The Profit Angle: Amory Lovins on how energy efficiency makes economic sense

By March 9, 2009Uncategorized

The problem, says Amory Lovins, the chief scientist at the Rocky Mountain Institute, is a simple one: energy inefficiency. If the U.S. could use existing energy more efficiently, he figures, the country could eliminate the need for about one-third of its existing electricity supply.

Mr. Lovins, who has advised the energy and other industries as well as the federal departments of Energy and Defense, talked to The Wall Street Journal’s Alan Murray. Here are edited excerpts of their discussion.

It Pays to Be Efficient

ALAN MURRAY: [You say efficiency is cheaper than fuel.] So if it’s profitable, why do we have a problem? Why doesn’t the profit incentive solve the problem for us?

AMORY LOVINS: Over time it does, and we are seeing the sheep and goats divide nicely between the companies that understand this is one of the highest-return/lowest-risk investments in the economy and those who don’t.

MR. MURRAY: You’ve been spreading this gospel for 30 years. Do you feel like the climate has dramatically changed today?

MR. LOVINS: Yes. High prices and security worries and climate concerns — all that stuff gets our attention. Price is not the only way of getting attention. Of course we should price carbon, but it’s not sufficient. If you get the prices right, but don’t enable people to respond to price, not much happens.

[The Journal Report: ECO:nomics]Genesis Photos

Amory Lovins

MR. MURRAY: I did want to ask you the difference between $140-a-barrel oil and $38-a-barrel oil in terms of incentives for energy efficiency.

MR. LOVINS: It doesn’t make any difference to the efficiency that we’re talking about, because it’s cheap. What it does is make stupid supply-side projects go away. That’s good.

And it helps take Putin and Ahmadinejad and Chavez off our payroll. That’s good. It keeps more of our treasure at home. That’s good.

MR. MURRAY: You talk about getting us entirely off of oil by 2040.

MR. LOVINS: 2040s

MR. MURRAY: 2040s. And that’s strictly on the efficiency side?

MR. LOVINS: No, it’s half efficiency. This is all in a study we did for the Pentagon called "Winning the Oil Endgame," which is free at It shows how to redouble the efficiency of using oil, which we’ve already doubled since ’75. We can double it again at an average cost of $12 per saved barrel. The other half of the oil we can then replace for an average $18 a barrel — a little over half with natural gas and the rest of it with advanced biofuels.

MR. MURRAY: So you’re not counting wind, solar.

MR. LOVINS: That has essentially nothing to do with oil. There’s only a 2% connection between them. We could increase that in theory to 30-something percent with electrified vehicles. But that takes decades and it’s not cheap, although it can be very advantageous if you do it right.

We Can, but Will We?

MR. MURRAY: This is something you think we can do. Is it something you think we will do?

MR. LOVINS: I think so. In fact, we found that the transition beyond oil can/should/will be led by business for profit because the spread between the average cost of eliminating oil, $15 [a barrel], and whatever the price is, is profit for the solution providers.

MR. MURRAY: You don’t need a price on carbon. You don’t need…

MR. LOVINS: These things would be very helpful and appropriate, not essential, not sufficient. But I think the heavy lifting will be done by people for their own profit motive. And that’s fine with me. In other words, government should steer, not row. It’s nice if government steers in the right direction. But we found we would not actually need any new energy taxes, subsidies, mandates, federal laws or anything else either party doesn’t like or could mess up, because the business case is so compelling even without them.

MR. MURRAY: I still find it hard to understand why, if this is money laying on the street, there aren’t more people leaning over to pick it up, or haven’t been more people leaning over to pick it up before now.

MR. LOVINS: Well, have you noticed that in 2006, for example, U.S. use of oil and coal and energy went down? Well, it happened because we cut energy intensity faster than the economy grew. That was with 48 states rewarding utilities for selling you more energy and penalizing them for cutting your bill. That’s just as dumb as it sounds. We need to stop doing that.

MR. MURRAY: So that would be one of the top things on your agenda — decoupling.

MR. LOVINS: Decoupling and shared savings. It is the biggest lever for saving electricity and gas.

MR. MURRAY: Can you name three or four other things that, in your mind, are as significant as that in advancing the cause of energy efficiency and getting us to your 2040s goal?

MR. LOVINS: A very important one would be to pay our architects and engineers for what they save, not what they spend. This is called performance-based design fees.

MR. MURRAY: But there is a short-term, long-term issue here.

MR. LOVINS: No. There is no correlation whatever between the efficiency of buildings and their price. The paybacks we see on new buildings are essentially all negative. That is, if we’re doing a new class A office, we’ll save 80% or 90% of the energy and it’ll work better and look better and you’ll feel better, healthier and more productive, but it’ll cost 3% to 5% less to build.

MR. MURRAY: So you see there are no trade-offs here?