America's Future: Austerity or Invisible Energy?

Steven Pearlstein argues in today’s Washington Post that the Great Recession was caused by America’s “liv[ing] beyond its means,” and that the day of reckoning has come. His forecast is for continuing economic pain of one sort or another: the only question is “how the burden is distributed.”

Pearlstein’s only note of hope is that we have the option of investing in infrastructure. But this would only help if the specific investments are attractive ones. Pearlstein does not distinguish clearly in his article between high-return infrastructure – such as education or high speed rail – and low-return options such as highways. Nor does he distinguish between private investments that either will be made—or not—regardless of public policy and public investments that are real choices to be made. And even then, he begs the question of how we will get the money needed for these investments.

What is missing from this analysis is a key factor: the role energy efficiency could play in getting us away from the Hobson’s choice of spending money we don’t have or else allowing the economy to drift. I discuss this problem in my book Invisible Energy; which has the title that it does because efficiency is invisible in the economic discussions in America despite its immense potential.

Invisible Energy shows how efficiency could contribute will over a trillion dollars annually to economic growth.

How can such an immense number be demonstrated? As Invisible Energy shows, the National Academy of Sciences, along with other scientific and business organizations, has estimated that efficiency could produce 30 percent of the energy America would otherwise need by 2030, even if we limit efficiency options to those where the technology is already available and where the costs are lower than business as usual. We spend about a trillion dollars annually on energy; a figure that without efficiency investment would grow to about $1.5 trillion a year, even if energy costs don’t grow.

So a 30-percent savings is worth about $500 billion a year! And even better yet, the costs of efficiency investment pay themselves back on average in just three years.

These facts mean that we could, as a nation, borrow the entire amount we needed to invest in efficiency from abroad and then pay back the entire amount with interest in three years. The benefits would continue to accrue for decades, however. This would lead to a self-sustaining economic recovery.

But it gets better than this. If we really reduce the demand for energy by this much, energy prices will come down. The logic is simple: If OPEC can raise prices by a lot by restricting supply by a little, America can cut prices a lot by limiting demand by a little. And a 30-percent savings is not a little.

There are immense environmental benefits in this course of action as well. To start with the most obvious—limiting the risk of oil spills—cutting demand, and therefore price, through efficiency will depress incentives to drill in dangerous, sensitive (and expensive) places either offshore or on-shore.
Furthermore, the 30 percent estimate of savings is just the tip of the iceberg. As you might expect, the National Academy of Sciences study and its companions were extremely cautious in estimating the size of the efficiency resource. This is not just my interpretation: the studies themselves say so explicitly.

How much difference would a realistic, as opposed to cautious, estimate make? In Invisible Energy, I show that if we change just one assumption in the Academy’s study—namely that efficiency is stagnant at 2008 levels—the efficiency resource doubles or triples in size.

So the economic stimulus can be several trillions of dollars per year.

It is time to break free of the dismal choices that dominate the economic dialogue. By looking at our problems in a bit more detail, making efficiency visible in the discussion, we can dig our way out of the recession with a lot less pain and austerity.