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Energy Efficiency

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Fast Facts About
Energy Efficiency

Energy efficiency is providing the same or better service using less energy. Energy services are all the benefits we derive from energy use, such as illumination, thermal comfort, cooking, transport of people and freight, and many industrial and agricultural functions. Increasing end-use energy efficiency is often the least expensive and one of the most effective ways to meet demand for energy services while reducing energy consumption and the associated climate and environmental impacts. While it may be difficult to imagine energy that is not consumed, efficiency is an energy resource that plays an essential role in the journey to decarbonization.

Energy efficiency can be achieved through:

  • Whole systems design improvements using Integrative Design (best option)
  • Integration of more efficient components and materials
  • Control improvements
  • Electrification (of vehicles and of heating in buildings)
  • Elimination of waste
  • Behavioral incentives

Starting in the late 1970s, policy makers put in place important energy efficiency policies in response to energy shortages and price shocks stemming from the Arab Oil Embargo. Today, energy efficiency represents a market segment with over half a trillion dollars in funding. Thus, energy services delivered by efficiency gains represent a sizable global resource. 

Energy Efficiency as a Resource

Energy Efficiency Has Met More US Energy Services Demand Than Any Other Resource

of total US demand for energy services since 1950 has been met by energy efficiency

Energy Efficiency Has Significantly Reduced the Carbon Intensity of the US Energy System

the impact renewable energy generation has had on the reduction of carbon intensity in the US

Energy Efficiency is the Most Cost Effective Way to Reduce Greenhouse Gas Emissions

Efficiency measures like fuel efficiency and lighting system improvements lower demand for energy, improve energy services, and often result in cost savings to consumers. For example, the cost-negative decarbonization options on the McKinsey Cost Curve for Greenhouse Gas Reduction are efficiency measures.

Key Energy Efficiency Concepts

Integrative Design

The process of artfully choosing, combining, sequencing, and timing fewer and simpler technologies to optimize whole systems rather than components in isolation.

Downstream, End-use Perspective

Focus downstream, starting with the desired end-use service to be delivered, to compound upstream savings of energy and capital, and put efficiency before supply, passive before active, simple before complex. The design logic flows in the opposite direction to the energy flow.

Tunneling Through the Cost Barrier

When whole systems are optimized, big energy savings often cost even less up front than small or zero savings.

For example, spending more on thick insulation and good windows can reduce up-front costs by eliminating the need for central heating and/or air conditioning. Read this article about the RMI Innovation Center.


Energy Efficiency Can Be Applied Anywhere!

To understand the magnitude and location of efficiency resources, we first need to identify where and how energy is used. This data can provide a roadmap to finding and prioritizing potential savings anywhere we use energy.

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Pie chart showing estimated global electricity demand by end-use in 2006.

Electric motor driven systems use the most electricity globally. Most of them are in buildings (for heating, cooling, refrigeration) and industry (for pumps, fans, compressors, transport).

Examples of Electric Motor Driven Systems

  • Pumps and Fans (Residential, Commercial, and Industrial)
  • Large Home Appliances
  • Heating, Ventilation, and Air Conditioning (HVAC)
  • Conveyor Belts

Biggest Opportunities for Energy Efficiency

Residential and Commercial Buildings
  • Efficient building envelope (e.g., high performance windows, insulation)
  • Lighting - use of natural light, sensors, and LED lights
  • Improved HVAC systems and ducted or ductless heat pumps to replace natural gas or inefficient electric resistance heating
  • Electrification of space heating (conversion to heat pumps) and natural gas appliances (stoves, dryers, water heaters)
  • Efficient appliances and reduced standby losses
  • Electrification of high-, medium-, and low-temperature heat
  • Improved maintenance and monitoring of energy-intensive processes
  • Systematic recovery of waste heat
  • Pipe layouts that reduce friction
  • Changing pump / valve systems to pumps with variable speed drives
  • Valve and fitting improvements
  • Transition to battery electric and hydrogen fuel cells (EVs are ~3x more efficient than conventional gasoline / diesel vehicles)
  • Expansion of public transport infrastructure

Small End-Use Changes Can Yield Big Upstream Savings

Energy System Example 1 With Incandescent Light Bulb

System Efficiency = ~1% (35% x 90% x 3%)

Primary Energy
100 units of coal

Energy Conversion
Coal Power Station and Grid

power station

~35% efficient

Energy Currency

utility poles with power lines

~90% efficient

Useful Energy
Radiant Energy

incandescent light bulb

~3% efficient (incandescent light bulb)

Service Rendered
Lamp Output

person reading book with light from lamp

Energy System Example 2 With Ultra-Efficient Light Bulb

System Efficiency = ~10% (35% x 90% x 30%)

Primary Energy
10 units of coal

10x less coal than Example 1

Energy Conversion
Coal Power Station and Grid

power station

~35% efficient

Energy Currency

utility poles with power lines

~90% efficient

Useful Energy
Radiant Energy

LED light bulb

~30% efficient (ultra-efficient LED light bulb*)

Service Rendered
Lamp Output

person reading book with light from lamp

*In addition to being more efficient, LED light bulbs last up to 25x longer than incandescent bulbs. LEDs also emit very little heat, while incandescent bulbs release 90% of their energy as heat.

Limitations on the Energy Efficiency Resource

  • Technical potential - what is technologically feasible
  • Economic potential - what is economically feasible and cost effective
  • Achievable potential - what is realistic and acceptable for people’s comfort / convenience

Note that all of the above categories of efficiency potential tend to increase with time, technology development, and investment.

Where Energy Efficiency Measures Can Be Applied

  • Upstream - manufacturers, builders, standards organization
  • Midstream - retailers, realtors, distribution networks
  • Downstream - homeowners, building owners / operators, industrial facilities

Applying efficiency incentives farther upstream tends to provide leverage and compound the incentives; impact, while moving downstream, tends to simplify the measurement and attribution of savings. Both are valuable in efficiency programs.

Policy Vehicles for Improving Energy Efficiency

  • Federal and state-level building codes and vehicle and appliance efficiency standards, which are highly effective in removing the least efficient models in a product line from production 
  • Public information and labeling programs (e.g., Energy Star)
  • Financial incentives, such as tax credits
  • Federal low-income weatherization programs
  • Utility energy efficiency programs, or “demand-side management”
    • Customer information and educational programs
    • Financial incentives, such as rebates for efficient equipment or building designs
    • Direct installation of efficiency measures by utility contractors
    • Conventional loan financing, which tends to have minimal impact
    • Inclusive utility investment financing  such as Pay as You Save® (PAYS)*, which is more effective than loan financing and is a promising approach for funding efficiency investments by low-income customers

*Pay as You Save® (PAYS) program is a financing mechanism that is "tied to the meter" rather than the person. Utilities pay for the cost of upgrades and set forth terms of service, including a monthly cost recovery charge that is less than the savings achieved by the energy upgrade


  • Makes decarbonization easier because we can provide energy services using less energy
  • Reduces impacts of energy resource use such as greenhouse gas emissions, air pollution, habitat impacts, water use, etc.
  • Reduces consumer energy costs
  • Enables net-zero energy systems by reducing needed size, cost, and material use of renewable supply needed to meet energy loads
  • Improves thermal comfort in buildings and reduces health/safety risk in extreme weather
  • Improves energy affordability and operational integrity for low-income customers, while reducing arrearages and defaults
  • Local economic development, employment, and revenue recycling
  • Increases competitiveness and productivity for commercial businesses and industry


  • Upfront costs can be prohibitive if not applied correctly (i.e., optimizing in isolation as opposed to applying principles of integrative design)
  • Efficiency upgrades must be paid for up-front and in some cases there may be a long cost recovery time
  • “Split incentives” between those paying the costs of efficiency measures and those enjoying the savings (e.g., owner vs tenant)
  • Efficiency improvements often have to be applied one at a time rather than system-wide, reducing potential cost savings
  • Lack of information and education on the potential benefits of energy efficiency

Climate Impact: Low

Gradient from green to yellow to red, with a rectangle around only the green end
  • Reduces overall GHG emissions

Environmental Impact: Low

Gradient from green to yellow to red, with a rectangle around only the green end
  • Reduces overall environmental impacts

Updated September 2023

Before You Watch Our Lecture on
Energy Efficiency

We assign these readings to our Stanford students as pre-work for each lecture to help contextualize the lecture content. We strongly encourage you to review the Essential readings before watching our lecture on Energy Efficiency. Include selections from the Optional and Useful list based on your interests and available time. 


Optional and Useful

Our Lecture on
Energy Efficiency

This is our Stanford University Understand Energy course lecture on energy efficiency. We strongly encourage you to watch the full lecture to understand energy efficiency as a resource and to be able to put this important topic into context. For a complete learning experience, we also encourage you to review the Essential readings we assign to our students before watching the lecture.

Joel Swisher

Presented by: Joel Swisher, PhD; Director, Institute for Energy Studies, Western Washington University
Recorded on: November 16, 2022  Duration: 52 minutes

Table of Contents

(Clicking on a timestamp will take you to YouTube.)
00:00 Significance of Energy Efficiency
05:42 Energy Uses
09:07 Energy Efficiency Measures
27:30 Barriers to Energy Efficiency
32:22 Policy Solutions: Codes/Standards
44:56 Utility Efficiency / DSM Programs
59:44 Efficiency Role in Decarbonization
1:11:48 Summary

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Additional Resources About
Energy Efficiency

Stanford University

Government and International Organizations

Fast Facts Sources
Energy Efficiency Funding: World 2022 (IEA, Energy Efficiency 2022 – Analysis)
Energy Efficiency as a Resource: US since 1950 (John A. “Skip” Laitner based on EIA data, October 2021); (1975-2022 Amory Lovins based on EIA data)
End-Use Energy Consumption: World 2020 (EIA, International Energy Outlook 2021); U.S. 2020 (EIA. October 2021 Monthly Energy Review, p 37)
Electricity Demand by End-Use: World 2006 (IEA (2011), Energy Efficiency Policy Opportunities for Electric Motor-Driven Systems p 35)
Biggest Opportunities for Energy Efficiency (McKinsey & Company (2010). US Energy Savings: Opportunities and Challenges; Jacobson, Mark (2020), 100% Clean, Renewable Energy and Storage for Everything, Chapter 7; US Department of Energy. Fuel Economy of All-Electric Vehicles
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