Can you talk a little about the cost of energy efficiency upgrades and its role in climate change mitigation?

If you look at the way in which countries have committed to greenhouse gas reduction around the world, about 70 percent of the promised reductions in almost every country’s plan are supposed to come through energy efficiency upgrades. This is because, in theory, we all have access to new technologies that increase the efficiency with which we use energy so we can get the same outputs with fewer inputs. There have been many engineering studies supporting this idea and suggesting that, while achieving important climate benefits, consumers also benefit from savings as the energy efficiency upgrades pay for themselves with things like reduced utility bills or increased miles per gallon in cars. From an economist’s perspective, however, we question why we are not seeing more energy efficiency technologies being adopted if these energy efficiency upgrades are actually negative costs. One prominent hypothesis is that these engineering models are over-promising savings.

Can you talk a little bit about how your research explored that hypothesis?

My team worked in the California school system because the state legislature passed a bill that ended up funneling a billion dollars toward energy efficiency upgrades in their schools. The timing presented us with a perfect opportunity to go in and use these schools as our lab. As you can imagine, however, measuring the effectiveness of upgrades is super challenging for a host of reasons. But one thing we were able to in this project was to build on machine learning techniques from the computer science literature to measure hourly data consumption at all the schools. The challenge here was that we then had millions of potential models that we could construct to try and explain energy consumption and it’s very hard to think about the right way is to choose among those models. But we were able to use decision learning architecture to do that, which was very exciting.

What were your findings?

We found that the energy efficiency upgrades were under-delivering to some extent. Our main estimate found that average energy efficiency upgrades provided between 70-78 percent of expected savings. This may not be as bad as what some other studies have found—which is closer to 50 percent of expected savings—but it still resulted in a glass-half-full scenario. When you look 50 years down the road at what we are trying to achieve in terms of reduced GHG, we now have to consider that we are only getting three-quarters of the expected savings from efficiency upgrades. This has serious implications for global investments and the overall focus of climate plans and strategies in jurisdictions around the world.

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