Forget climate change. Energy efficiency makes sense simply from a business perspective because it can offer dramatic cost savings, says Chris Webber of the Economist Intelligence Unit
UK energy consumption: One of the factors highlighted by Chart 1 is that energy consumption is strongly pro-typical and this can be seen with the recessions in the 1980s and 1990s. However, there is a plateau point in the mid-2000s which is interesting because the economy is still expanding. That plateauing might be linked to energy efficiency.


UK fuel mix: The orange trend line in Chart 2 is coal's contribution to our energy mix over the past 40 years. There has been a dramatic decline in coal's contribution to energy in the UK - it has fallen from 31-32 per cent to about 3 per cent today. It has been straightforwardly replaced by the contribution to our energy needs of gas which has soared from about 3 per cent in 1970 to about 34-35 per cent today. Renewables contribute little to our energy mix at the moment. The Committee on Climate Change has been arguing for a rapid increase in the contribution of renewables to energy in the UK, although many people are sceptical about that and how it might be achieved.
However, in support of the argument that dramatic changes are possible in the fuel mix, it has clearly happened before, with gas for example. So this chart indicates the scale of the challenge, but also that it can be achieved.


Carbon emissions in Europe: Chart 3 shows that there has been a reduction in carbon emissions between 1970 and 2010 in the UK, France and Germany. However, the next chart is more interesting...


Carbon emissions in the US and China: Chart 4 shows the scale of the challenge on a global basis. What's happening in Europe is not so important when you compare it with what's happening in the US and China. What we do in the UK on climate change improvements on a global basis probably makes less difference than we would hope when carbon emissions are soaring in China and increasingly in the US.


Energy consumption by sector: The declining share of energy taken by industry reflects the industrial restructuring that has been going on in the UK over the past four decades.

Chart 5 shows that energy efficiency has improved in a variety of sectors across the UK in the past 40 years. The boost in industrial energy, in particular, is important and is linked to improvements in energy efficiency and technology.


However, it is also linked to the restructuring of the economy. The Committee on Climate change argues that, in the non-residential sector, there is still room for a 30 per cent improvement in the energy efficiency between now and 2030.

Energy experts believe that real energy prices are set to increase over the next 40 years. Cost savings are a key reason for carrying out energy efficiency improvements. Governments, their agencies and the media have linked energy efficiency to climate action, but the overwhelming case for energy efficiency is about cost savings.

The conclusions are:

• Energy efficiency is a no-brainer because it offers significant cost savings and potentially powerful brand benefits.
• UK businesses are making progress, but there is clearly more money to save through energy efficiency measures (estimated to be £1.6 billion per year).
• The environmental rationale for energy efficiency is questionable, but there is a clear business case to take it seriously.
• The scale of the Government's support (via its Green Deal initiative to support the implementation of energy efficiency measure) remains uncertain.

Energy efficiency benefits

• Cost savings
- Energy 'treasure hunts' have saved US company GE $130 million
- An estimated £1.6 billion per year still being wasted in UK alone

• Brand value and market differentiation
- 'Cutting carbon is a great environmental story, so customers will reward you for having low carbon credentials' Harry Morrison, Carbon Trust Standard Company

• Carbon emissions
- Energy efficiency measures are a cost effective way for firms to cut emissions...
- ...but they are not a solution for overall emissions reduction. A key way to achieve this is to clean up our energy systems so, for example, a shift away from coal is important, as is the growth in renewables. Energy efficiency is a relatively small part of the story. The Jevons paradox applies - this proposes that technological progress that increases the efficiency with which a resource is used tends also to increase (rather than decrease) the rate of consumption of that resource. So, becoming more efficient in the use of our energy doesn't necessarily mean that we will use less energy.

Just over two-thirds of the senior managers questioned by the Economist Intelligence Unit for a recent survey take steps to increase energy efficiency to achieve cost savings.

This article is based on a presentation given at an event in London to introduce 'Trane High Performance Buildings', a six-step approach from air conditioning manufacturer Trane to creating safe, comfortable and efficient buildings. www.trane.com/highperformancebuildings

• Chris Webber is senior editor at the Economist Intelligence Unit chris.webber@economist.com