Thursday, July 30, 2009

Saving Money by Saving Energy

Let's start with the basics. If I drive a car that saves me 15 percent of my fuel costs, has my quality of life diminished by 15 percent?
Of course it hasn’t (unless I actually like spending money on gasoline). If you think that better mileage necessarily comes at the cost of comfort or convenience, try comparing a new Ford Taurus (28 mpg highway) to the 1986 model (24 mpg highway)—a difference of about 15 percent.
But that is the glaring assumption of critics who blindly assume that energy conservation requires sacrifice in comfort, convenience or productivity. Based on this fallacy, Dave Anderson at DelawarePolitics makes an further leap of logic with this headline:
Markell Seeks to Ration Energy
Anderson thinks that SB 106, the Energy Conservation and Efficiency Act of 2009, will make us poorer. He writes that the bill, which was signed into law yesterday, "is a recipe for undermining our prosperity." He has it exactly wrong.
It’s really pretty simple: If I spend less on energy through efficiency, without sacrificing output, then I have more to spend on other goods and services.
SB 106 sets a target of 15 percent reduction in energy consumption by 2015. I have read the bill, and spoke in favor of it in Leg Hall back in June. Nowhere does it so much as even hint at the prospect of rationing. The target can be met without forcing Anderson and the rest of us to sweat out the summer heat, huddle together in blankets in the winter, or turn off our computers and televisions.
But don’t take my word for it. Ask the world’s leading business consulting firm.
The New York Times reports today that a new McKinsey study finds that U.S. energy consumption could be reduced by 23 percent by 2020 by using only those measures that produce net savings:
The report included only efficiency improvements whose long-term savings would outweigh the initial costs. It did not consider the potential environmental benefits of cutting energy use.
I should note that those environmental benefits would have economic value as well. But the report looks at just those efficiencies that are "NPV-positive," which is finance geek talk for a good deal. The report finds that $520 billion in investment would produce $1.2 trillion in economic benefits in today’s dollars. For those keeping score, the NPV (net present value) benefit would be $680 billion—roughly $2,200 for everyone living in the U.S. today.
Of course, that requires that we find half a trillion in investment over the next decade, which is a tall order. But it would be a sound investment in purely economic terms, and in environment benefits that are not included in this analysis.
Bottom line: Productivity or value isn't measured by how much energy is consumed, but by how efficiently that energy is used.

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