One of the great innovation challenges: Energy Efficiency

A recent NYT editorial, Energy Inefficiency, eloquently laid out the reasons why energy efficiency is the best, cheapest, and most abundant alternative energy.  It also revealed why energy efficiency is one of the greatest innovation challenges we will face in the coming decades.

So much attention has gone to advancing the usual suspects–e.g., solar, wind, and bio-fuels–with the hopes that each will one day compete with coal-based energy costs. Current energy efficiency alternatives already do.

Yet here we are, editorializing on the benefits of a set of technologies that are, on paper at least, the more economically rational choices.  The McKinsey Global Institute study mentioned in the editorial compared available solutions to the climate crisis and found energy efficiency (which they rebrand as "energy productivity") to be the best returns for investments.  

..the economics of investing i
n energy productivity—the level of output we achieve from the energy we consume—are very attractive. With an average internal rate of return of 17 percent, such investments would generate energy savings ramping up to $900 billion annually by 2020. Energy
productivity is also the most cost-effective way to reduce global emissions of greenhouse gases (GHG)… Moreover, the opportunities to boost energy productivity use existing technologies that pay for themselves and therefore free up resources for invest
ent or consumption elsewhere.

So why hasn't it caught on? Because embracing and advancing energy efficiency requires us to go against some dearly-held but false beliefs about innovation (and capitalism, for that matter).

First, that innovation is about two kids in a garage bucking the status-quo.  That's a fine story for starting new markets, where scale and performance won't truly matter for decades (imagine if our energy infrastructure had the reliability of Microsoft'
Vista). But the energy sector is one of the oldest and largest industries in the country, and has been heavily regulated since lamplighters first unionized and the gas companies first began funding politicians in the mid-1800s. Meaningful innovations in
the energy sector must coordinate with public policy, and few entrepreneurs and investors trained in Silicon Valley smash-and-grab capitalism have the savvy and willpower to engage in these long, politically sophisticated efforts.

Second and related, that the free market will, if left alone, solve major problems like the climate crisis and energy security. To suggest that federal and state governments should leave energy innovations to the "free market" is to deny that western governments have
always played central roles in shaping the energy sector, including the current political boundaries of the Middle East. The current structure is a product of past and present policies, which directly and indirectly subsidize the costs of petroleum- and
coal-based energy. Innovations of the scale and scope we hope for will require accompanying regulations and subsidies to level the playing field.

Third, that the best solutions are new ones. Most stories of innovation focus on invention, but
the real force behind breakthrough innovations lies in harnessing what's already been developed and practiced somewhere else.  The light bulb was 40 years old when Edison "invented" it; his contribution was being the first to tie that existing light
bulb to innovations in energy generation and distribution (including borrowing the business model from the gas utilities).  Spending more money to invent new technologies is not the answer. In the words of economist, Joseph Schumpeter, Innovation doe
not "consist in either inventing anything or otherwise creating the conditions which the enterprise exploits.
It consists in getting things done."   

The greatest challenge to energy efficiency is not to make an already economically rational decision even more so. It's overcoming the biases that give shape to policy, investment, and entrepreneurial activities favoring more expensive and less developed alternatives.

Until everyone involved–researchers, entrepreneurs, investors, corporations, and policy makers–acknowledge these challenges, the best, cheapest, and most abundant alternative energy available will go untapped.

1 thought on “One of the great innovation challenges: Energy Efficiency

  1. Alternative energy is extremely important in today’s global scenario. Many countries around the world have signed the Kyoto Treaty, which actively seeks to reduce pollutants and greenhouse gases on a global scale.
    And this is where alternative energy sources play a vital role – in preserving the earth’s ecological balance by generating energy that doesn’t use fossil fuels, thereby conserving these non-renewable resources. This in turn significantly reduces the toxic byproducts released by fossil fuels during the energy generation process.
    Putting it simply, alternative energy is energy derived from sources other than the conventional fossil fuel sources of oil, natural gas and coal. When we say fossil fuels are nonrenewable it means that they’re limited and will gradually run out, making the process of accessing them expensive and hazardous to the environment.
    If we want to repair and undo some of the environmental damage we have wrecked on our planet, our future needs to look green. And it has to start now, with our governments and ourselves… A good starting point is to switch to homemade solar and wind power systems.

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