Introduction:
Amory Lovins, a prominent energy efficiency expert, gave a lecture on advanced energy efficiency as part of his role as Stanford’s Mat-Ming Visiting Professor. Lovins’ lecture series focused on concepts and practices in advanced energy efficiency, exploring how to achieve more and better energy services with less energy and pollution.

Osage, Iowa as an Example of Energy Savings:
Lovins presented Osage, Iowa, as a concrete example of the benefits of energy efficiency. By providing basic energy-saving advice to homes and small businesses, Osage was able to repay its utility debt, build an emergency fund, cut rates five times in five years, attract new factories, and keep money circulating within the town.

The Principle of Plugs:
Lovins emphasized the importance of addressing energy waste rather than increasing energy production. He used the analogy of a bathtub with a drain to illustrate that plugging the drain (energy efficiency) is more effective than getting a bigger water heater (increasing energy supply).

U.S. Energy Consumption Trends:
Lovins discussed the historical trend of U.S. energy use, highlighting the fact that energy consumption has leveled off and even decreased since 1976. He attributed this decline to energy efficiency improvements, changes in the economy’s composition, and behavioral changes.

Progress and Challenges in Energy Efficiency:
Lovins pointed out that the U.S. has made significant progress in reducing energy intensity, but there is still room for improvement. He noted that while overall energy efficiency has increased, the efficiency of light vehicles has stagnated or declined.

Conclusion:
Lovins emphasized the need to focus on energy efficiency as a key strategy for addressing energy challenges and reducing reliance on fossil fuels. He expressed hope that the enormous potential for energy savings can be realized through innovative technologies and policies that promote energy efficiency.

Implementation Progress:
Efficiency gains have been made in oil, natural gas, and transportation, but electricity lags. Reasons for electricity’s lag include historic pricing, subsidies, split incentives, and utility incentives to sell more electricity. Overcoming these barriers requires addressing market failures and providing incentives for efficiency.

Energy Prices:
Higher energy prices alone are not sufficient to drive efficiency. Price increases must be accompanied by barrier busting to enable people to respond to price signals. Other factors besides price influence consumer behavior, such as convenience, comfort, and social norms.

Case Studies:
Dow Louisiana saved over $110 million a year through shop floor efficiency actions, while Dow Texas did not take similar actions and likely saved less. Seattle residents saved electricity 12 times faster in peak load and 4,000 times faster in energy terms than Chicago residents, despite paying half the price per kilowatt-hour.

Market Failures:
About 60 to 80 market failures dominate behavior in using energy and buying efficiency. These market failures are business opportunities and require attention to address.

Price as a Driver of Efficiency:
High energy prices, as experienced in some countries, have historically led to increased efficiency. Competitors with higher energy costs have often become more efficient than those with lower costs.

Carbon Pricing:
Price plays a significant role in driving carbon reduction. Carbon taxes or cap-and-trade systems can incentivize emissions reductions. The optimal carbon price should be discovered through market mechanisms rather than predetermined.

Market Failures:
Grandfather clauses in carbon trading schemes favor incumbents and suppress competition. Taxing employment while subsidizing capital investments creates imbalances. Market failures prevent prices from accurately reflecting true costs and benefits.

Policy Recommendations:
Shift taxation from desirable factors like jobs and income to less desirable factors like consumption and resource depletion. Strive for correct pricing and implement necessary adjustments to enable people to respond to price signals. Focus on addressing market failures to allow prices to effectively drive desired outcomes.

Market Failures in Oil Consumption:
Oil is often perceived as cheaper than it truly is due to hidden externalities and uncounted costs. Customers often lack sufficient information on alternatives, especially regarding energy efficiency. Most customers take a short-term view of energy savings, leading to inefficient decisions.

Addressing Barriers to Efficient Oil Use:
Governments can employ various strategies to stimulate demand for efficient vehicles and reduce oil dependency: Feebates: A combination of fees and rebates to encourage the purchase of more efficient vehicles. Financial Engineering: Creative financing options to enable low-income families to afford efficient new cars. Government Procurement: Aggregating government purchases of efficient vehicles to build markets. Golden Carrot: Identifying markets for manufacturers to produce specific efficient products. Platinum Carrot: Creating competitions like the automotive XPRIZE to foster innovation.

Transforming Heavy Truck Efficiency:
Walmart’s initiative to double the efficiency of its heavy truck fleet by 2015 has resulted in significant cost savings. Collaborations between Walmart and truck suppliers have unlocked previously unrealized efficiency gains.

Challenges in Airline Efficiency:
Many airlines face financial difficulties, limiting their ability to invest in efficient new aircraft.

Government Support for Efficient Vehicles:
Implement federal loan guarantees for purchasing efficient new planes, offset by equity warrants to avoid net cost to the Treasury. Scrap inefficient planes parked in the desert to prevent their reentry into service and to encourage the development and purchase of new efficient planes.

Leveraging Military Technology:
Utilize military research and development to advance ultralight strong materials, which would improve military platform efficiency and could be applied to civilian industries, such as car, truck, and plane manufacturing.

Incentivizing Utilities and Consumers:
Reward electric and gas utilities for conserving natural gas rather than selling more. Shift vehicle registration fees and excise taxes to favor efficient models, as seen in the District of Columbia’s approach. Introduce congestion charges to reduce inefficient traffic patterns and encourage public transit use. Promote smart vehicle procurement by aggregating government purchases and implementing policies like the New York Taxi and Limo Commission’s hybrid taxi program. Consider pay-at-the-pump insurance and reforms to shift taxation from fuels to roads and driving. Provide incentives to dealers and salespeople for stocking and selling super-efficient cars.

Reforms for Heavy Trucks:
Harmonize state regulations to allow for larger, heavier trucks with improved safety features, such as uniform speed limits and better brakes. Implement fuel economy driver’s education to improve driving efficiency and utilize informatics and logistics for better fuel management.

Biofuels and Local Procurement:
Integrate biofuels with farming and ranching reforms through local and state procurement, labeling, and potential detaxation or bond funding. Promote total flex vehicles that can burn any fuel and explore community-supported agriculture models for biofuels.

Policies for Accelerating the Adoption of Efficient Vehicles:
Allow the entry of incrementally improved vehicles into the market, which can capture half the market without policy initiatives. Introduce standard feebates to further increase the adoption of efficient vehicles. Permit triple-deficiency vehicles into the market, which can rapidly gain a two-thirds market share with feebates. Implement scrap and replace programs for low-income families to enhance equity. Use kickstart policies like smart government procurement and industry retooling support to accelerate the transition to efficient vehicles.

Long-Term Capture of Efficient Vehicle Market:
Remove model constraints to allow continuous improvement of new vehicles. By 2040, the inefficient vehicles would be phased out, and the fleet would consist primarily of tripled efficiency vehicles.

Market Failures in Energy Efficiency:
Energy efficiency investments often face various obstacles and market failures that hinder their adoption and implementation.

Categories of Market Failures:
Amory Lovins identified eight types of market failures that prevent buying energy efficiency.

Capital Misallocation:
Companies often overlook the significance of energy efficiency due to its perceived low impact on overall costs.

First Cost vs. Life Cycle Cost:
Purchasing decisions are often based solely on first cost, neglecting the long-term savings and benefits of energy-efficient measures.

Misallocation in Wiring and Equipment:
Inadequate wiring and equipment selection can lead to energy inefficiencies, such as using undersized wire that increases electrical resistance.

High-Efficiency Magnetic Ballasts:
Despite high rates of return, energy-efficient magnetic ballasts faced limited market adoption until mandated by law.

Misallocation in Distribution Transformers:
Utilities continue to allocate funds to inefficient distribution transformers, ignoring the potential savings of efficient amorphous iron transformers.

Inappropriate Purchasing Behavior:
Purchasing decisions often prioritize low-cost options over long-term energy savings, leading to inappropriate and inefficient purchasing behavior.

Perverse Incentives in the Commercial Real Estate Industry:
A study in 1990 estimated that the United States had misallocated a trillion dollars to unnecessary air conditioning equipment and power supplies. This misallocation was due to perverse incentives among all parties involved in the commercial real estate value chain. These incentives rewarded inefficiency and penalized efficiency. As a result, buildings used more energy than they should, cost more to build, and were less pleasant and productive to be in.

Short-Sighted Investment Practices:
Many companies require a rapid return on investment for efficiency measures, often within two years. This practice is equivalent to an order of magnitude price distortion. Efficiencies should actually get a more favorable discount rate than general corporate investments due to their lower risk.

The Role of Senior Executives:
Senior executives should think of saved energy costs as going to the bottom line and not as a capital ration. Making low-risk, high-return investments in energy efficiency is essential for maximizing shareholder value.

Capital and Financing:
Utilizes International Performance Monitoring and Verification Protocol (IPMVP) to measure, aggregate, and securitize energy and water savings. This allows for cost-effective financing of efficiency projects by selling off the savings in advance.

Marketing Initiatives:
Southern Cal Edison distributed over a million compact fluorescent lamps (CFLs) as an alternative to running power plants. Leveraging markups from manufacturing to retail to reduce prices and offer rebates to manufacturers instead of retail customers, resulting in larger price reductions. Leasing CFLs as a cost-effective option compared to power plants. Walmart collaborated with GE to reduce costs and increase the volume of CFLs, doubling sales by placing lamps at eye level.

Standards and Regulations:
Establishing standards to correct split incentives in appliances. The American Council for an Energy Efficient Economy and the National Electrical Manufacturers Association collaborate to raise motor efficiency standards.

Financial Sector Engagement:
Emphasizing the financial opportunities in energy efficiency investments. Only a small portion of clean energy investments goes to efficiency, despite its cost-effectiveness compared to supply.

Collaboration between Controller and Operating Engineers:
Encouraging communication between the controller and operating engineers to align financial and operational perspectives on energy efficiency projects. Using Gil Master’s book as a resource to translate between simple payback and internal rate of return.

Organizational Failures:
Addressing organizational barriers that discourage innovation and adoption of energy efficiency measures.

Organizational Culture and Incentives:
Current practices often prioritize routine and copying existing designs rather than optimizing for efficiency. Lack of incentives for departments to cooperate and implement energy-saving measures. Budget cuts and layoffs of energy managers reduce the focus on energy efficiency. Firms tend to satisfy minimum requirements rather than aiming for optimization.

Process Industry Plants:
Many plants were designed in an era where fuel was considered free, leading to inefficiencies. Lack of attention to electric auxiliaries and pumps, which are often oversized. Absence of shadow pricing for utilities leads to inefficiencies. Lack of accurate measurement, graphical display, and sharing of best practices.

Corporate Design Engineering Practices:
Large companies often have extensive design manuals that hinder innovation and improvement. Reluctance to overhaul existing practices due to cross-referencing and interlocks. Plant operators are focused on safety and routine operations, with limited bandwidth for efficiency improvements.

Capital Rationing and Investment Decisions:
Some companies are hesitant to invest in energy-saving measures with short payback periods. Capital rationing leads to underinvestment in high-return efficiency projects.

Physical Plant and Maintenance Staff:
Physical plant and maintenance staff are often treated as a cost center to be minimized rather than a profit center to be optimized. Lack of resources, self-esteem, and authority for these staff members to make improvements.

Lack of Feedback and Continuous Improvement:
Measured performance is not effectively communicated back to the next design phase, leading to repetition of inefficiencies. Copying existing designs without understanding the reasons behind them can lead to unnecessary inefficiencies.

Leadership and Management:
Leadership is crucial in promoting energy efficiency in industries, and it differs from management in that it focuses on leading people rather than managing things.

Competition:
Encouraging competition among early adopters of energy-efficient technologies can create pressure for other companies to follow suit to maintain their market share.

Compelling Case Studies:
Providing case studies that demonstrate the financial benefits of energy efficiency, particularly those with lower capital costs, can appeal to CEOs and decision-makers.

Expressing Cost of Inaction:
Emphasizing the cost of inaction in terms of foregone profits can help decision-makers understand the financial consequences of not implementing energy efficiency measures.

Selling Additional Attributes:
Highlighting additional benefits of energy efficiency, such as improved air quality and increased employee productivity, can appeal to decision-makers who are concerned about more than just cost savings.

Theatrics:
Sometimes dramatic actions, such as burning money to illustrate the cost of inaction, can be effective in persuading decision-makers to take action.

Sneaking in Retrofits:
Implementing energy efficiency improvements in the CEO’s office or other prominent areas without prior notice can demonstrate the benefits and potential savings, making it more likely to gain approval for wider implementation.

State of Washington’s Incentive Program:
The State of Washington’s program provides financial incentives to government employees who implement energy-saving measures, encouraging innovation and adoption of energy-efficient technologies.

Motivating Energy Savings:
Utilities often incentivize energy sales, discouraging savings. Successful strategies include rewarding marketing staff for measured savings, linking energy performance to personnel reviews, and providing fringe benefits related to energy efficiency.

Regulatory Failures:
Many utilities are rewarded for selling more energy, disincentivizing savings. Restructuring efforts may further undermine incentives to save. Building codes often set minimum standards, which are insufficient for significant savings.

The Transport Sector:
The transport sector is often centrally planned and underpriced, leading to congestion and inefficiencies. Places like Singapore charge more for driving, reducing congestion and social costs.

Obsolete Rules:
Obsolete regulations, such as Singapore’s Overall Thermal Transfer Value (OTTV) standard, may lead to unintended consequences. The OTTV standard, intended to save energy, resulted in dark, heat-absorbing windows that increased energy use.

Changing Mindsets:
Overcoming regulatory barriers requires convincing decision-makers of the benefits of energy efficiency. Amory Lovins successfully persuaded Hong Kong ministers not to adopt a counterproductive energy regulation, but civil servants later reinstated it.

Utility Regulatory Reform:
NRDC’s Regulatory Assistance Product, wraponline.com, advises commissions on utility regulatory reform.

Real Estate Development:
Efficient green projects can get priority approval, saving developers time and money. Thoughtful land use design increases real estate value. Locationally efficient mortgages and parking cash outs encourage alternative transportation. Some home builders market projects with zero utility bills for the first five years.

Better Information for Specifiers:
Socially efficient wire size tables save money and reduce congestion. Publicizing costs of land use and optimizing street parking prices can reduce traffic.

New Coalition:
A coalition of the immobilized class and anti-tax conservatives can advocate for better land use and energy efficiency.

Informational Failures:
Many people lack information about energy efficiency and where to find efficient products. The Energy Efficient Appliance Guide (aceee.org) provides information on energy-efficient appliances. Widespread use of energy-efficient appliances could reduce the need for power plants.

Misinformation and Deliberate Disinformation:
Important information is missing or misrepresented, even in reputable media. During the California power crisis, misinformation claimed that California lacked new power plants, while in reality, distributed and non-utility-owned plants were built. A report by Peter Huber and Mark Mills falsely claimed that electronic devices and servers consumed as much electricity as refrigerators, leading to policy changes and costly decisions.

Mitigating Information Gaps:
Labeling can be used to overcome information gaps, either officially or voluntarily. Easily accessible customer information, such as transparent bills and smart meters, helps consumers understand their energy usage. Voluntary standards, like the LEED certification, can guide the market towards energy efficiency.

Promoting Transparency and Competition:
Making transparency competitive can encourage manufacturers to improve their products’ energy efficiency. Utilities can provide diagnostic services to customers, identifying issues like slipping belts or refrigerant leaks. In companies, a lending library of measuring tools, rewards for curiosity, and holding individuals accountable for false claims can promote transparency.

Addressing Value Chain Risks:
Manufacturers face risks in introducing new products without knowing their market potential. Overcoming this challenge requires collaboration and communication within the value chain.

Golden and Platinum Carrots:
Pre-identification and aggregation of latent demand through financial incentives can reduce market entry risk and encourage innovation in energy-efficient technologies. Examples include EPA’s program for wastewater treatment systems and BC Hydro’s initiative to shift to premium efficiency motors.

Performance-Based Incentives:
Offering cash bonuses or other incentives to retail sales personnel for selling energy-efficient products can significantly increase market share. PG&E’s program, which provided a $50 bonus for selling efficient refrigerators, resulted in a threefold increase in savings.

Addressing Split Incentives:
Split incentives, where the person choosing energy-using technology differs from the one paying the energy bills, can be addressed through lease riders, standards, feebates, and service leasing models. Performance-based fees for design professionals can align incentives and encourage energy-efficient design.

Resale of Old Equipment:
Wasteful old equipment is often resold instead of being scrapped, leading to continued energy waste and environmental impacts. Scrappage incentives, such as utility programs that pay for the removal and proper disposal of old appliances, can help reduce the resale market for inefficient equipment.

Addressing Global Trade in Inefficient Devices:
The trade in inefficient energy-using devices should be identified, tracked, labeled, and stigmatized to raise awareness and discourage their use. The negative impacts of such trade, including the diversion of capital from essential services like clean water and education, are comparable to the drug trade.

Market Failures and Subsidies:
Market failures, such as subsidies to fossil fuels, false or absent price signals, and unpriced externalities, hinder efficient energy use. Subsidies should be tracked, and companies should expense fuel while capitalizing investments in energy efficiency to create a level playing field.

Incomplete Markets and Property Rights:
Incomplete markets, such as the absence of markets for saved energy and tradable property rights in saved depletion and pollution, limit the expression of their value. Creating fungible savings and enabling bounty hunting for saved energy can unlock its value and promote energy efficiency.

Opportunities for Business Innovation:
Businesses can achieve substantial energy savings by paying attention to energy use, implementing active management, and fostering a culture of curiosity and innovation. Companies like Southwire and Dow have demonstrated significant energy savings and cost reductions through focused efforts on energy efficiency. Shifting the focus from price-based interventions to attention-based interventions can drive energy savings even with cheap energy.

Challenges to Energy Efficiency Adoption:
Energy efficiency often goes unnoticed due to its scattered and invisible nature, making it difficult to attract attention and recognition. Economists, policymakers, designers, and media often overlook or underestimate the potential of energy efficiency. Marketers have yet to fully engage in promoting energy efficiency.

Energy Anthropology and Human Behavior:
Energy anthropology studies how people use energy, revealing the influence of folk theories, belief systems, household schedules, and personal preferences on energy consumption. Understanding human complexity can help marketers and utilities better engage with consumers and promote energy efficiency.

Benefits of Energy Efficiency:
Productivity gains in offices are often more valuable than energy savings, with a ratio of salaries to energy costs of 164:1. Lockheed saw a 15% increase in productivity and a one-year payback on daylighting due to lower absenteeism. Verifone achieved a one-year payback due to higher productivity. Walmart experienced a 40% increase in retail sales pressure in well-daylit stores. Boeing’s lighting retrofits resulted in up to 90% savings and improved worker productivity. A study of 52 industrial case studies found that explicitly valuing gains in industrial productivity can cut efficiency payback times in half. In the iron and steel industry, counting non-energy benefits from energy-saving retrofits allowed for twice as much energy savings.

Marketing Energy Efficiency:
Marketers can make efficiency cool and sexy by appealing to emotions and values. California’s per capita energy use has remained flat for 30 years due to standards and utility incentives. Rewarding megawatt providers for cutting customer bills is the most important lever to pull in electricity. Decoupling revenues from sales volumes and sharing savings with utilities can change the culture and lead to significant cost savings. Community mass retrofits can achieve high participation rates and energy savings.

State-Level Actions:
States can implement feebates for buildings, expedite approvals, remove barriers in building codes, and integrate climate into land use and other regulation. Community mass retrofits can be effective in rapidly installing energy-saving measures in a large number of homes.

Efficiency is the Key to Customer Satisfaction:
Efficiency is cost-effective while electricity is expensive, and the gap is widening. Customers prefer buying efficiency to buying electricity. Utilities should focus on selling efficiency to customers before competitors do. Selling efficiency can be profitable because customers can always buy it from someone else.

Strategic Investment in Efficiency:
Utilities should start with the customer and target efficiency and demand response in areas where they plan to invest in costly distribution. This approach can reduce capital investment tenfold and eliminate the need for additional transmission and generation.

Old Methods of Promoting Efficiency:
Providing information and financial assistance to customers for energy-saving measures. Giving away energy-saving products or services. Offering rebates for purchasing energy-efficient equipment.

New Methods for Creating a Market in Megawatts:
Competitive bidding for energy savings. All-source bidding, where megawatts from various sources compete against each other. Fungible savings, allowing customers to trade energy savings between themselves or jurisdictions. Spot, futures, and options markets for saved electricity. Commitments from customers to limit their energy usage. Investing in human and organizational capital to drive energy efficiency. Load management cooperatives for sharing the dispatch of saved peak load. Partnerships between electricity and gas companies to sell each other’s efficiency services. Market transformation initiatives, such as BC Hydro’s Big Motors program, to drive continuous improvement in energy efficiency. Barrier busting to remove obstacles to energy efficiency. Targeted mass retrofits to improve the energy performance of buildings and communities. Swapping customers between gas and electric utilities to optimize energy usage. Collaborating with new partners, such as multi-resource consortia and marketing partners, to promote energy efficiency. Piggybacking on retrofits done for other purposes, such as chlorofluorocarbon or air conditioner replacements.

Conclusion:
Energy efficiency can be sold as a service, providing better comfort and cost savings to customers. Utilities can create a market for efficiency by offering various services and incentives to customers. This approach can reduce the need for new power plants and transmission lines, saving money and reducing environmental impacts.

Implementation Strategies:
Emphasizing both technological advancements and changes in attitudes, behaviors, and competitive strategies is essential for successful implementation. Policy changes and breakthroughs in competitive strategy are crucial, along with changes in design, development, and mindful market behavior.

Addressing Sacrifice Concerns:
The proposed strategies aim to improve comfort at lower costs, not to impose sacrifices on the American public. Providing better comfort for low-income individuals who previously lacked adequate heating is a benefit, not a cost. Using saved energy costs to invest in energy-saving measures can lead to further savings.

Bounce Back Effect:
The bounce-back effect, where increased energy efficiency leads to increased energy consumption, is a common fallacy. Saturations and lack of itemized information often prevent consumers from spending saved money on energy-intensive items. Rebound effects, while existing, are typically small and cannot outweigh the net savings from energy efficiency.

Creating Tradable Property Rights:
Creating more tradable property rights can accelerate progress in energy efficiency. Emerging markets in carbon reduction, such as the Chicago Climate Exchange, can be helpful if all emitters are treated equally.

Educational Applications of Energy Principles:
Ralph Kavanaugh invited Amory Lovins to consider the applicability of the principles discussed in the energy context to the process of education.

Implications for Education:
The question posed prompts reflection on the potential implications of these principles for education, a different but equally significant societal issue.

Audience Engagement:
Kavanaugh left the question open-ended, inviting the audience to ponder the connections between energy principles and education.

Appreciation for Amory Lovins:
Kavanaugh concluded the session by encouraging the audience to express their gratitude to Amory Lovins for his insightful remarks.