Insulation is Innovation

Bill Gates argues in a new blog that to meet long-term climate goals, we need to focus on the 2050 timeframe and emphasize innovation rather than efficiency. He poses the question: “Should society spend a lot of time trying to insulate houses and telling people to turn off lights or should it spend time on accelerating innovation?

NRDC agrees that we need innovation. But the idea that we should chose between insulation, or efficiency in general, and innovation is a mistake. Insulation and other energy efficiency technologies can achieve far deeper emission reductions than people realize. This is because innovation is not some reified concept that needs to be pursued for its own sake. Innovation occurs as a result of market motivations that occur in efficiency whenever market failures have been overcome by policy.

Mr. Gates is right that we need to keep the long-term goal of 80% reductions by 2050 in view when deciding what to do over the near-term, but interim goals are critical to making sure we stay on the path toward meeting our long-term goal. 

The single best thing our country can do to meet our 80% by 2050 goal is adopt federal interim and long-term carbon pollution limits.  Efficiency will play a key role in meeting these limits. And by adopting the policy mechanisms that meet the shorter term (for example, 2020) goals, we will be encouraging the bottom-up innovation that we need for the longer term. We will also increase the political consensus on the need for these policy mechanisms, as has occurred in nations and states that have adopted short term caps.

This policy-driven acceleration of innovation has worked in the insulation and home construction industries. Compared to the 1970s, insulation manufacturers now produce products with more insulating power than before. New and existing insulation companies have introduced more types of insulation as well. In addition, installers have developed ways to make better use of the products that are already on the market, saving more energy than they would have 30 years ago with the same products by significantly reducing air and moisture flows. If we promote insulation over the next five years, we can expect continuing innovation and improvement in its performance. This improvement will be reflected in a combination of greater cost savings to the consumer—both in the form of lower construction costs for the retrofit and greater energy savings, reduced fuel usage that will result in lower fuel prices for everyone, and reductions in greenhouse gas emissions. These reductions come on top of the reductions we would have had with the older technologies and methods.

Retrofitting a house today can save some 25% to 50% at moderate cost. But if we try to retrofit all the homes in the nation over the next 15 years, as U.S. Department of Energy proposes, and we do it in a market-based way that fosters competition between better insulation, more efficient furnaces and water heaters, better lighting and appliances, etc, we can expect that new technologies and construction methods will evolve even more quickly. With continuous improvement, this 25-50% savings will grow over time and accumulate to better than a 80% reduction compared to where we are today. It would be as foolish to bet against this as to bet that software in 2025 will be substantially the same as it is today. Similar arguments about continuous improvements in efficiency apply across all major energy consuming sectors.

Mr. Gates points out that the power generation and transportation sectors need to get to near-zero emissions by 2050. Actually all sectors do. But 70% of electrical generation is for buildings, so if we get buildings near zero, that action alone (and of course, efficiency policy can help industries as well as buildings) will reduce the need for generation is about one third of what it would be otherwise, a level which can be satisfied virtually 100% by renewable sources. And personal transportation emissions can also be reduced to near zero by a combination of improvements to fuel economy, increases in location efficiency, and the use of biofuels and electricity to fuel cars.

But these improvements won’t happen on their own. Markets for insulation don’t work well enough to support the needed levels of innovation. Even though insulation and other home retrofit techniques save far more money than they cost (and also increase comfort and safety), very few people take advantage of them. Most homeowners and virtually all renters have no idea about how to get a thorough home retrofit: how much insulation a house needs, how efficient it can become and how much lower the utility bills will be, and who is a reliable contractor. The same problems confront all other uses of energy and sources of greenhouse gas emissions. The challenge is to adopt policies that strengthen the market forces that will enable faster innovation in home retrofits and other energy efficiency technologies. But we know how to meet that challenge.

Mr. Gates achieved monumental financial success through innovation. But he did not establish the market structure that allowed his company to prosper. Quite the contrary, he succeeded by noting conditions in the market that would allow the innovative approach that Microsoft would use to work, and exploited that niche. Innovation proceeded for decades because software market conditions supported it.

Through government policies, we need to create the same market conditions for insulation and other clean energy technologies as we have for software and computers, where companies that innovate profit from those innovations and grow. When companies profit from innovation, they will do more of it.

Mr. Gates states that, “you can never insulate your way to anything close to zero.” Both theory and practice; however, show that, even with 1980s technology, we can build houses that use near-zero energy. Germany’s Passivhaus project cuts heating by at least 90%, and according to Wikipedia there are at least 15,000 such homes today. This is only one of many near-zero energy projects for both homes and commercial buildings. While it would be costly to extend this result to all buildings today, it also would have been costly to extend high speed internet service to all households in 1995. Just as with the industry cluster around home computers and the Internet, we can count on innovation and continuous improvement in the energy efficiency sectors if policies support it.

It is possible to make large reductions in energy and emissions throughout all sectors, not just housing. California has reduced electricity use per capita by 40% compared to the rest of the nation, making steady reductions that accumulated over 35 years to this large savings. And at the same time, the 60% that is left has been decarbonized by constructing 14% in new renewables and by replacing oil generation at moderate efficiency with gas at high efficiency.

Mr. Gates also says that the way to meet a 2050 climate goal is to focus on long term innovation rather than short term implementation.

No one makes decisions today for meeting 2050 goals in the business world. I’m confident that Microsoft is not paying people today to design 2050-vintage software.

No, innovation proceeds by designing something today that is just a little better than 2010 technology and trying to introduce it in 2011 or 2012, or maybe even as late as 2015. Current high tech products such as smart phones were realized by incremental innovations on a time scale less than five years, not by having planned in 1970 to sell a smart phone in 2010. Long term results are achieved by repeated innovations on 1- or 3- or 5-year time scales.

So establishing only a 2050 goal will have almost no effect on business.

The only entities that make decisions today that affect 2050 technologies are governments. Governments can make long term commitments to provide infrastructure, and fund research projects whose goal is long term technology innovation. Climate stabilization will require changes in these types of decisions.

The idea of producing a breakthrough in research on clean energy has been pursued for almost 40 years without success. Accelerating the spending on the belief that surely the next 40 years will work out better is not a prudent strategy. But on the other hand, national research has yielded dozens of examples of small scale efficiency and renewable energy improvement—incremental improvements—that have made a big difference. An expanded efficiency R&D effort, coupled with the policies that make the business sector interested in using the results, is a more effective and safe strategy than hoping for the winning lottery ticket.

The way to meet our climate goals for 2050 is first to set a carbon pollution limit for 2020, as the energy and climate legislation pending in Congress does. We will also need complementary clean energy policies such as more stringent building codes, appliance efficiency standards, renewable energy standards for utilities, and major investments in R&D and clean energy deployment incentives.  All of these policies are designed to foster innovation, and where they have been applied in the past, they have done so. A number of these policies are in the climate and energy legislation Congress is considering. 

Protecting our climate, and our economic health, will require more attention to pursuing efficiency and other clean energy options at the same time. Both will benefit from market-based policies that encourage innovation. Experts agree that energy efficiency is the largest, fastest, cheapest, and cleanest way to meet our climate goals and recharge our economy. The efficiency savings make us wealthier, and the policies that get us the efficiency will enable more, not less, investment in innovation for the shorter as well as the longer term. These savings are even more needed in poor countries (in terms of their economic as opposed to environmental benefits) than in the developed world.

Efficiency is the biggest and cheapest resource even if we froze technologies at current levels, which conventional studies always assume. But if we try to implement this resource through the policies described we will establish the engines of innovation that will enable it to be far bigger.

David Goldstein is co-director at the Natural Resources Defense Council's energy program. He’s also the recipient of the MacArthur fellowship and Szilard Prize for physics in the public interest. The issues discussed in this blog are developed in depth in his forthcoming book, Invisible Energy, which will be available in early February through Bay Tree Publishing.