A similar pattern followed world wide. As the Center for Economic and Policy Research put it: "The last 25 years have seen sharply reduced economic growth and reduced progress in health and education outcomes for low- and middle-income countries in comparison with previous decades".

Essentially he said that the market is allocating capital to energy efficiency projects now.  Consumer's hurdle rates for investment are 20-30%. But limits to credit and consumer preferences (i.e. paying for kids college vs. buying more efficient appliances) keep consumers from exploiting all available "negative cost" savings.  

http://www.cera.com/aspx/cda/client/report/reportpreview. ...=

Unfortunately the report is only available to CERA clients.  

Which would suggest that consumer-side energy investments have to mostly come from places other than price driven consumer demand. You can do a full home climate control efficiency upgrade in a residence for 3,000 to 6,000 dollars. There are ~100,000 million household in the U.S., so this is about 300-600 billion dollars. Put in a payback mechanism that comes only out of the difference between the new utility bill and what that same bill would have been without the investment. Or if that is not enough incentive, let that payback be for only half the savings.

That said, consumer purchases are rarely purely financial - or else consumer product marketing wouldn't be so damned effective.  But those intangibles are just as likely to help a consumer justify a marginally economic investment that is good (think PV panels on the roof in VT) as one that is bad (think SUVs).  But 20 - 30% hurdle rates at core strike me as an academic theory rather than one based on hard facts.

and "Typical consumer implicit discount rates for energy efficiency investments are in the 20 to 30 percent range."  

Sean's comment demonstrates why there are no "negative cost" "free lunches".  Sean's customers desire a 2-yr payback (40% return). Average return on capital is more like 15-20%, with cost of capital for most large companies at 8-10%.  So what gives?  Are the company managers and owners just too stupid to go out and borrow money to hire Sean's company to eat the free lunch?  

This is the gist of CERA's paper, proponents of "negative cost" commit a serious logical error.  They propose a cap and trade market based system that employs market forces to reduce emissions.  To work this requires a properly functioning capital market. But on the other hand they claim there are "free lunches" without any price of carbon (think CFC light bulbs), which means that markets must NOT be functioning properly, otherwise consumers and companies would be eating the free lunch.

It can't be both.

In the real world (not the one that Mr. Roberts apparently lives in) there are limits to the amount of capital available for energy efficiency. There are also consumer preferences. People sometimes chose to spend their money on other things, like college education or sports tickets, or whatever else.  Companies know that energy prices can be highly volatile.  They demand 2 year payouts because energy prices can change unexpectedly.  What was oil selling for 2 years ago?

This whole "free lunch" brings up a related topic. Energy companies themselves require lots of energy to produce and refine energy products. As the price of crude, natural gas, and electricity rise energy efficiency projects become more attractive - unless congress does something stupid.  

Slapping a "windfall profits" tax on oil companies will RAISE the after-tax hurdle rates required for energy companies to make efficiency improvements, discouraging investment.  Energy companies have the cash flow, knowledge, and ability to improve energy efficiency. They can add combined heat and power projects, install gasifiers to turn lower valued products and biomass into steam, power, and hydrogen.

Extraordinary taxes whack "green projects" as well as the "black" ones.

Once solar panels, geo heat exchange, plugin hybrids, wind machines, smart grid storage, and biogas backup pay for themselves with savings.  All the energy after that is free.

People will still pay for it and that will make investors very successful.  But there will always be enough free energy to meet demand, so inflation will stop at the root.

Maybe this is why they never had money on Star Trek?  Hehey.  

http://amazngdrx.blogharbor.com/blog John Schneider, Northern Wisconsin

Same idea about "free energy" first spend a lot of capital on wind or solar, then everything after that is free.  Try taking your solar plan down to the bank to see if they will loan you the money.  There is no free lunch.  

And don't get me started on "green jobs", that is another myth.

Sounds like a free lunch after a few years.  Yippee!

Conservation is even cheaper.  Wind and biogas are cheaper too.  It's all in the mass production efficiencies impelled by subsidies and low interest loans for low income people facing real disaaster from rising energy prices.

These loans will be solid too, no mortgage buuble, they are backed by cleaner cheaper energy.

http://amazngdrx.blogharbor.com/blog John Schneider, Northern Wisconsin

From photocopy machines to hospital cafeteria services, there are no shortage of business activities that demand high rates of return for their owners or else won't be built, because they are out of their owner's core activities.  As such, the owner (1) perceives those activities to be higher risk, therefore demanding higher return and (2) pulls their best staff away from those activities so that they can focus on their core.  (If you are the energy plant manager at a major industrial, you are "topped out" in terms of career progression.  Boiler operators don't get promoted to CEO, no matter how good they are.)

In a rational world (see: photocopiers and hospital cafeteria services) this represents a beautiful opportunity for outsourcing.  IKON shows up at my office.  Sodexho shows up at the local hospital.  Both of them see an opportunity to invest their money in high return projects and leave enough savings for their customers.  Their customers like it because they get lower copying/cafeteria costs.  IKON & Sodexho shareholders like it because they get good returns on their investment.  And society marches forward.

The problem with energy isn't that these projects are innately high return - it's that we have a regulatory minefield that makes it impossible to develop an outsourcing model.  In 13 states in the country, you are forbidden from selling kilowatt-hours unless you are the regulated monopoly utility.  That's a pretty safe way to ensure that no one comes along to build cogen/solar/etc. in those states in spite of the high returns.  In all 50 states, it is a felony offense to run a privately owned wire across a public thoroughfare - meaning that if the optimal size for a local power plant is larger than the needs of the facility, the only way to sell the power is to pay rates set by the distribution company.  (It is as if you wanted to get into the orange juice business, but had to use all of Tropicana's distribution trucks.  Do you think Tropicana would give you a fair pricing schedule on the trucks?  Neither do the utilities.)  In all 50 states, the requirements to interconnect to the power grid are set by the utility, who gets to set the rules for capital you pay for, creating a massive misalignment of interest.  I could go on and on - but the proof is in the pudding.  Where is the great entrepreneurial success story in the energy outsourcing business?  Where is the analog to Dell Computer, Federal Express?  Elsewhere.

And this, at core is the key.  Not that there aren't free lunches - there most definitely are.  We've identified $350 billion worth of investment opportunities in the US alone that would all lower energy costs and would all reduce CO2 emissions.  Total US CO2 emissions would fall by about 20% if that potential was fully deployed.  It doesn't need a subsidy.  But it does need a fix to the regulatory rules that keep entrepreneurs out of the electric sector.  (And this is equally true for the stuff that is traditionally subsidized.)

I think CERA would agree with you in that changing the regulatory model would relieve some inefficiencies and perhaps create some free lunches to eat.  But their paper was written with the existing regulatory structure.  Unfortunately the badly enacted deregulation in California and subsequent gaming of the system by disreputable companies likely ended any nationwide effort to change the rules.  

We have deregulated generation and retail power here in Texas.  In the past 2 months, 3 REPs have gone out of business.  Retail electric prices are higher than average here because there are barriers to adding low-cost (coal) supply.  Natural gas sets the marginal price.  

Electrical power is a critical resource.  Without it you can't do business.  If the price overnight doubles or triples (like it did to the customers of the bankrupt REPs in Texas) that can badly damage a business.

On paper it might make some sense for a third party provider to come in and provide electrical services or do EE project savings.  But there is always a risk factor for non-performance.  

I am considering a "free lunch" myself.  I can replace a piece of equipment at my home for about $1,000 that will save $900 - 1,300 in electricity the first year.  I have the $1,000 or could easily get it, yet I haven't made the investment yet.  If I make that $1,000 investment I don't have $1,000 for something else, or for an emergency.  Every day I wait a bit more of the "free lunch" disappears.  Yet I can't decide.  Am I being irrational too?