McKinsey: Invest $520B in Energy Efficiency, Save $1.2T

The United States could save $1.2 trillion by 2020 and cut greenhouse gas emissions by 1.1 gigaton annually by investing $520 billion on deploying energy efficiency efforts, according to a report by McKinsey & Co. released Wednesday.

The consulting firm said existing technologies for weather-proofing homes, using efficient lighting systems and waste heat recovery in industrial operations could go a long way toward reducing wasteful energy consumption.

Creating public policies and incentives to support the development of new technologies are key steps to make to achieve the savings.

The $520 billion investment, which wouldn't include program costs, could slice non-transportation related energy consumption by 23 percent by 2020, the report said. The net savings of investing $520 billion would be $680 billion (out of $1.2 trillion in total savings).

For those who have been paying attention to national energy policy development, what McKinsey has to say is nothing new.

Energy Secretary Steve Chu has repeatedly touted energy efficiency as an easier and affordable way for the country to reduce energy use. The federal stimulus package, passed in February this year, contains different pots of money for weather-proofing homes and other measures.

In fact, the DOE has been making a steady stream of announcements about how much money is going to which states for energy efficiency measures, which would include energy audits, building retrofits, education and more.

Still, it's too early to say whether the stimulus money, which is meant for a short-term investment to boost the sagging economy, would achieve the kind of success touted by the administration.

Utilities and other players in the private sector have expressed frustration on the slow deployment of energy efficiency measures. Some utilities offer rebates for home weatherization efforts, and new companies have popped up in recent years to offer utilities and homeowners energy monitoring and management software and devices.

Some states lack good policies to encourage these efforts, they say, which in turn creates disagreements over how to measure the performance and success of energy efficiency programs and reward utilities accordingly (see Energy Efficiency: Good Idea, Not Enough Believers).

Adopting a "comprehensive and coordinated" strategy by the United States would be key to tackle some of these challenges, McKinsey said. The barriers, which the consulting firm said are "widespread and persistent," could be overcome with more incentives, better codes and standards and public education, it added.

The report cited success stories to show what could be done in other parts of the country to achieve the energy and money savings.

California is held up as an example. The state has set more stringent building codes and required its utilities to carry out energy efficiency programs. California's policy that separates the revenues the investor-owned utilities can make from the amount of energy they sell also breaks the connection between building more power plants with making more profit.

California residents also pay more for power as a result of the state's energy efficiency policy, McKinsey noted. The electricity prices in the state are 35 percent higher than the national average partly because of the money needed to fund energy efficiency programs.

The EnergyStar program is a great idea for helping consumers to choose energy efficiency appliances and electronics and decide how to make their homes more energy efficient, McKinsey said. But the voluntary program doesn't cover enough consumer goods and could beef up its education on retrofitting commercial and residential buildings.