Energy Efficiency Is Long Overdue

On a global scale, we humans are becoming more energy efficient with each passing year. Even so, we’re exploiting only a fraction of the technological opportunities to use energy more cost-effectively. There’s a lot governments can do to put this right.

Worldwide, the amount of energy employed to produce a unit of gross domestic product fell by 0.4 percent a year from 2000 to 2010, according to the International Energy Agency. Last year and the year before, the annual decline accelerated to 1.5 percent. Looking ahead 20 years, though, the IEA (in effect, a club of energy ministers) estimates that two-thirds of the potential for energy efficiency will remain unexploited.

Capturing a good part of this potential wouldn’t be technically difficult. Proven cost-effective technologies, and others in the pipeline (if you’ll forgive the expression), could reduce the expected growth in energy demand by as much as 50 percent between now and 2035. Investments would be required, but these would pay for themselves over time. And these savings could be achieved without inconveniencing consumers -- without, for instance, asking them to live with less air conditioning or heating. As a welcome byproduct, air pollution and carbon emissions would decrease.

If energy efficiency is such a no-brainer, why doesn’t it happen faster without government intervention? Partly because many governments already intervene, but in exactly the wrong direction -- by subsidizing energy, reducing the incentive to economize. There’s an information gap, too: Households and businesses don’t always understand energy economics. Because an upfront outlay is required with savings spread over many years, availability of finance is also an issue. In general, irrational short-termism militates against good decisions. Acting judiciously, governments can help to remedy these shortcomings of the market.

Buildings offer the best potential for energy savings. With improved outer shells, windows and insulation as well as high-efficiency lighting, air conditioning and heating, they can run on less than 10 percent of the energy consumed by their predecessors. Governments should pair strong energy codes with steps to address the financing conundrum. One possibility: utility-operated programs such as pay-as-you-save plans, through which an owner can install efficiency measures with no upfront costs. Instead, owners get the technology in return for a monthly charge on their utility bill -- smaller than the resulting cut in energy costs, for a guaranteed net saving -- as long as they own the building or until the measure is paid for.

In transportation, intelligently designed fuel-economy standards hold great promise. Such rules for cars and light trucks have produced considerable energy savings in the U.S. Increasingly, other wealthy countries are adopting similar rules, but among less prosperous nations only China has. Efficiency standards add to a vehicle’s price, but with lower fuel bills, consumers can make the money back relatively quickly. Governments should harmonize standards to reduce redundant investments in testing centers and facilitate a universal labeling system.

Fuel savings can also be had in aviation. In a recent report, the International Air Transport Association, the airline trade group, detailed improvements in airframe and engine designs that could reduce fuel needs for the global air fleet by 29 percent to 40 percent after 2020. These include installing braces under wings to increase their span and enhance lift -- thus enabling the use of smaller engines, and distributing propulsion systems throughout the aircraft to eliminate the drag of a single, heavy unit.

To contain costs, the airlines are improving efficiencies on their own, but not that drastically. Carbon-emission standards the United Nations’ International Civil Aviation Organization is expected to adopt won’t push them much further. Governments should collaborate to establish fuel-economy standards for airplanes, pegged toward the upper end of what the trade group, supported by other estimates, has said is achievable.

Technology with a prod from regulation can reduce energy use in lighting as well. With compact fluorescent and LED lights offering superior efficiency, the world’s richest countries and a dozen or so others are phasing out incandescent light bulbs. Every country should follow suit. The poorest consumers will need help affording the alternatives -- again, pay-as-you-save plans would be ideal. Governments would have to establish programs for safely disposing of compact fluorescent lights, which contain mercury. The benefit would be a 5 percent reduction in residential electricity demand worldwide.

Less energy produced and consumed means less pollution and fewer carbon emissions to contribute to global warming. And what households don’t spend on power or fuel becomes disposable income and higher living standards. The world is making good progress on this already, but with fewer policies that encourage waste and more that encourage efficiency, it can do a great deal better.

To contact the senior editor responsible for Bloomberg View’s editorials: David Shipley at