Energy Efficiency Delivers Lower than Expected Savings

From the U.S. Energy & Climate Roadmap, Energy Policy Institute at the University of Chicago
Sources: Boomhower & Davis, “Do Energy Efficiency Investments Deliver;” Burlig, Knittel, Rapson, Reguant, and Wolfram, “Machine Learning from Schools;” Allcott and Greenstone, “Measuring the Welfare Effects;” Christensen, Francisco, Myers, and Souza, “Decomposing the Wedge;” Graff-Zivin and Novan, “Upgrading Efficiency and Behavior;” Fowlie, Greenstone, and Wolfram, “Do Energy Efficiency Investments Deliver;” Davis, Fuchs, and Gertler, “Cash for Coolers;” Davis, Martinez, and Taboada, “How Effective is Energy-Efficient Housing;” Davis, Fuchs, and Gertler, “Cash for Coolers.”

Energy efficiency measures are often an attractive climate policy because using less energy offers a win for consumers in the form of lower energy bills and a win for the climate through lower greenhouse gas emissions. However, mounting research suggests that energy efficiency programs substantially underdeliver on their promises to reduce consumption. Across a sample of nine empirical evaluations of energy efficiency programs in the United States and Mexico, which spanned a range of programs and contexts, the most optimistic found energy efficiency upgrades delivered only 63 percent of expected savings. Further, several studies of the flagship U.S. residential energy efficiency program, the Weatherization Assistance Program, have found it to be less effective than expected—delivering 58 percent of expected savings in Wisconsin, 51 percent in Illinois, 50 percent in California and 38 percent in Michigan.

These programs’ failure to deliver is due in large part to overly optimistic energy savings predictions from engineering models. This has real consequences: because they generate far lower energy savings than expected, the costs of the programs often end up being substantially higher than their societal benefits. The Weatherization Assistance Program, for example, has an annual rate of return of -7.8 percent. As policymakers look to further invest in energy efficiency programs, they should build in ongoing evaluations of the programs, in order to identify which upgrades are and aren’t working. This would enable them to invest only in the energy efficiency upgrades that are cost-effective moving forward.

Areas of Focus: Energy Markets
Definition
Energy Markets
Well-functioning markets are essential for providing access to reliable, affordable energy. EPIC research is uncovering the policies, prices and information needed to help energy markets work efficiently.
Energy Efficiency
Definition
Energy Efficiency
Improving energy efficiency is lauded as a promising way reduce emissions and lower energy costs. Yet, a robust body of research demonstrates that not all efficiency investments deliver. EPIC faculty...
Making Energy Efficiency Work
Definition
Making Energy Efficiency Work
Funding should be allocated to the energy efficiency programs that are most cost-effective based on independent and rigorous real-world evaluations.