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Money Talks, Thermal Plants Walk

Why it pays for utilities to be more efficient.

Fortnightly Magazine - June 2007

in the private market. That, too, is as it should be.

The Kyoto Protocol is a worthwhile start, and I think we will end up with a carbon cap-and-trade system. I hope we won’t indulge our penchant for ancestor worship through grandfather clauses, because economic theory correctly tells us that a CO 2 molecule emitted by an incumbent is exactly the same as a CO 2 molecule emitted by a newcomer. They should both have to pay the same for the privilege of emitting it.

That said, although I think pricing carbon is correct and helpful, we can achieve most of the same results simply by helping markets work properly.

Fortnightly: Do you still believe that we can attain a green future and save money at the same time, or are you resigned to the idea that reforming the world’s energy policy will prove to be very expensive?

Lovins: The costs are negative. We’re going to make trillions of dollars on the deal, as quickly as we care to implement.

Most economic theorists assume that global energy intensity will continue to decline by about 1 percent a year. If we could make that 2 percent a year, we’d stabilize carbon emissions, and if we could make it about 3 percent a year, we’d stabilize the climate rather quickly, to the extent that irreversible changes aren’t already underway.

Could we actually contemplate 2 or 3 percent a year reduction in global energy intensity? Yes, indeed. The United States has routinely done about 2.5 to 3.5 percent a year without trying. Last year we did 4 percent. Attentive companies routinely and very profitably reduce their energy intensity by 6 or 8 percent a year. So, since we have so many examples of diverse entities reducing energy intensity 2 to 3 times as fast as needed to stabilize the climate, and since they all make money on the deal, why should 2 or 3 percent a year be hard, or costly? There’s no empirical evidence whatsoever that either of those should be true. They’re simply theoretical assumptions, contrary to all the facts we have.

Fortnightly: You’re a consultant for Wal-Mart. You also consult for the Department of Defense. What can utilities learn from those entities?

Lovins: There’s something to learn from DOD in efficient use, but even more on the supply side, because the Pentagon is the biggest global buyer not only of oil but also of renewable energy, and aims to become more so, partly for reasons of resilience and security of supply. Most bases depend on the public power grid for their electricity, and the military is concerned that’s not good enough to ensure mission continuity.

Wal-Mart is a great example of private-sector leadership. We worked on both their heavy trucks (of which they have the biggest private fleet) and their stores. In the case of trucks, based on our work they simply announced that they’re going to double the efficiency of their fleet. The suppliers have re-sponded magnificently in figuring out how to do that profitably for all concerned. Wal-Mart will