Energy Productivity Can Fix Our Economy

Increasing America’s energy productivity is critical to jumpstarting our economy, according to a non-partisan commission report released today, but understanding why requires a closer look at the factors that caused the recession and how more energy efficiency can reverse them.

The Alliance to Save Energy’s “Commission on National Energy Efficiency Policy” is recommending a number of proposals that fall within three major strategies for reaching the “aggressive but achievable” goal of doubling U.S. energy productivity – the economic bang we get for the amount of energy used – by 2030.

The independent panel, which includes NRDC President Frances Beinecke as well as government officials and private interests, believes energy productivity can be dramatically increased with more investment, modernized infrastructure and reformed rules, and strengthened education and engagement of the public and policymakers on ways to accomplish this goal. The commission says this framework for driving energy efficiency in all sectors of the economy could add over a million jobs, cut carbon pollution by one-third, and save every U.S. household more than $1,000 annually.

And just how will that occur? Consider that economists from all sectors of the ideological spectrum, from right to left, agree that the recession from which we are still trying to recover was caused by these seven factors that eliminated jobs and held back growth:

• The mortgage meltdown
• Government deficits
• The risk of inflation
• The large trade deficit
• The low savings rate
• Weak consumer/business spending
• Too few American jobs: production being outsourced abroad

All of these problems were exacerbated by unnecessarily slow growth in energy efficiency – a consequence of the failure to pursue the types of policies recommended by the commission – over the past 40 years. And all would be greatly ameliorated under the commission’s proposals to finally address the critical role energy productivity has in correcting them. For example:

• The mortgage default crisis was caused in large part by defaults by households in transit-deprived urban sprawl subdivisions where the cost of personal transportation and utilities over the life of a 30-year mortgage exceeds $400,000—more than double the amount of the mortgage. And many people took on this immense financial burden not because they loved sprawl or high utility bills, but because the bank would not loan them enough to buy a more efficient home in a walkable neighborhood. The commission’s recommendation to consider reductions in energy and transportation costs in qualifying for a loan will open up the financing needed to make homes more affordable and more efficient – and to allow the younger generation to “afford” to buy a home somewhere that they actually want to live. NRDC, in partnership with other nonprofit organizations, initiated this idea over 20 years ago.
• The government allows companies to write off some $600 billion in energy costs every year, a figure that is predicted to grow. If America doubles its energy productivity, this write-off will be cut in half, and the deficit will be cut by over $100 billion a year. That’s more than a $1 trillion reduction in federal borrowing in 10 years—equal to a quarter of the bipartisan national goal of $4 trillion.
• Inflation has gone hand-in-hand with energy price escalation. By reducing demand for energy through efficiency, our cheapest and cleanest resource, energy prices will drop and inflation will be less of a problem.

Doubling energy productivity will also reduce the trade deficit and create local jobs, as well as save money for consumers and businesses. (For further details, see my book Invisible Energy.)

Looking at it another way: If too-slow growth in energy productivity since 1973 helped cause the recession, accelerating energy productivity not only promotes jobs and growth, it is critical to get us out of the trouble that led to the economic collapse of 2007-2008. Without better energy productivity – and the national, state, and local policy reforms the commission recommends – we’re doomed to repeat the mistakes that caused the recession.

Fortunately, implementing the policy recommendations made today is not difficult. Most have already succeeded where they have been tried. And they shouldn’t be politically controversial either: at the state level, the leaders in making these policies work have included both Republicans and Democrats. Putting these strategies into place nationwide will promote increased consumer choice, better functioning markets, and improved productivity not only of energy – but of the entire economy.

This post was also published in the National Journal.