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The Third Industrial Revolution and the Economic Imperative of Energy Efficiency

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We are used to thinking -- or even believing it is our heritage -- that our economy will grow at maybe 2 percent above the annual growth in our population. So if our population increases by 1 percent, then we assume the economy will grow maybe 3 percent in any given year. And if we maintain that level of growth, then yes, we can support the new jobs necessary to provide for our nation's economic well-being.

But we are in different times. Social visionary Jeremy Rifkin provides perhaps the critical insight in this regard. In his new book, the Third Industrial Revolution, Rifkin offers a compelling narrative that highlights the need to transition away from an older, less productive way of doing things -- relying on "the second industrial revolution technologies and systems" of the 20th century -- and moving instead into a newer and more intelligent way of providing the needed goods and services. Why is this important?

George Mason University economist Tyler Cowen suggests in his own book from last year that we are in the midst of what he calls, The Great Stagnation. This is the result, he suggests, from "living off low-hanging fruit for at least 300 hundred years. We have built social and economic institutions on the expectation of a lot of low-hanging fruit, but that fruit is mostly gone." Rifkin makes the compelling case that without a substantial investment that enables our transition into the Third Industrial Revolution, we may be left without the new fruits that can ensure a more sustainable economy.

In short, Rifkin, Cowen and others suggest there is a new normal at play. And it means fewer new jobs and a slumping economy, unless we choose to do things differently. Suffice it to say that the evidence also suggests our economic doldrums have a lot to do with our inordinate levels of waste -- especially the waste associated with our nation's use of energy.

We can quibble over numbers and the exact set of calculations, but the data I observe indicate that as of last year, we were wasting something like 86 percent of all the energy we threw at the economic process.

That means that, as an economy, we are only 14 percent energy-efficient! As one might imagine, that massive level of waste imposes an equally huge array of costs that further constrain the development of our larger economy. The five pillars in Rifkin's Third Industrial Revolution may be the only smart way forward as the synergies of each pillar lift the economy into a higher level of energy efficiency, economic productivity, and sustainability.

The good news is that many in the business and policy communities increasingly see energy efficiency as a smart, no-regrets investment opportunity for the U.S. Just one example?

It turns out that our current system of generating and delivering electricity to our homes and businesses is an anemic 32 percent energy efficient. That is, for every three units of coal or other fuel we use to generate the power, we manage to deliver only one unit of electricity to our homes and businesses. What we waste in the generation of electricity is more than Japan needs to power its entire economy! What is even more astonishing is that our current level of (in)efficiency has been essentially unchanged since 1960 -- since Eisenhower was in office.

And yet, there are larger numbers of Third Industrial Revolution technologies that can improve our performance. Combined heat and power (CHP) systems, for example, can deliver efficiencies of 70-90 percent or more, at a substantial economic savings. There is also an incredible array of waste-to-energy and recycled energy technologies that can further increase our overall resource efficiency and save us money.

My colleagues at the American Council for an Energy-Efficient Economy and I are working on an analysis showing that we could reduce our cumulative energy consumption by as much as one half even as we nearly triple the size of our economy by 2050.

To achieve that scale of energy productivity means will we have to deploy cost-effective energy-efficiency measures across the full economy in a highly coordinated way. Indeed, the evidence further indicates that only if we triple or quadruple our current level of energy productivity might we imagine a more robust economy at all. And investment in the five pillars of Rifkin's Third Industrial Revolution may be the only way to get this done at the scale necessary to achieve this larger purpose.

John A. "Skip" Laitner is director of economic and social analysis for the American Council for an Energy-Efficient Economy (ACEEE), based in Washington, D.C. He currently resides in Tucson, his family's hometown, on a year-long research sabbatical with colleagues from the University of Arizona.

While this essay does not reflect the official opinion or views of the University of Arizona or of ACEEE, its board or its staff, he can be reached at jslaitner@aceee.org.

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