Those who have test-driven the Compact have given it rave reviews for its quiet ride, maneuverability, and rapid acceleration. Even counting the emissions from the power plants used to charge it, the Impact produces two-thirds less pollution than California will allow under its 1998 ultra-low emission standard, and 72 percent less carbon dioxide than is emitted by a 1994 Ford Taurus. 5. Renewable Energy: Coming of Age Efficiency reduces consumption while maintaining or improving the services provided by energy. Renewable energy could supply new power needs with no carbon emissions. Renewable energy technologies-wind, photovoltaics, solar-thermal, and geothermal-have made major advances in the past decade. For example, the cost of wind-generated electricity in the U.S. dropped from 25 cents per kilowatt-hour in 1984 to less than 5 cents per kilowatt-hour today. The cost curves for solar-thermal and photovoltaic utility plants show similar downward trends. Increased production would further reduce costs. If pollution and social costs from fossil fuel use were to be internalized in fossil fuel prices, many renewables today would be cheaper than fossil fuels. At the same time, reliability has improved markedly, and renewable capacity is expected to grow. A recent study projects that existing renewable technologies could supply roughly one-quarter of our current energy use by 2010. The advancement of wind energy is a convincing success story. U.S. wind resources are large enough to supply more than 4.4 billion megawatt-hours-more than 1-1/2 times the total amount of electricity used in the United States. At least thirty-seven states have commercial wind energy potential. The wind industry is producing utility-scale turbines that are significantly less costly and far more reliable than earlier generation turbines. Utility contracts for wind power have been signed recently for a levelized price of less than 4 cents per kilowatt-hour --competitive with fossil sources and cheaper than nuclear. Wind has enormous advantages over fossil fuels, including minimal future costs subject to inflation, and low operating and maintenance costs. Wind energy is one of the least costly sources of new electrical generation and is competitive with new plants fired with fossil fuels. Kenetech Corporation: U.S. Windpower, Inc. formed Kenetech Corporation, based in San Francisco, in 1986 as a holding company. Kenetech, the world's largest wind company, has more than 800 employees. It manufactures and sells one of the most advanced wind turbines in the world, the variable speed Model 33M-VS. This turbine is able to deliver electricity at less than 5 cents per kilowatt-hour, making it economically competitive with traditional fossil-fuel energy sources. Kenetech operates an installed base of approximately 4,400 wind turbines, most of which are in the United States. In California, Kenetech generated 659,131 megawatt-hours of electricity in 1993, offsetting 226,082 metric tons of carbon dioxide emissions that would otherwise have been generated by California's average mix. Photovoltaic (PV) power is another promising renewable technology. PVs use semiconductor technology to convert sunlight directly into electricity without the need for turbines, generators, or any other moving parts. PV production costs have fallen more than 50-fold during the last 20 years, and PVs generate power today at an average cost of 25 to 50 cents per kilowatt-hour for grid-connected applications. At these prices, PV applications are mainly cost-effective for off-the-grid uses in remote locations and for specialized grid situations where distribution and transmission expansion costs can be avoided. For example, PV arrays situated at generating substations to support a utility's transmission and distribution system, and PV arrays at residential and commercial centers, have the potential to manage demand for electricity by shaving utility peak loads. Overall costs are reduced and carbon emissions avoided Amoco/Enron Solar: The domestic PV industry received a boost in January 1995 when Amoco Corp., which owns Solarex, the largest U.S. manufacturer and marketer of PV systems, launched a joint venture with Enron Corp., the nation's largest natural gas company. Together, they propose to build a $25 million facility to manufacture PV modules and a $150 million, 100-megawatt PV-powered generating plant in Nevada that they maintain will be able to sell power profitably for 5.5 cents per kilowatt-hour (escalating at 3 percent annually over 30 years) Production at the plant-which each year will manufacture large-area, multijunction amorphous silicon modules with capacity in excess of 10 megawatts -is scheduled to begin in 1996. D. Conclusion The successes reviewed in this report not only save dollars and boost economic performance, but also cut carbon dioxide emissions and reduce the threat of global climate change. Our nation can grow economically, add jobs, and become more internationally competitive while cutting greenhouse gas emissions. The task ahead is not simple, however. While the market has captured many efficiency and renewable energy successes, a host of market barriers to efficiency investments persists. For example, although efficiency and renewable energy technologies are often cheaper on a life-cycle basis, their up-front costs are typically higher than less-efficient products. Public policies that provide consumers with life-cycle product information could help overcome this market failure. Similarly, because it takes up-front capital to invest in improved efficiency public policies that promote financing and technical assistance can facilitate investment. Although the focus of this report is on efficiency and renewable energy success stories, given the market hurdles to efficiency investments, utility efficiency programs and public policy incentives are crucial to encourage energy efficiency. The effects of tighter environmental regulations and the prospect of higher fossil energy prices will increasingly make efficiency investments a prudent pursuit for all businesses. Michael Porter, a professor at the Harvard Business School, notes that "the underlying cause of sustained national advantage is improvement and innovation." The compelling conclusion of the case studies in this report, coupled with the solid economic, employment, public health, and pollution-reduction benefits reviewed in each, support a strategic vision for U.S. energy policy: Energy efficiency and renewable energy can add to U.S. prosperity while cutting U.S. carbon dioxide emissions and reducing the threat of global climate change.
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