Energy Efficiency

Robert U. Ayres, Prof. Emeritus, INSEAD

• Energy Efficiency – Why?

• Economic importance• Where do we stand?• What can be done?

Economic Importance

• Labor and active capital cannot function without energy• Useful energy (exergy) can do work and is productive. Waste

energy is unproductive and may be harmful. • Useful work = total exergy input X conversion efficiency.• Economic activity is strongly correlated with efficiency. • Higher efficiency => lower prices => increased demand =>

economic growth. • Possible problems “rebound” and “backfire”. Example: energy

use by ICT. Counter example: housing, automobiles, where energy cost is small compared to other costs.

Where do we stand?• The economic system can be divided into four major

sectors. They exhibit very different efficiencies: Current US efficiencies are estimated as follows:

Sector USEIA’s Estimate

Ayres’Estimate

Electric power generation and distribution 33% 33%

Industrial sector 80% 30%*

Transportation services 27% <1%*

Residential and commercial buildings 80% 10%

TOTAL 42% 8%

* (consistent with other engineering studies)

What Can be done?

• Education; increase understanding • Supply side: encourage CHP (compare Denmark vs.

ROW), subsidize renewables for a while (Germany)• Demand side: stop energy consumption subsidies;

discourage private cars, encourage ESC, car-sharing, public transport, bicycles, etc.

• Standards for products (e.g.California vs. ROUS); • Level economic playing field: taxes to reflect cost of

externalities; active anti-trust policy