Promoters of clean energy often feel like Sisyphus, perpetually pushing a boulder up a mountainside. Just when solar, wind, and other clean technologies1 seem poised to gain a foothold in the market, the ground collapses and the effort must begin again. This is not a new phenomenon. In the 1930s solar panels graced 30 percent of houses in Southern California and Florida. Several decades later few remained.2
Is the quest for clean energy doomed, or is an economy fueled by clean energy possible? What will it take to get over Sisyphus’s hump?
It will require, first of all, an understanding of the role of energy efficiency, not merely a devotion to the various forms of renewable supply. The best way to understand energy efficiency is to take an end-use-least-cost approach and ask such questions as, What tasks need energy? and How can we perform those tasks in the cheapest and best ways? This approach will demonstrate that any form of clean energy supply likely will be the second-best option, and will be part of a durable answer only if integrated with the best choice: using less of the energy we already have.3 Efficient use of energy should be considered before any supply technology, whether the supply is renewable, nuclear, or fossil. Unless the relationship between energy efficiency and supply is understood, any effort to convert to secure, affordable, abundant supplies of energy is likely to fail. Efficiency will then play the role of spoiler: dampening any supply strategy. It will defeat renewable energy, as surely as it has laid waste to most traditional supply technologies.
Official government energy strategies have tended not to work. This is, in large part, because they have tried to dictate to the market technologies that cannot survive without government support. In consequence, the policies have been more honoured in the breach than in the observance. In the 1950s the Paley Commission (the first U.S. government commission to study energy and recommend policies to ensure secure, affordable supplies of future energy) called for a massive conversion to renewable energy, but its sensible and timely recommendations were completely ignored. The world seemed awash in oil at the time.
The 1973 oil embargo changed that perception. It also gave President Nixon the dubious honour of having to put forth an official energy policy. His proposed Project Independence would have had Americans spend three-quarters of all discretionary investment money in the economy on new forms of energy supply, disproportionately coal and nuclear. The market, however, took a dim view of this plan, and few of these investments ever happened. Nixon’s response was to deal with the inflation caused by the run up in energy costs by capping energy prices. This move, however, denied institutional and individual decision makers the market mechanism of a price signal.
In due course, the oil markets settled down and few people beside the usual suspects of electric utility companies, oil executives, and a few beady-eyed policy wonks spent much time worrying about how the country would meet its needs for energy. A growing number of citizens, though, started to concern themselves with the consequences of the Western world’s energy use. The environmental movement, in particular, launched protests against the conventional supply technologies and called for a conversion to a solar economy.
Some people thought that all that was needed was a change of administration, but when President Carter had to respond to his own energy crisis in 1979, not surprisingly his solution also featured governmental directives and a disproportionate emphasis on conventional supply. To overcome the market’s continued reluctance to pay for such a prescription, Carter proposed the Energy Security Corporation and the Energy Mobilization Board. These agencies could override market mechanisms and supplant democratic institutions if either worked to impede supply expansions. In an effort to pacify environmentalists, Carter put solar panels on the White House, and his Department of Energy took a liking to every sort of centralized solar technology imaginable, from solar space satellites to solar power towers in the desert to wind machines with blades the length of a jumbo jet wing.
Once again, though, the effort to “solve” the energy problem with central mandates failed. Even the declaration that the country’s energy shortages were the moral equivalent of war did not help Carter’s energy program, which was so capital intensive that it failed a test of market rationality.
On the positive side, Carter was the first president to recognize the advantages of energy efficiency. His administration implemented such measures as CAFE (Corporate Average Fuel Economy) standards for vehicles. These were regulatory programs, but they did focus on eliciting the cheapest solutions to the energy problem. They also dramatically increased American security by enabling the country to buy less oil more quickly and on a larger scale than the Organization of Petroleum Exporting Countries (OPEC) could adjust to. New U.S.-built cars increased their efficiency by 7 miles per gallon (mpg; 33.6 litres per 100 kilometres [L/100 km]) in six years. Europe achieved similar oil consumption savings, but did so primarily through higher fuel taxes rather than through better efficiency standards.
Together, these changes tipped the world oil market in buyers’ favour. Between 1977 and 1985, U.S. oil imports fell 42 percent, depriving OPEC of one-eighth of its market. The entire world oil market shrank by one-tenth; the United States alone accounted for one-fourth of that reduction. OPEC’s share fell from 52 percent to 30 percent, forcing it to cut its output by 48 percent, which drove down world oil prices. On average, new cars each drove 1 percent fewer miles, but used 20 percent fewer gallons. Only 4 percent of those savings came from making the cars smaller.4
Carter’s plans also put in place two measures that enabled the market to work better: they lifted the market caps on price and they initiated a variety of programs that provided information on what sorts of energy technologies were available and what citizens could do to use energy more wisely.
Carter’s efficiency initiatives worked far better than his supply plans, and their beneficial effects lingered for half a decade after his term. Between 1979 and 1986, Americans cut total energy use by 5 percent — a drop in energy intensity (the amount of energy needed to produce a unit of GDP) that was five times bigger than the expanded coal and nuclear output subsequently promoted by President Reagan’s policy.
Upon entering office in 1981, Reagan sought to stimulate fossil fuel and nuclear energy production, not realizing that the efforts of the previous administration had allowed the United States to cut energy intensity at the record pace of 3.5 percent per year. Five years later, energy efficiency — disdained as an intrusive sacrifice and a distraction from America’s supply prowess — had pre-empted the markets that were supposed to pay for costly supply expansions. In the mid-1980s, many of the producers Reagan meant to help were ruined, as efficiency’s speed and availability made energy prices crash. Despite Reagan’s concerted campaign to undo the previous administration’s efficiency and information programs,5 by the middle of the decade the market had had time to work. Entrepreneurs were introducing myriad technologies that were producing huge efficiency benefits. Even advocates of renewable supply were caught off guard, as well as being hampered by the inept way that government programs sought to subsidize renewables. It turned out that efficiency was simply much cheaper than any form of supply. Despite its imperfections, the market, given half a chance to work, turned out to be smarter than the supposed energy experts.
Energy efficiency came online far faster than anyone had predicted, and far faster than any expansion of supply. From 1983 to 1985, the nation’s third-largest investor-owned utility was cutting its decade-ahead forecast of peak demand by about 8.5 percent each year, at roughly 1 percent of the cost of new supply. The nation’s largest investor-owned utility signed up 25 percent of new commercial construction projects for design improvements in just three months. As a result, it raised its target for the following year — and hit it in the first nine days. Well-designed efficiency programs have captured up to 99 percent of target markets. A huge literature confirms the size of the savings and shows that the costs of achieving them can be accurately predicted and measured.6
This history repeated itself in 2001 as President George W. Bush, with ardour similar to Reagan’s, sought to stimulate energy supplies, even though in 1996 the United States had quietly resumed saving energy by 3.2 percent a year. Bush called for opening the Arctic National Wildlife Refuge to oil exploration, and proposed massive fossil and nuclear subsidies. Meanwhile, subsidies and other policies that promoted vehicle inefficiency led to a situation where the average fuel efficiency of U.S. cars and trucks hit a twenty-two-year low in 2002: 20.4 mpg (11.5 L/100 km).7 In June 2003, environmentalists pointed out that the average fuel efficiency of Ford cars and trucks was worse than when the company started one hundred years ago with the Model T.8 This represents a tremendous lost opportunity. The U.S. National Academy of Sciences reported in 2001 that although light-vehicle improvements have already cut gasoline consumption by 14 percent — equivalent to the amount of oil imported from the Persian Gulf — further efficiency gains, which would be cost-effective to the driver to make, can roughly double U.S. fleet efficiency without compromising safety or performance.9 Typical potential fuel savings range from about one-fifth for small cars to one-third for midsize SUVs and nearly one-half for big pickup trucks. Achieving such savings would be good for more than driver’s pocketbooks: such vehicles are responsible for 20 percent of U.S. carbon dioxide emissions.
Such savings projections are quite conservative and assume that smarter car companies will not introduce novel designs that will disrupt the industry and put inattentive car companies at risk. While American car companies resist making their products more fuel efficient, the Japanese and Europeans are again designing the future. The Toyota Prius hybrid-electric five-seater gets 48 mpg (4.9 L/100 km); Honda’s Insight gets 64 mpg (3.7 L/100 km). An entire American car fleet that efficient would save thirty-two times the amount of oil that proponents of drilling in the Arctic hope to find there.10 DaimlerChrysler and General Motors are now testing family sedans at 72 – 80 mpg (3.3 L/100 km–2.9 L/100 km). Volkswagen already sells Europeans a 78-mpg (3.0-L/100-km) four-seat non-hybrid subcompact. Almost every automaker at the 2003 Tokyo Auto Show displayed good hybrid-electric prototypes, some getting more than 100 mpg (2.35 L/100 km). Volkswagen has just premiered a supersafe but ultralight diesel car that gets 285 mpg (0.83 L/100 km).11
Markets are, of course, imperfect. As prices fall, people easily fall back into apathy. Advertising campaigns (and tax subsidies) that encourage Americans to buy a 10-mpg (23.5-L/100-km) Hummer H2 so that they can paste an American flag on it and feel like they are patriotically supporting the troops in the Middle East ensure that those young men and women will continue to be in harm’s way, driving 0.5-mpg (470-L/100-km) tanks and 17-feet-per-gallon (73,000-L/100-km) aircraft carriers. Such behaviour also ensures that we will all get to enjoy yet another energy crisis.
In 2000, California created such a crisis with its ham-handed program to “deregulate” electricity markets in such a way as to allow the incumbent “big dogs to eat first.”12 Once the world leader in energy efficiency, with financially healthy utilities and sensible resource policies, California nearly plunged the whole of the United States into the next energy crisis. Panicked by so-called power shortages and exhorted by Vice President Dick Cheney’s call to build at least one power plant a week,13 developers planned to add electricity-generating capacity equivalent to 83 percent of the state’s current total demand, 96 percent of the western region’s, and at least one-third of the nation’s. But meanwhile, California citizens, companies, and communities woke up and implemented exactly the same solution that had worked before: reliance on efficiency, which enabled them to save their way out of the hole. Californians cut peak electricity demand per dollar of gross domestic product (GDP), adjusted for weather, by 14 percent in six months, and a third of customers cut their usage by over 20 percent. In just the first six months of 2001, customers wiped out California’s previous five to ten years of demand growth, taking away proposed new power plants’ markets before their plans could even be finished. This abruptly ended the crisis that the White House claimed would require 1,300 to 1,900 more power plants nationwide. By August 2001, a Barron’s cover story noted a coming glut of electricity. Scores of plants have been cancelled for lack of demand,14 and their irrationally exuberant builders are reeling as Wall Street, stung by Enron’s collapse, downgrades their bonds.
Efficiency keeps quietly making gains. A 2002 report by the American Council for an Energy-Efficient Economy (ACEEE), “State Scorecard on Utility and Public Benefits Energy Efficiency Programs: An Update,” states that there has been a halt to the decade-long trend to eliminate or reduce efficiency programs in the United States. Spending on utility and related state energy programs has rebounded modestly from the late 1990s. Annual spending on energy efficiency programs reached a high point of about US$1.6 billion in 1993 and dropped dramatically to about US$900 million in 1997. This resulted from the spread of utility deregulation in the mid-1990s. Revived interest in energy efficiency by the states has begun to reverse that trend, with total spending by states and utilities on energy efficiency programs back to about US$1.1 billion in 2000. “Our analysis clearly illustrates that there remains a vast resource of energy efficiency opportunities in the United States that is being largely ignored and untapped,” stated Dan York, ACEEE’s Utilities Research Associate and co-author of the report. “Most states still offer no significant support for efficiency programs, and federal energy legislation has so far ignored the need for a national matching funding mechanism for state efficiency programs. This leaves the main burden of support for efficiency programs to a few states.”15 Since that report, however, at least three states have voted to implement efficiency programs as a way to cut emissions of carbon dioxide.
In each energy crisis that has beset the world, efforts to promote one or more forms of energy supply have ignored the role of efficiency in creating a successful energy strategy. As if to spite all the brainpower and paper thrown at the energy problem (some wags suggest that the solution to the energy problem is to burn energy studies), the manifestly imperfect market has quietly bought more efficiency than it has new forms of supply. Markets are motivated by price, information, and consumer values. After 1979 there was a real perception of crisis. Prices spiked. People sought information. And when the government, utilities, and various non-profits supplied it, the market mechanisms worked rapidly to “solve” the energy crisis. Efficiency swamped supply and prices crashed.
This persistent oscillation, driven by what could be called “the overhang of profitable efficiency,” has repeated itself at least four times since the 1973 Arab oil embargo, and will do so again. Every time price hikes, apparent shortages, or political instability create the perception that the time is right to convert to a different form of energy supply, efficiency, the cheaper and quicker alternative, eliminates the perception of a need for change and allows the energy status quo to resume. This fuel bazaar continues to result in bankrupt supply companies, a climate that grows less stable by the year, energy vulnerability, and war in the Middle East.
Few people other than those whose careers depend on energy analysis really want to focus on how they get their energy. If prices remain relatively low (and the world price of oil is still below that of bottled water) few people will overcome the “hassle factor” to make a change in their energy system. Every time the price for the prevailing energy source (usually oil) gets high enough to make people interested in overcoming that hurdle, the myriad ways of using energy more efficiently become more attractive. Given that it is usually faster to implement efficiency than to bring in new forms of energy supply, efficiency outpaces all supply options. This reduces demand for energy, drives prices down, and dissolves any sense of vulnerability. Proponents of supply are back at square one, the falling price of oil having diminished the relative attractiveness of their pet technologies.
Avoiding this boom-and-bust cycle requires understanding its three root causes. First, improved efficiency costs far less than new energy supplies, so most people, given the choice, opt for efficiency. Second, when policies promote both efficiency and supply, customers typically use only one, usually the cheaper one. Third, efficiency is far faster than new supply. Ordinary people are able to implement efficiency long before big, slow, centralized plants can be built, let alone paid for.
Since Western economies ceased to think that oil was infinite and reliably available, more efficient use has been the biggest “source” of new energy — not oil, gas, coal, or nuclear power. After the 1979 oil shock, efficient use of energy enabled Americans to cut oil consumption by 15 percent in six years while the economy grew 16 percent. There are many ways to measure progress in saving energy but even by the broadest and crudest measure — lower primary energy consumption per dollar of real GDP — progress has been dramatic. If the energy use of 1975 is taken as a base measure, by 2000, reduced “energy intensity” was providing 40 percent of all U.S. energy services. It was 73 percent greater than total U.S. oil consumption, five times greater than domestic oil production, three times greater than all oil imports, and thirteen times greater than Persian Gulf oil imports. The lower intensity was mostly achieved by more productive use of energy (such as better-insulated houses, better-designed lights and electric motors, and cars that were safer, cleaner, more powerful, and got more miles per gallon). The savings were only partly caused by shifts in the economic mix, and only slightly by behavioural change. Since 1996, saved energy has been the nation’s fastest-growing major “source.”16
In nearly every case, energy efficiency costs less, usually far less, than the fuel or electricity that it saves. It is cost effective to save at least half the energy now used in developed countries at prices averaging around 2¢ per kilowatt-hour (kWh).17 Almost no form of new supply, and few historic ones, can compete with this.
The 40 percent drop in U.S. energy intensity since 1975 has barely dented efficiency’s potential. The United States has cut annual energy bills by about US$200 billion since 1973, yet is still wasting at least US$300 billion a year. That number keeps rising as smarter technologies deliver more and better service from less energy. And the side benefits can be even more valuable; for example, studies show 6 to 16 percent higher labour productivity in energy-efficient buildings.18
The huge potential of efficiency can contribute to a transition to a clean energy economy, but this is unlikely to happen unless national energy policies integrate strategies to implement efficiency as a conscious part of implementing other clean technologies.
We are witnessing a renewed boom in renewable energy, as advocates of clean energy call ever more loudly for a transition to clean energy. The following table illustrates this point:
Europe is perhaps the best known of the regions pursuing renewable supply. Europeans have a much clearer understanding than North Americans that climate change is real and that effective policy measures are needed to counter it. In 2001, the European Union decreed that 22 percent of electricity, and 12 percent of all energy, should come from renewable sources such as wind within ten years. This target is part of the way the E.U. intends to meet its obligations under the Kyoto Protocol.20
According to a study released in 2002 by the European Wind Energy Association (EWEA), Europe’s wind energy industry grew by 40 percent over the last year. In the twenty-one countries included in the study, installed wind capacity rose from 14,652 megawatts to 20,447 megawatts (MW) between October 2001 and October 2002. According to the same study, capacity on the continent could rise to 100,000 MW by the end of the decade. The European wind power industry estimates that, given the right legal and financial support, wind projects could provide energy for 50 million people in Europe in less than ten years’ time.21
Following on the German government’s decision in the late 1990s to phase out nuclear power completely, Germany has begun to pursue the most dramatic expansion of renewable energy in the world. In recent years Germany has accounted for roughly half of all wind turbines built worldwide. Bundesverband WindEnergie, the German wind energy association, recently announced that 2002 was another record-breaking year for installation of wind energy systems in that country. A total of 3,247 MW of generating capacity were installed last year, bringing German wind supplies to more than 12,000 MW, produced by nearly 14,000 wind turbines. Four and a half percent of German electricity is now generated from wind, surpassing the contribution from hydroelectric power. The wind sector in Germany now employs 45,000 people, one-fifth of whom were hired last year.22 This rapid growth in wind power is central to reaching Germany’s goal of reducing carbon emissions by 40 percent by 2020.
Authorities in Germany are now considering plans to build up to 5,000 turbines off the country’s north coast. Giant turbines, double the size of conventional ones, are being developed for this use. Some of the turbines would be located in the open sea up to 45 kilometres from land — a feat never before attempted. Since wind is stronger at sea, the energy potential is highly attractive. Already the world’s leading country in the development of onshore wind energy, Germany has plans to add 25,000 MW to offshore capacity by 2030, up from the current level of zero.23
Close behind Germany in installed wind power is Spain, which currently ranks number two in Europe with 4,079 MW installed capacity.24
The press in the United States is beginning to take notice of such developments. According to an article published in USA Today on February 7, 2002,
Throughout Europe, wind power has turned into a serious source of energy, leaving the USA — the country that pioneered it as a modern technology — in the dust. Amid growing concern about climate change and other environmental problems blamed on the burning of fossil fuels, European governments are encouraging utility companies to harness the wind, especially at sea where it blows hardest.
In 2001, EU countries produced more than four times as much energy through wind as the USA, and experts predict that within 10 years at least 10 percent of Europe’s electricity will be supplied by giant wind turbines hooked up to main power grids. Even the technology used to produce power from wind, originally a US development, has moved to Europe. GE is the only company that still makes wind turbines in the US — 90 percent are now produced in Europe. According to Randall Swisher, executive director of the American Wind Energy Association, “We have frittered away our dominant role in this technology . . . We had the strategic advantage, and we lost it.”
While the United States is not leading the wind revolution, it is also not ignoring it. U.S. wind-generating capacity expanded by nearly 10 percent in 2002, to a total of 4,685 MW. However, development depends largely on the existence of a federal wind tax credit, which must be renewed every two years. Growth in 2002 was slower than in previous years due to the fact that the tax credit had expired at the end of 2001 and an extension was not signed until mid-March. During those first months of 2002, many wind development projects were placed on hold.25
Environmental researcher and author Lester Brown of the Earth Policy Institute writes,
Over the last decade wind has been the world’s fastest-growing energy source. Rising from 4,800 megawatts of generating capacity in 1995 to 31,100 megawatts in 2002, it increased a staggering six-fold worldwide. Wind is popular because it is abundant, cheap, inexhaustible, widely distributed, climate-benign, and clean — attributes that no other energy source can match. The cost of wind-generated electricity has dropped from 38¢ a kilowatt-hour in the early 1980s to roughly 4¢ a kilowatt-hour today on prime wind sites. Some recently signed U.S. and U.K. long-term supply contracts are providing electricity at 3¢ a kilowatt-hour. Wind Force 12 projected that the average cost per kilowatt-hour of wind-generated electricity will drop to 2.6¢ by 2010 and to 2.1¢ by 2020. U.S. energy consultant Harry Braun says that if wind turbines are mass-produced on assembly lines like automobiles, the cost of wind-generated electricity could drop to 1–2¢ per kilowatt-hour. In contrast with oil, there is no OPEC to set prices for wind. And in contrast to natural gas prices, which are highly volatile and can double in a matter of months, wind prices are declining. Another great appeal of wind is its wide distribution. In the United States, for example, some 28 states now have utility-scale wind farms feeding electricity into the local grid. While a small handful of countries controls the world’s oil, nearly all countries can tap wind energy.26
Worldwide, wind grew by a robust 36 percent in 2001 alone.
Renewables are making headway in developing countries as well. The People’s Republic of China is undertaking a rapid switch from coal to gas and investing in efficiency measures and renewable energy sources, pushed by the need to boost economic development and reverse the public-health emergency caused by air pollution. In 1996, China mined 1.4 gigatonnes (GT) of coal. Most experts thought that would double early in the new century. But in 2002 China’s coal mining was back to its 1986 level — 0.9 GT — and heading for 0.7 GT. A modern natural gas infrastructure is being built with wartime urgency in five key cities. Modern Danish wind turbines are being installed in Mongolia. China, which cut its energy intensity of economic growth in half in the 1980s, has nearly done so again, and can do more. Its transition is driven not only by the fact that coal is unacceptably dirty, but also by the realization that if coal remains the primary fuel for the country’s development, there would be no rail capacity to carry anything but coal. In addition, the Chinese are taking note of hybrid-electric cars, fuel cells, and hydrogen, and they are becoming very interested in the entire concept of sustainability. The first run of the book Natural Capitalism sold out in two days, and they have recently created a Department of Sustainability at Peking University. The Chinese have also been active participants with Royal Dutch Shell in developing energy planning scenarios.27
Similarly, India is one of the world leaders in wind energy, adding 240 MW of wind capacity in 2001. As of 2002 it had 1,627 MW of installed wind turbines.
According to Lester Brown,
Projecting future growth in such a dynamic industry is complicated, but once a country has developed 100 megawatts of wind-generating capacity, it tends to move quickly to develop its wind resources. The United States crossed this threshold in 1983. In Denmark, this occurred in 1987. In Germany, it was 1991, followed by India in 1994 and Spain in 1995.
By the end of 1999, Canada, China, Italy, the Netherlands, Sweden, and the United Kingdom had crossed this threshold. During 2000, Greece, Ireland, and Portugal joined the list. And in 2001, it was France and Japan. As of early 2002, some 16 countries, containing half the world’s people, have entered the fast-growth phase.28
Projections of worldwide use of renewables follow what is happening at the country level. In 1998 the Royal Dutch Shell external relations newsletter, “Shell Venster,” stated that “in 2050 a ratio of 50/50 for fossil/renewables is a probable scenario, so we have to enter this market now!” Shell’s “Dynamics as Usual” scenario finds it plausible that renewables will supply 20 percent of world energy by 2020, and a third by 2050. Their more aggressive scenario, “Spirit of the Coming Age,” finds a transition to a hydrogen economy plausible by 2050, driven in part by a Chinese conversion to hydrogen.29 In 1995 London’s Delphi Group began advising its institutional investment clients that alternative energy industries offer “greater growth prospects than the carbon fuel industry.”30
The U.S.-based Solar Energy Industries Association said that solar research has cut prices to a point where the world could expect to see photovoltaic panels competing with natural gas–fired generation within the next five to eight years. Statistics from the Global Environment Facility show that the market for photovoltaic solar energy is growing by 15 percent a year. The United Nations’ World Energy Assessment said solar thermal power plants covering just 1 percent of the world’s deserts could meet the entire planet’s current demands for energy.31
Japan leads the world in installed solar-generating capacity with approximately 400 MW. Installed solar power in Germany stood at 200 MW in 2001, while the United States ranks third with approximately 179 MW in installed solar capacity.32
Efficiency is well-established and has favourable economics. Renewables are on a rapid-growth path. Shouldn’t the market simply sort all this out?
Perhaps — if we had a true market, free of distorting subsidies. Unfortunately, nowhere does such a market exist in energy or any other commodity. Energy choices around the world are beset by subsidies and market distortions of all sorts, which have, in large measure, dictated the energy mix that we have today. Worldwide, it is estimated that subsidies to the energy sector, overwhelmingly to fossil fuels, top US$240 billion each year.34 Any strategy that seeks to foster a transition to clean energy has to reckon with these distortions. Unfortunately, few government officials even acknowledge they exist.35 This is especially true in Europe, where only recently have any competent estimates been made of subsidies to the energy sector.
In the United States, historic subsidies to nuclear power, for example, have exceeded the money spent on the Vietnam War and the space program combined. This to deliver less energy than the burning of wood. According to one estimate, U.S. government subsidies to the energy sector as a whole are at least US$30 billion per year, a disproportionate amount of which goes to support the nuclear and fossil fuel industries.36 Because of this, “The American economy is, after Canada’s, the most energy-dependent in the advanced industrialized world, requiring the equivalent of a quarter ton of oil to produce [US]$1,000 of gross domestic product. Americans require twice as much energy as Germany — and three times as much as Japan — to produce the same amount of GDP.”37
One reason renewables have had such a hard time gaining a foothold in the United States is that they compete not only with subsidized conventional energy, but also with efficiency. Recently, the U.S. Department of Energy (DOE) reported that the use of renewable energy fell in 2001 to its lowest level in twelve years. Much of that was due to low hydroelectric output from reduced snow pack in the western states, but the DOE noted that solar-generating equipment was also being retired faster than it was being replaced.38
This is all clearly daft. It is also a recipe for uncompetitiveness. But in light of the 2001 Cheney energy proposals (which remain largely a gleam in the administration’s eye), it is perhaps unreasonable to look to the Bush administration to provide a level playing field on which efficiency and all forms of supply might compete fairly. The administration even took money from the Energy Department’s solar and renewable energy and energy conservation budgets to pay for the cost of printing its national energy plan, which called for reducing such programs and increasing subsidies to fossil and nuclear technologies. Reuters reported that “documents released under court order by the Energy Department this week revealed that [US]$135,615 was spent from the DOE’s solar, renewables, and energy conservation budget to produce 10,000 copies of the White House energy plan released in May 2001.”39
Despite public opinion polls showing support for renewable energy, there is also growing resistance to particular applications. The citizens of Cape Cod are fighting a proposed wind farm for Nantucket Sound, the first offshore facility in the United States. The New York Times reported, “But like residents of dozens of communities where other wind-farm projects have been proposed, many Cape Codders have put aside their larger environmental sensitivities and are demanding that their home be exempt from such projects. As (Walter) Cronkite puts it, ‘Our national treasures should be off limits to industrialization.’”40 The proposed wind farm is on hold.
There is also some question about how the electricity from the wind farms would get to market. While farmers and ranchers throughout the Heartland typically welcome wind farms as great neighbours to their cows and corn fields, the communities through whom the transmission lines would have to pass to carry the wind energy to distant power-hungry cities are considerably less enthusiastic. And it is not entirely clear where the money for the transmission lines will come from. Such capital costs will raise the cost of the delivered power. Once again, efficiency may come to look increasingly attractive.
While American energy policy is drafted by promoters of technologies beloved in the oil patch, the Europeans are beginning to realize that an integrated strategy of efficiency and renewables might just enable them not only to get beyond the historic boom-and-bust oscillations, but also give them a competitive edge.
In 1999, then British environment minister Michael Meacher said, “I cannot over-emphasise that improved energy efficiency, and growth in renewable energy, are not alternatives — we need to pursue both issues vigorously, and we are doing so.” And the deputy prime minister, John Prescott, announced the Climate Change Programme in March of 2000 by saying, “We need a radical shake up in the way we use energy and we need to generate energy in new sustainable ways.”41
An integrated policy is vital not only because ignoring efficiency will endanger a renewable (or conventional) supply strategy, but also because focusing first on efficiency makes any supply strategy much more attractive. In the absence of energy efficiency, supply strategies become prohibitively expensive. With efficiency, renewables can provide far less supply, and do so more cost-effectively than conventional power.42 A dollar can only be spent once. If it buys efficiency, the best buy, more of our budget is left to buy the increasingly attractive renewable supply options. If that dollar is spent on centralized, capital-intensive conventional supply, it cannot then be spent to save the energy that will make much of that supply unnecessary — until the higher prices that will be necessary to pay back the investments in conventional supply elicit defensive investments in efficiency. But it is exactly this sort of cycle that has ensured energy insecurity. The only answer, as the Europeans are starting to realize, is to invest first in efficiency, then in renewables, and to do so as part of a conscious, integrated plan.
A 2000 European Commission Green Paper, “Towards a European Strategy for Energy Supply Security,” highlighted a central role for energy efficiency in increasing the security of supply and reducing greenhouse gas emissions. It stated that improving the efficiency with which energy is consumed by end users is central to European energy policy, since improved efficiency meets all three goals of energy policy, namely, security of supply, competitiveness, and protection of the environment. This is further developed in the European Climate Change Programme, which highlights the large potential for cost savings from improving the energy efficiency of end-use equipment.43
Recent pronouncements go even further. The Energy-Intelligent Europe Initiative is a cross-party, cross-nation movement within the European Parliament that calls for making Europe’s economy the most energy intelligent in the world. By February 15, 2002, forty-one parliamentarians from all fifteen members states had signed the call to promote energy efficiency in Europe as the number one energy “source.” Linking energy intelligence to the knowledge-based economy “will help Europe to become the most competitive economy worldwide while achieving its ultimate goal, a sustainable development.” The initiative concludes that energy efficiency is not perceived as an important policy tool at the moment, but points out that a more energy-intelligent economy is what will enable Europe to remain competitive and promote a high quality of life.44
But critics are skeptical of such initiatives, claiming that funds for the promotion of energy efficiency remain inadequate: “The entire budget will amount to just over 1 million Euros per member state per year . . . a minor percentage increase upon budgets originally set well over a decade ago, when not even lip-service was being paid to the need to prioritize sustainable energy.” They argue that “it is appropriate for the Union to concentrate on guiding and steering demand, unlike the United States, which seeks to meet demand by constantly boosting supply.”45
What would an intelligent combination of efficiency and renewable supply look like? It turns out that it has been done, and the combination offers a winning way to strengthen local economies and create new jobs. The example also shows that even if national governments continue to be unable to grasp this concept, there still remains hope at the local level.
Sacramento is California’s capital city, with a population of 400,000 (in a metro area of 1.8 million). The Sacramento Municipal Utility District (SMUD) demonstrated how investments in efficiency and locally generated power can enhance the bottom line of the utility and improve the health of the regional economy.
SMUD is the sixth-largest municipal utility in the United States, serving 1.2 million customers.46 In 1989 its customers/owners voted to close the Rancho Seco nuclear facility. According to Jan Schori, who became general manager of the utility in 1993 and who remains at the helm today, “When we closed the Rancho Seco nuclear plant we lost 913 megawatts on a 2,100-megawatt system. It became an opportunity for us to start over.”47
By 1995, SMUD was spending 8 percent of its gross revenue on energy efficiency and was being described “as a symbol of what’s possible . . . the national poster child of green utilities.”48 This investment reduced the peak load by 12 percent and enabled SMUD to hold rates constant for ten years. Had Rancho Seco operated, rates would have increased 80 percent.
SMUD also installed:
• the nation’s largest photovoltaic power plant, providing 2 MW of solar power to 500 homes, located next to the closed Rancho Seco nuclear facility;
• one of the largest utility-owned commercial wind turbine projects in the United States, producing 5 MW;
• the largest solar home project in the nation — supporting one hundred customers a year with the installation of 4-kilowatt photovoltaic panel systems on their rooftops;
• one of only two photovoltaic recharging stations for electric vehicles in the United States;
• two geothermal projects with a total generating capacity of 134 MW.49
SMUD partnered with the Sacramento Tree Foundation to plant 300,000 shade trees from 1990–2000, and it continues to offer customers free trees (with advice, fertilizer, and free delivery) for planting on the east, west, or south side of buildings. Full-grown trees can reduce indoor cooling requirements by up to 40 percent.50 The district has also helped customers to purchase over 42,000 superefficient refrigerators.51
Continuing its focus on cost-effectively reducing energy demand, SMUD instituted a Cool Roof program. Building owners, through contractors, can earn a SMUD rebate of 20¢ per square foot for installing Energy Star sun-reflecting coating on flat roofs. The highly reflective coating helps block heat from the sun from being absorbed through a flat roof and into a building. This means less energy is consumed by air-conditioning systems.52
An economist calculated the present value of SMUD’s 1997–2001 energy efficiency programs for the Sacramento region’s economy to be US$130 million over the life of the efficiency investments. Most businesses are expected to save 10–19 percent on their energy bills, which translates into more jobs and profits, and increased wages and competitiveness. The impacts include the creation of over 150 additional job-years for a dozen years.53 One company, which had anticipated higher rates that would force it to close, was able to stay in business, saving 2,000 jobs. Sacramento’s competitive rates attracted such new factories as Apple, Intel, and a solar equipment manufacturer. The program lowered the utility’s debt, upgraded its credit, and made it the most competitive utility in California.
By 2000, under SMUD’s photovoltaic installation program, more than 450 residential and 30 commercial photo-voltaic systems had been installed. These systems are grid-connected and feature net metering, which, by earning revenue from providing power to the electrical grid, allows SMUD to recuperate more than half of the cost of the systems.54 The current program offers the systems to homeowners at a lower cost than private marketers do. The SMUD web site says the systems provide “virtually free energy after an 8–15 year payback period.” They are expected to have a thirty-year lifespan. Though they increase home values, no additional property taxes are levied on the value of the systems. As of September 2001, the California energy shortage has caused a tremendous surge in interest in rooftop solar systems, leaving SMUD with a large backlog of orders.55
About half of SMUD’s current power supply comes from its own hydro, wind, and photovoltaic power plants (at 8 MW, SMUD uses more solar power than any other utility in the United States) and from four highly efficient natural gas cogeneration plants built in the 1980s and 1990s. The other half of its power supply is purchased through long-term contracts, and SMUD searches for the best market prices. Despite Sacramento’s continued growth, SMUD helped shave annual peak power requirements by nearly 3 percent from 1999 to 2000.56
In 1999 the U.S. Environmental Protection Agency (EPA) office in Richmond, California (a Bay Area suburb), became the first federal facility entirely powered by green power through a contract with SMUD. During the first year of the contract between the EPA and SMUD, 60 percent of the building’s power was sourced from geothermal energy, with the remaining 40 percent coming from a landfill’s gas generation. In the future, all of the building’s energy will come from the landfill.57 Other such projects were implemented in 2000 and 2001.
In October 2001, SMUD’s board of directors voted for a ten-year strategic plan developed by General Manager Schori. The proposed plan calls for:
• saving enough electricity through energy efficiency to power more than 40,000 homes;
• maintaining competitive rates that are now 30 percent lower than those of the neighbouring utility, PG&E;
• adding new wind power to meet the needs of 12,000 homes and new solar power to serve up to 8,000 homes;
• building a new 500 MW combined-cycle gas-powered plant adjacent to the closed Rancho Seco plant. The new plant will meet a large portion of Sacramento’s round-the-clock electricity demand and bolster SMUD’s system reliability.
• The plan diversifies SMUD’s fuel mix, reducing the financial risks of relying on one fuel or generating source. “As we’ve seen in the past 18 months, no one can predict uncertainties such as prolonged dry water years and major shifts in market conditions,” Schori said. “This is a progressive yet prudent plan for meeting Sacramento’s long-term energy needs with one of the cleanest, most reliable and affordable energy mixes in the state.”58
Albert Camus argued that Sisyphus was free because, though condemned by the gods forever to roll his rock, he could use his trip back down the hill for personal reflection. But for promoters of renewable energy supplies, this freedom comes at a terrible cost.
In North America, we are not learning from our steps backward. We do not bother to implement a smart energy policy or a timetable for moving away from conventional fuels. Energy efficiency should be the cornerstone of any energy policy that hopes to survive the rigours of the market. It is the cheapest way to meet the demand for the benefits that energy can deliver: hot showers and cold beer, the movement of goods and people, and the development of emerging economies. Coupled with renewable energy technologies, it can meet the needs of the world for energy services while supporting local community economic development. It is cheaper than any form of supply, and in a genuinely competitive market, it will render most proposals for new supply unattractive.
Unfortunately, efficiency remains largely ignored as an energy source in North America. At least until the next energy crisis.