AUGUST 23, 2004
VOICES OF THE INNOVATORS
Amory Lovins' Leaner, Greener World
Energy efficiency shouldn't mean sacrificing the
comforts of a high-wattage lifestyle, says the
Rocky Mountain Institute physicist
http://www.businessweekasia.com/bwdaily/dnflash/aug2004/nf20040823_9499_db_81.htm
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.
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