Elusive Efficiency, cont.

Culprit: Confusion

So if these gains are waiting to be made, what’s holding up the great ef­ficiency revolution?

One culprit seems to be confusion. Consumers face a challenge con­necting big, abstract gains with more familiar day-to-day decisions, such as installing CFL lightbulbs. And Americans are—for now, at least—so muddled about energy and efficiency that we’re largely unable to identify best choices about how to cut consumption.

Last year, a research team led by Shahzeen Attari at Columbia Univer­sity’s Center for Research on Environmental Decisions surveyed 505 subjects to assess their perceptions of energy consumption and savings for a variety of household, transportation and recycling activities. The team found that subjects sometimes overstated the impact of visible actions that offered relatively little energy savings, while profoundly underestimating the impact of less-visible steps that saved 10 or even 100 times more energy. While the test did not formally include cost estimates, the data suggest that respondents tended to underestimate choices with bigger impacts that were more costly.

Interestingly, respondents who identified themselves as eco-minded tended to be less accurate than the general public. Emphasizing that the study wasn’t testing the causes of these misconceptions, Attari points out, “The well intentioned may focus on behaviors that they do, and pay less attention to the ones they don’t do.”

But the study offers one piece of the puzzle to help encourage efficiency: Enlighten consumers about their consumption. Some utilities, for example, are tinkering with household gizmos designed to deliver data to residents so they can see their energy use. That kind of personalized instant feedback on gains made may be just what people need to make pursuing energy efficiency seem worth their while—particularly if reducing energy use is tied to something that makes a difference to them.

“Go after what matters most to a consumer,” says Attari. “If they care about security, talk about energy independence. If they care about economics, talk about cost savings. If they care about their grandkids, talk about protecting future generations. If they care about biodiversity and species extinction, talk about polar bears.”

Set the Pace

Consumers are quick to state a willingness to pay for green features. But in practice, another impediment to adopting energy efficiency measures is our aversion to paying large amounts up front, even if the investment promises long-term savings. High costs, such as the price tag for insulation or a new, energy-efficient furnace, can be a barrier to major green upgrades.

Some cities have pioneered an innovative solution to this problem. Adapting a model historically used to pay for sewer systems, sidewalks and other public works, planners in Berkeley, Calif., devised an ap­proach—called Property Assessed Clean Energy, or PACE—that finances the up-front costs of big-ticket efficiency investments by issuing a bond. Property owners can, in turn, borrow those public funds to pay for green upgrades. To pay back the loan, homes that tap into PACE funds see their taxes rise incrementally over 20 years.

“PACE helps consumers get past the hurdle of paying up-front costs,” said Claire Danielle Tomkins, director of research at the Carbon War Room, at the Business Climate 2010 conference in New York recently.

To date, more than 20 states have passed laws enabling PACE pro­grams. Perversely, however, Washington has stymied the progress of PACE deployments. In the wake of the global financial crisis, federal authorities are blocking mortgages attached to PACE bonds, arguing that the added payments increase a borrower’s monthly costs and thereby add risk to still sickly mortgage markets.

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Towering Savings

Empire State Building

Businesses are, by and large, more successful than consumers at identify­ing and harvesting efficiency opportunities. They typically have bigger energy bills, making rewards from efficiency investments proportionally larger. They also have deeper pockets, and more sophisticated financing options to fund upgrades.

But many of the same psychological hurdles beleaguer commercial efforts. In New York City, for example, buildings account for 80 percent of energy consumption. Yet in the city’s largest and most energy-intensive structures, space is typically owned by a landlord and leased by a tenant—a disastrous mismatch for efficiency investment. For one thing, energy costs are typically apportioned by office size rather than energy consumption, so there is little reward for investing in more miserly office gear. For another, landlords own the key energy-consuming equip­ment, such as the central air conditioning units, but pass their energy costs onto the tenants—so they don’t enjoy the reduced costs of their improvements, either. Fixing this “split incentive” problem is one of the greatest challenges facing the commercial building sector.

Time to take a lesson from an icon. The Empire State Building, as part of a $500 million renovation, is undergoing one of the most ambitious green retrofits ever. The goal: to cut the building’s total energy use by 38 percent or more.
The $20 million job includes high-tech upgrades to the building’s windows, eleva­tors, and heating, air conditioning and other mechanical systems. But planners are also aiming to right the split incentive problem. Each tenant will have a meter, and will be billed for actual energy consumption. And all tenants will see anonymized information comparing their performance against similar tenants, along with tips on how to shrink their use.

“A law firm on one floor will see what other firms in the building are using.” says Clay Nesler, vice president of global energy and sustainability at building technol­ogy and energy services supplier Johnson Controls. “Competition is a powerful motivator. Studies show you can get 5 to 15 percent savings just by providing better information.”  –Adam Aston