The way energy efficiency is being treated by economists and policymakers may be changing, repairing decades of misrepresentation. Consulting firm McKinsey & Company just released a report that potential efficiency changes could result in savings of $600 billion by 2020. The report suggests that half of needed emissions cuts needed to meet targets could come from investments in energy efficiency.

The McKinsey report, "Unlocking Energy Efficiency in the U.S. Economy," reiterated the importance of energy efficiency for not only the environment, but also for the economy. McKinsey consultants suggest an increase in annual spending for energy-saving measures, such as efficient heaters and home retrofits, of about $40 billion—five times current spending.

Annual spending increases would see a payoff in $1.2 trillion of savings by 2020—nearly equal to the 2009 federal deficit. The report did not consider transportation-related energy demands, but suggested savings from combined heat and power generation by over 20 percent—even more important when one considers that greenhouse-gas emissions would drop by 1.1 gigatons per year.

The American Council for an Energy-Efficient Economy (ACEEE) released a report yesterday that stated efficiency had not received proper consideration by either government or business. Investment in energy efficient technologies results in savings for consumers and businesses—in constant 2007 dollars, two trillion dollars could be saved by 2050.

In a press conference today, the report's author and a climate policy expert expanded on the report. Dominating the statements was the emphasis on the fact that current economic models are not only failing to adequately measure past advancements, but also inhibiting current legislation.

"Efficiency is an invisible energy resource, energy we don't use in meeting demand for good and services," said John A. Laitner, director of Economic and Social Analysis at the ACEEE. He emphasized the need for changes in investment strategies, which should shift away from focusing on production and consumption and look instead to more productive, efficient investments that could provide for the boost that the economy needs.

Efficiency is an untapped resource as the "largest source of energy for the last generation when it was largely ignored by policy," according to climate policy expert James Barrett, Ph.D. Economic models fail to fully incorporate a figure for efficiency—something that instead of pursuing has instead been "narrowed down to zero," he added.

Responding to the question of significant upfront costs, Barrett explained that this is not a call for additional investment, but rather a redirection. "It's a redirection of money from inefficient to efficient new investments, not new money," added Laitner.

Many models assume that the economy is already taking advantage of the most efficient investments, so any further investment in efficiency is considered a waste, they explained.

“U.S. economic performance over the last several decades demonstrates that energy markets and consumer behaviors are much more dynamic than is commonly assumed,” stated ACEEE Research Associate Chris P. Knight. “The past and the anticipated future gains in technology performance indicate that a productivity-led climate policy can actually make the U.S. economy more competitive.”

Programs like Green Home initiatives could spur efficiency gains—such as Long Island or in the Midwest. Wisconsin Environmental Initiative's Green Built Homes certifies and reviews homes and remodeling projects, similar to the National Green Building Program.

McKinsey principal Jon Creyts said in an interview with Thomson-Reuters that unless such programs are accelerated, it would take 100 years for such programs to reach full potential.

However, new (and more affordable) changes in roofing suggests that the market and society is gravitating towards dealing with these misunderstood models.

The McKinsey report can be viewed here.

The ACEE report is available here.

Photo courtesy of Flickr.