Lack of Energy Efficiency Holds Back Entire Economy, Says ACEEE

It turns out that the US economy is not especially energy efficient, according to new research from the American Council for an Energy Efficient Economy.

Of the total high-quality energy consumed to support economic activity in 2010, only 14 percent was converted into useful work (the conversion efficiency). In other words, the American economy wasted 86 percent of all the energy used that year in the production of goods and services, according to the report Linking Energy Efficiency to Economic Productivity: Recommendations for Improving the Robustness of the U.S. Economy.

The report posits that energy efficiency measurements must look at exergy versus anergy. Exergy is the valuable part of energy, which can be converted into useful work. Anergy is essentially the useless part of energy such as the heat from an automobile engine that might be dumped into the atmosphere. “Consistent with the laws of thermodynamics, total energy (exergy plus anergy) is constant and is always neither created nor destroyed. Exergy, however, can be degraded as it is used and dissipated into anergy,” states the ACEEE report.

When properly measured, the conversion efficiency has flattened in the last several years. The lagging rate of efficiency improvement may be among the critical reasons for a slumping economy.

Starting at 8 percent in 1950, the rate of exergy conversion grew four percentage points from 8 to 12 percent by 1980, averaging a 1.45 percent rate of improvement in that time. Economy-wide productivity increased an average of 2.25 percent per year during that same 30-year period. Over the next 30 years through 2010, however, the conversion efficiency grew only two percentage points or half the total in the previous three decades. The average rate of efficiency improvement fell to just 0.41 percent per year even as economy-wide productivity slumped to 1.72 percent annually. When spread over a 30-year period, even a few tenths of a percentage point can have a very big impact on the productivity and the size of the economy.

In 2010, for example, the actual size of the nation’s Gross Domestic Project (GDP) was an estimated $13,240 billion (measured in constant 2005 dollars). Had the economy maintained a productivity improvement of 2.25 rather than 1.72 percent over the period 1980 to 2010, the nation’s GDP would have grown instead to an estimated $15,510 billion (also in constant 2005 dollars). In other words, a very small change in productivity would have meant an economy that was about $2.3 trillion larger than we actually recorded in 2010.

The report suggests the annual productivity of the economy may weaken even further without investment policies that improve exergy efficiency, and that further growth in GDP may hover closer to 2 percent per year rather than the 2.6 percent that might be otherwise projected, or even the 3.0 percent many expect or hope for.