Image: McKinsey & Co.

A new report by the consulting firm McKinsey & Co. shows that with $520 billion invested in efficiency the U.S. could cut our collective national energy bill by $1.2 trillion, a $700 billion return on investment. The firm also called energy efficiency the most compelling way to fight climate change and reported that 40% of U.S. emissions reduction potential comes from energy efficiency. This means that we can dramatically reduce our carbon emissions while also saving money and creating jobs.

The investment would cut U.S. energy consumption by approximately 23 percent, a savings “greater than the total energy consumption of Canada” said Ken Ostrowski, a senior partner at McKinsey. These gains could be made across the board in all sectors, although the report did not look at transportation. The residential sector accounts for about 35 percent of the possible efficiency savings, the industrial sector accounts for about 40 percent and the commercial sector about 25 percent.

The report did not factor in a price that could be imposed on greenhouse gasses. If carbon emissions were priced at $30 per ton it would lead to an additional 8 percent savings.

The McKinsey study outlines recommendations in four main categories:

1. Increasing awareness and education: Increasing knowledge about energy saving methods and opportunities will motivate action and allow end-users to act more effectively to save money.
2. Increasing incentives and financing: Monetary incentives such as rebates, tax credits, grants and tiered pricing will spur action, as will increased access to financing for capital expenses.
3. Changing codes and standards: To capture all of the efficiency potential it may be necessary to mandate upgrades. This could include stricter building codes and efficiency standards for appliances and equipment.
4. Third-party involvement: A private company, utility, government agency or NGO could purchase and install energy efficiency improvements directly for the end-user.

The study also identified a number of barriers to achieving the full $1.2 trillion in energy savings. The first would be cost, as this would represent many times the energy spending of the stimulus package, and would have to be maintained for a decade. Many consumers would not have the money for upgrades, even if they would eventually see full payback. There are also issues around who makes investments and who reaps the benefits. In many situations landlords, both commercial and residential, would have to make capital improvements, but it is their tenants who save on the bills.

Despite these obstacles, the report makes it clear that investing in energy efficiency has the potential to save America billions on our energy bills and is the fastest and cheapest way to cut our carbon emissions.

• Read the full McKinsey & Co. report for more information
• Related: “‘Carbon Revolution’ Can Slow Global Warming, Says McKinsey Study” (e-Newswire, 7/9/08)