Amory Lovins has a simple message: Saving energy is easier than finding more. It's a point that certainly resonates with environmentalists. And businesses increasingly are drawn to his mantra, since conserving energy saves money and improves competitiveness.
Trained as a physicist at Harvard and Oxford, the 54-year-old head of the Rocky Mountain Institute (RMI) in Old Snowmass, Colo., is helping to spread the word that, with energy conservation, less truly can be more. And he believes that innovation in a range of energy and transportation technologies will help achieve these gains.
He recently spoke with BusinessWeek's Industries editor Adam Aston. Here are edited excerpts:
Q: As the U.S. economy becomes less industrial, it's also becoming more energy-efficient. Each dollar of gross domestic product requires less energy than in the past. How much farther can this go?
A:The U.S. now uses 43% less energy and 50% less oil per dollar of real GDP than in 1975, mostly because of better technical efficiency rather than changes in the composition of GDP. Yet this efficiency revolution has only just begun. We can profitably save over half our oil and gas, and nearly three-quarters of our electricity -- far cheaper than buying it, and often cheaper than just its short-run marginal supply cost. This efficiency revolution will be at the core of competitive advantage, and laggards will suffer.
Q: How seriously are executives and policymakers taking the need to move away from fossil fuels?
A:It has been taken very seriously by many state, but few federal, policymakers and in much of the private sector, including smart financiers. Even some leading coal companies are quietly begging for a climate policy because they can't stand the uncertainty. Leaders in the transition beyond fossil carbon are earning startling returns.
Such firms as DuPont (DD ), IBM (IBM ), and STMicroelectronics (STM ) are routinely cutting their energy intensity 6% a year, with retrofit paybacks of typically two or three years. Since saving fuel is clearly cheaper than buying fuel, why continue to assert that protecting the climate is costly? The issue is sharing not pain but profits.
Q: Natural gas and petroleum prices are historically high. How much can the effect of this be mitigated through efficiency?
A:Straightforward electricity- and gas-demand response could return natural gas to healthier supply-demand balance and $3 to $4 per million Btus [British thermal units] in just a few years, down from its current price of $5 to $6. Electric-load management is the key, particularly during periods of peak demand. Almost all peak power is produced in extremely inefficient gas-fired combustion turbines. So during peak demand, reining in consumption in even a small percentage of users can lead to disproportionate savings in energy and costs.
Saving 5% of U.S. electricity, including peak periods, would save nearly 10% of total U.S. gas consumption, dropping the price by about $2 and saving the economy over $50 billion a year. Ultimately, smarter uses of natural gas could cut 2025 U.S. gas use by half. Today's best technologies, if fully applied, can also save half the oil at less than half the cost of buying it. This may well decrease oil prices, too -- though not enough to undercut efficiency's cost-effectiveness.
Q: Does your latest book go into more detail on how savings like this could be won?
A:On Sept. 20, RMI will publish Winning the Oil Endgame. This is a detailed, business-led roadmap for getting the U.S. completely off oil over the next few decades, and at a profit. To do this, we propose innovative business models and public policies that steer markets without taxing fuel, and speed innovation without issuing mandates. Plus, they should reduce federal deficits and probably won't even need federal legislation.
Q: What innovations are available to help to achieve these sorts of dramatic savings?
A:Most important are new technologies for radically improving the efficiency of our energy usage in nearly all applications. Using known technologies, it's possible to improve the efficiency of cars and light trucks by up to five times, with no compromise of safety, size, or performance.
This means an ultralight, ultrasafe, superefficient vehicle, such as a 70-miles per gallon midsize hybrid SUV. The technology is already being commercialized to automate mass-production processes to make ultralight carbon-composite automotive structures at a competitive cost. That's just a beginning.
For heavy trucks, we could double their efficiency; aircraft, three times. In buildings, we could achieve 5 to 10 times the efficiency we currently see, and do two to four times better in heavy industrial processes. In high-tech, semiconductor fabs could boost their efficiency by up to eight times, data centers by nine times.
All this could be done at comparable or lower capital cost than we see today, with better performance. Efficiency gains of this magnitude make most supply problems go away.
Q: Is spending on efficiency technologies and alternative energy sufficient to achieve these goals?
A:The U.S. lags badly in both private and public investment in both efficient energy use and alternative supplies. Most of the fuel and power we now use is wasted. In economic terms, most energy-savings efforts in businesses rank among the lowest-risk investments in the whole economy and return many times their marginal cost of capital. This egregious misallocation of capital means wealth is wasted instead of being created.
Q: Where will the leadership come to make this happen?
A:In the public sector, we need far more than expanded R&D. We need to refocus on best buys, and then pursue aggressive application of the best solutions. Instead, federal energy policy has been gridlocked for two decades -- it tends to bails out losers, occasionally helps winners, and is driven largely by rent-seeking constituencies rather than national needs.
As a result, state policy is often the leader by default. We need a coherent, supportive policy framework that doesn't keep killing our domestic industries. Perhaps the most vital single reform would be to change the way distribution utilities form retail prices. In 48 states [all but Oregon and California], utilities are rewarded for selling you more electricity and gas, but penalized for helping you save it to cut your bills. This is nuts, and remedies are well proven, but they're not on the policy agenda.
Q: How does the U.S. stack up compared to other countries in advanced energy technologies and policies?
A:Japan has passed us in photovoltaic solar cells. Denmark, Germany, and probably this year, Spain, have passed us in wind power. Europe, Japan, China, and soon Canada are passing us in automotive efficiency, and proposed weight-based safety rules would further dim our export prospects.
Q: Wind and solar cells have been around a long time. Are other technologies coming down the pipe?
A:There are cheap, efficient hydrogen reformers, cost-effective microturbines, and low-temperature desiccants [which use low-grade heat to dry air -- a precursor to cooling it by a little evaporation]. Bioethanol and biomaterials from cellulose waste, and waste-derived biodiesel, are coming on strong.
There are important grid technologies too, such as smart, omnidirectional power grids and affordable on-site electricity storage. Durable fuel cells will be competitive in important niche markets. Right now, U.S. power plants throw away more energy as waste heat than Japan uses for everything.
Q: What will the energy future look like when this all comes together?
A:Our energy supply will become increasingly diverse, dispersed, and renewable. In time, centrally located, traditional thermal-power plants will come to be sentimentally admired, like Victorian steamships are for us.
Wind, and perhaps carbon-sequestered coal, will beat natural gas for making hydrogen, which will emerge as the dominant energy carrier. The potential wind power in the Dakotas alone could make enough hydrogen to run all U.S. highway vehicles, if they're very efficient.
Ultralight hybrid vehicles will be ubiquitous, some with fuel cells so they work as distributed generators. While they're parked, instead of sitting idle, the fuel cells could be used to generate power onto the grid. Most importantly, all energy uses will become far more efficient, so most of the new supplies commonly proposed won't be needed, and irrationally exuberant investors in the costlier ones will lose their shirts.
Q: How do the energy platforms of the Presidential candidates compare?
A:RMI is nonpartisan and doesn't comment on candidacies. However, two years of failed federal energy-policy legislation has a clear lesson for both candidates. If we keep making energy policy in the old way, driven by heavily larded constituency wish lists, it'll keep on train-wrecking.
Whoever gets elected can and should switch to building energy policy around the core of existing consensus. And even without federal leadership, dramatic oil savings can still be achieved by federal administrative action alone, or if necessary, and probably more slowly by state action alone.