Do We Think about Energy Efficiency the Wrong Way?

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Energy efficiency is a good thing because it cuts back on energy use and reduces our utility bills, right? True, but we limit its possibilities when we think about energy efficiency only that way.

That’s the over-riding message from “Capturing the Multiple Benefits of Energy Efficiency,” a recent report by the International Energy Agency (IEA).

The report points out several energy efficiency benefits that governments habitually fail to fully quantify.

For example, energy efficiency has macro-economic advantages – it boosts tax revenue and creates jobs. And on the micro-level businesses can become more competitive by wringing as much value as possible from their energy dollars.

Energy efficiency has health benefits – it reduces air pollution and therefore lowers instances of respiratory disease. It may even reduce anxiety and depression  where fuel poverty exists, the report says.

Do we need to do a better job quantifying the  benefits of energy efficiency? Give us your views on our LinkedIn Group, Energy Efficiency Markets.

And energy efficiency helps make our overall energy delivery system more cost-effective. Utilities can avoid building power plants and transmission lines by using existing infrastructure to greater advantage.

Most of these ideas are already raised frequently to warrant use of public or utility funds on energy efficiency. But often governments present them purely as descriptors without statistical backing

However, IEA says that if governments start to recognize – and quantify these benefits – we may more quickly develop the vast amounts of still untapped energy efficiency in world economies.

World investment in energy efficiency reached $300 billion in 2012 – equal to investments in coal, oil and gas generation. This investment produced savings larger than the energy provided from any other fuel. This means that energy efficiency, the negawatt, has become the primary fuel used in the world, the report says. That’s why it’s often termed the ‘first fuel.’

If the world pursues all economically viable energy efficiency, the resource could boost economic output through 2035 by $18 trillion – larger than the current size of the economies of the US, Canada and Mexico combined, according to the IEA.

But the world will fail to tap as much as two-thirds of its energy efficiency potential unless policies change.

So what must government do? The IEA report offers several models they can use to quantify benefits. It also shows some of the results of using a statistical approach.

  • Manufacturers found that the payback period for energy efficiency fell from 4.2 to 1.9 years when they monetized the productivity and operational gains brought to internal rate of return by energy efficiency.
  • Energy efficiency technologies can make homes warmer and drier, which makes for healthier conditions. For every $1 invested, energy efficiency can provide up to $4 in benefits when the cost of medical care, lost work time or child care costs are considered.
  • On a more macro scale, changes from energy efficiency can induce GDP growth rates of  0.25 percent to 1.1 percent

Quantifying the benefits will lead to more energy efficiency because it will draw investment dollars to the resource. Right now, energy efficiency has a lot of trouble competing against supply side resources, especially shale gas and oil, for public and private funds, according to the report.

With more data on hand, governments and utilities might stop thinking about energy efficiency as an expense to be born and instead as an investment to be pursued.

The IEA report is available here for a fee. A free executive summary is available here.

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About Elisa Wood

Elisa Wood is the chief editor of She has been writing about energy for more than three decades for top industry publications. Her work also has been picked up by CNN, the New York Times, Reuters, the Wall Street Journal Online and the Washington Post.


  1. This article is still missing part of the message. Less energy used will result in less waste and you can follow that all the down to the landfills. Other benefits are less dependence on foreign fuels, lower fuel costs, etc; Money has and always will be a motivator. Therefore, the tag line “Save Energy-Save Money”. Energy Efficiency = Cost Savings” was the initial push. I agree it is time to tout the residual benefits of energy efficiency.

  2. Robert Allender says:

    And insist on specifying a dollar value on every benefit, even if it is $1. The common excuse is that so and so a benefit is too hard to specify exactly. But then $0 is a very exact amount! Putting even a tiny value on each benefit forces everyone to keep that benefit on the table.

  3. Absolutely the focus needs to be on more than $ savings. For residential projects, they seldom self-fund, the energy savings are not enough to pay for the project, even with a 20-30 year horizon. I’ve found it doesn’t matter that much, money is not the primary motivator – comfort usually is. Comfort is a broad term, it could mean thermal comfort, it could mean less worry, it could mean knowing that your house is healthier. This concept is covered by Indoor Environmental Quality. Here is my page on that:

    Beyond that, there are the societal benefits you speak of. Better outdoor air quality leading to better public health. More jobs. Lots of other factors.

    Thanks for bringing this up! The big picture is critical to efficiency.

    • After trying to sell energy savings for 34 years, I can say that virtually no one cares unless the government is funding it or they are too poor to pay their energy bills in which case they cannot afford it. They will pay for comfort, health, safety and possibly the building longevity that Home Performance retrofits can provide.

      Now, how do we get there?

  4. Also, one of the big problems I see in efficiency is that low hanging fruit gets chased, with poor results. True efficiency requires adequate control over heat, air, and moisture flows. Until you achieve those, the odds of unintended and negative consequences are very high. Small jobs lead to disappointing results, which stop people from going further and stall efficiency efforts.

  5. Jean-Sébastien Broc says:

    The publication of this new IEA report was announced by the IEA executive director Maria van de Hoeven at the IEPPEC conference. This was indeed a strong signal, as this conference deals with the evaluation of energy efficiency policies and programmes.
    In her speech, Maria van der Hoeven highlighted the importance to make energy efficiency visible (“we need need to put a face on energy efficiency”). Pointing out the multiple benefits of energy efficiency can be an effective way to do so, especially when spotting the benefits that will raise the interest of the decision makers, operation managers or households.
    In a sense, this is about finding the right words for each audience (because kWh or $ saved do not speak directly to everyone)
    Another key point emphasised in her speech was that this issue of multiple benefits is not new, but to make it convincing, there is a need to mover from qualitative appraisal (intangible nature) to clear evidences. And that’s where data are the key materials.
    This issue of multiple benefits and how to evaluate them has been one of the hot topics discussed at the conference, whose proceedings are already available online at:

  6. A thought provoking article – my immediate reaction was “what are some ways we can quantify the benefits beyond energy cost savings in a robust, cost-effective and defendable way?” Three suggestions:

    * Productivity improvements. Sometimes done for green buildings, e.g. by measuring the reduced number of employee sick days. If this data is kept in the payroll, its fairly easy to calculate the benefit.

    * Benefit of reduced air pollution. Harder to quantify – perhaps just use macro metrics from a reputable source (eg EPA) and scale according to the savings achieved.

    – Jobs creation. I’ve sought this data in the past, could only find one, fairly dated (1997) study (, from which I figured investing $1b in EE creates 5 times as many jobs as the same investment in coal-fired electricity generation.

  7. Changing the conversation from “$$$ saved” to “$$$ lost by inaction”, especially when compared in terms of competitive landscape, hits closer to home of those charged with watching the bottom line.

  8. Sadly, energy efficiency is somewhat ‘Anti-American’ because it goes against one of the driving forces of our economy; more is better. The American economic system – and pretty much most of the countries as well – is driven by consumption which includes electricity. Ironically, it was one of America’s founding fathers – Benjamin Franklin – who came up with the expression which would be apropos here which is “A penny saved is a penny earned”.


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