Energy is once again high on the Nation’s agenda. Concerns about climate change set the stage. Then sky-high prices stunned Americans in the mid-2000s. And, this spring came the Gulf of Mexico oil disaster.  Much of policy discussion on energy centers on the Nation’s energy portfolio and how to pivot to renewable energy and other nontraditional energy sources.  Energy efficiency and conservation, perhaps less glamorous topics, deserve more attention as this energy discussion unfolds.

Behind the pursuit of energy efficiency looms larger central question—how maintain and enhance quality of life? The quest for energy efficiency is not new. As one writer on energy has observed: “Neither humans nor animals like hard work.” We are always, he continued, “finding easier ways to get work done.” “The wheel,” this commentator concluded, “was an early advance in energy conservation.”

Yet that quest has become more complicated—and its emphasis has evolved. We are no longer—as in case of the wheel—just seeking to minimize our own exertions. We are now seeking to find cleaner ways to provide energy, better ways to lighten our environmental footprint, and more efficient ways to illuminate, cool, or heat our homes and power our computers.

Each minute, each and every minute, we pay nearly $200,000 for imported petroleum. Our energy production and use are implicated in greenhouse gas emissions and climate change. Our energy production—of both renewable energy and fossil fuels--transforms landscapes. Energy use, energy efficiency, and energy conservation, thus, are matters of universal concern. That concern has moved beyond the realm of manufacturers seeking to reduce costs to the realm of policy, politics, and society as we seek to meet broad social, environmental, and economic goals. Amory Lovins summarizes the current imperative. We need, he says, to “wring out the losses in converting, distributing, and especially using energy.”

Energy usage falls into three sectors. A third of world’s energy is consumed in buildings; another third is used in factories and plants that produce what we consume; the final third is used in transportation. In each of these realms lie opportunities to do things differently.

As we think about energy and its relationship to this quest to lighten our environmental footprint while meeting human needs, I see three primary components.

First is a conservation theme—I define this as “doing more (or the same task) with less.” I am reminded of the words of Alfred, Lord Tennyson who once wrote that the “Earth is so huge, and yet so bounded.” But our imaginations are unbounded and therein lies hope for the future of energy conservation. Second is a supply theme—the need to ensure adequate, dynamic and diverse supplies of energy. Third is an environmental protection theme—how to ensure vigilance to reduce our environmental footprint in energy development, use, and the disposal or reuse of energy byproducts.

Before addressing the political economy of where we are going on energy generation and use, it’s instructive to reflect on where we are. Looking at the past 30 years, despite increases in total energy use, energy efficiencies of individual products is significant. For example, today’s refrigerators use 1/3 less electricity than 30 years ago. From 1973 to 2001, the U.S. economy grew 126%, while energy use increased 30%. During the 1990s alone, manufacturing output climbed 41%, but industrial electricity consumption grew 11%.

From the dawn of the industrial era to the present, we see continuous efforts to do more with less. We see efforts to dematerialize, to climb up the clean fuel ladder from dung and wood to coal to natural gas to low-emission technologies, and to conserve energy. We see technological wonders that use far fewer resources—and less energy—to do familiar tasks. A single CD-Rom holds 90 million phone numbers, which replace—at a telephone company—5 tons of phone books. Or consider fiber optics—64 pounds of silica yields a communications network that carries 40 times the messages carried by a cable made from 1 ton of copper. These innovations yield phenomenal savings in both resources and energy.

Or consider trucking. The advent of GPS technology allows one trucking firm to avoid 4 million miles of driving per year.

Some years ago, I dubbed these innovations the viridian verge—the linking of economic action with environmental benefits. What is the bottom line of this brief technological tale? We have made conservation progress, but conservation, to adapt a much-used phrase, is a journey not a destination. There is still much untapped potential at the intersection of energy, economy, and the environment.

These opportunities unfold along two dimensions—technological innovations and institutional innovations. The role technological innovation plays in adding value in the marketplace is well recognized. Yet even with technologies, environmental opportunities to reduce energy use lie “anywhere and everywhere” (I thank Peter Drucker for this phrase) rather than in a few “green” categories.  

But I will focus here, instead, on institutional innovation—an oft-neglected dimension of entrepreneurship, economy, and environmental progress. For environmental entrepreneurship, new institutional arrangements that improve environmental and energy performance fall into several categories.

These categories include new relationships between manufacturers and suppliers through “green performance contracts.”  For example, some years ago a Saturn car manufacturer used to buy paint by volume. Under this arrangement, paint suppliers had little incentive to make more efficient paint—paint that would adequately color cars but use less “stuff.” Saturn introduced a green performance contract through which its paint suppliers got paid on the basis of the number of cars painted rather than the volume of paint purchased. Under this arrangement, the paint suppliers had an incentive to develop more efficient paint. They also had an incentive to work with Saturn to reduce overspray, which wastes paint.

These new institutional relationships also include new interactions between producers and customers—for example, the use of “green building” management contracts in which payments to builders are linked to eventual energy saved by the building owner.

We are also seeing the emergence of new relationships among producers through waste exchanges or development of “byproduct synergy” contracts. Through these relationships, one company’s waste becomes another’s feedstock. In Texas, a mini-steel mill generated fly ash as waste, which, in turn, it sold to a Portland cement company as a feedstock.

These new institutional and market contracting arrangements matter because they affect incentives.  They affect the motivations of energy and materials users to seek out ever-more efficient technologies and practices that reduce environmental impacts.

These opportunities abound to better meet this Nation’s energy needs—through conservation and lower-impact technologies and through new management techniques.

But let’s turn our visions to an even broader context and our opportunities to think differently about our relationships to world around us. Last year, author Thomas Friedman dubbed 2008 as the year the Great Disruption began. Eying years of economic growth, eying disparities between rich and poor nations, and eying so much consumption of stuff, Thomas Friedman opined that “We can’t do this anymore.” He recycles a theme that recurs every so often—for different reasons at different times—since Malthus first warned of too many people consuming too many resources.

As other pundits were judging the world’s economy in terms of banking, credit, and access to capital, Friedman talked of even bigger cataclysms of economy and the environment. We are, he said, simply running out of stuff—depleting the “natural capital” of the planet.

I think Friedman offers the wrong diagnosis for today’s profound economic woes. He misses the dynamic processes in a competitive marketplace that enable us to “do more with less.” As far back as Henry Ford’s first assembly lines, engineers measured and tinkered to reduce costs by reducing waste. Even something as prosaic as a coke can has gone through multiple evolutions, so that the once hard-to-crush metal container, now, by me, can be squashed and torn in two. Why? Because it now takes just 28 pounds of metal to make 1,000 cans where, 40 years ago, 1,000 cans required 168 pounds of metal.

Friedman’s diagnosis may be wrong. But he ends with an important admonition—or perhaps it is a cheer. He cheers for economic assessments that see opportunity in nurturing what Gretchen Daily and her colleagues at Stanford have called Nature’s Capital.  Natural landscapes—wetlands and sea marshes, watersheds of free-flowing rivers and streams, forests, grasslands, even urban parks and roadside tree canopy—have multiple benefits for human communities. These natural systems purify water; moderate temperatures; absorb pollutants from the air; provide habitat for bees that pollinate crops; and protect coastal communities from storms.

Yet the connection between these services and the natural world around us is often invisible—and neglected. This neglect results in underinvestment in environmental protection and increased impacts from land, water, and coastal transformation. With ecosystem degradation come corresponding losses of natural system functions and their benefits to human communities.

These losses carry hidden energy costs. Natural systems provide for the most basic of human needs—services that enhance safety, health, and economic opportunity. The City of New York invested over $1.5 billion to protect and restore the Catskill Mountain watershed, a web of natural systems purifying the city’s water supply, rather than spending up to $9 billion on filtration plants. Investing in Nature’s Capital saved the Big Apple money and resulted in enhanced habitat. But this investment also translated into avoided energy use that mechanical water filtration systems would have required.

American Forests evaluated the extent of tree canopy in cities such as Houston, Roanoke, and Atlanta. Houston lost 16 percent of its tree canopy over the last three decades, translating into a loss of annual air pollution “removal services” pegged at $38 million and an annual loss of stormwater management services of $237 million.  This loss also means increased energy usage. Consider figures for one city—San Antonio. Lost tree canopy in San Antonio over a 15-year period is estimated to equate to a $17.7 million increase in residential summer energy costs per year.

These examples highlight the significant services natural systems provide to human communities, their health, safety, and prosperity. Failure to recognize these services results in decisions that diminish, degrade, and even destroy natural assets. The result of this destruction can be increased environmental harm, higher costs to provide services such as water filtering through mechanical engineering alternatives, and foregone benefits of energy savings and community safety.

The 20th century was a time of paving over our cities. The 21st century will, I believe, be a time of re-creating natural landscapes, natural urban streams, and other permeable landscapes. These trends highlight the intersections of biology and engineering. They highlight the relevance of materials innovations in infrastructure and buildings.

Buoyed by the expanding academic research on ecosystem services, some recent public policy initiatives have begun to acknowledge the economic value of natural systems through the health, safety, and the other resource benefits they provide to communities. The most recent Farm Bill required that the Department of Agriculture develop a framework for measuring the environmental service benefits from conservation and land management, anticipating possible participation by farmers, ranchers and forest landowners in ecosystem service markets. EPA has allowed watershed permits through which wastewater treatment plants may enter into trading arrangements with farmers to achieve permit requirements for temperature rather than installing high-cost and energy-consuming refrigeration systems. One trade in the Tualatin River Basin resulted in payments to farmers of $6 million to plant shade trees in riparian areas, avoiding $60 million in costs to construct refrigeration systems at two wastewater treatment plants.

Investing in Nature’s Capital offers economic opportunity. But it also is, I believe, a central foundation of 21st century environmentalism and an important part of a “smart energy” strategy for the Nation. Tree cover in urban areas east of the Mississippi has declined 30 percent over the past 20 years, while the urban footprint has increased 20 percent. An estimated 634 million trees are “missing” from urban areas across the United States as a result of urban and suburban development. This loss of trees and associated permeable surface area has cost cities an estimated $100 billion in increased stormwater management needs—and the accompanying energy use associated with water treatment facilities.

Many energy efficiency advocates continue to explore the technological opportunities for energy efficiency in such areas as lighting, computing, and building design. Many are focused on energy sources beyond fossil fuels and investment opportunities in these technologies and processes. But there is a political dimension to a “smart energy” future—a dimension shaped by the current context and associated challenges.

Three elements of that context will affect energy politics and economics. The first is water—yes, water. Moving water from where it is to where it is wanted is a major part of energy use in the Western United States. This linkage means that a huge opportunity to affect energy consumption resides in rethinking water infrastructure and technology. And many energy sources require large amounts of water—or can affect water quality. Energy production is often linked to water. By one estimate, to produce 7.5 billion gallons of ethanol would require 30 billion gallons of water to process—equivalent to total water needs of Minneapolis. If just one-fourth of the corn crop to produce ethanol required irrigation, corn-based ethanol production would need nearly a trillion gallons of water per year—equivalent to the combined usage in all cities of Arizona, Colorado, Idaho, and Nevada. Much energy production and use is linked to water, yet water constraints loom large.

A National Science Foundation report concludes that abundant supplies of clean fresh water can no longer be taken for granted—not just in West, but across the Nation. We have witnessed burgeoning populations in this Nation’s driest areas. Climate change is altering the availability and timing of water flows. Off-stream water withdrawals in the United States are estimated at 408,000 million gallons per day, or three times the average flow over Niagara Falls and enough water to fill the Astrodome every 2 minutes.

Energy strategies, thus, are linked to water strategies. As we think of energy efficiency, I believe we cannot do so in isolation from contemplating water supply and quality. Are there technologies to reduce energy requirements for supplying water to communities and farms? And as we supply energy—whether biofuels, fossil fuels, nuclear power, or other fuels—how can we minimize water requirements?

A second aspect of thinking about our energy future context is climate change. A key driver of the economics of energy will be the politics of climate change. Though the likelihood of near-term congressional action has lessened, some climate policy may still loom on the horizon. The advent of a national climate policy will affect the relative costs of different energy options. But the devil is in the details. Thus, the shape of energy the Nation’s energy futures is partly linked to shape of the climate policy future.

A third contextual element linked to our energy future is the relationship of land and energy supplies. Many alternative energy sources—photovoltaics, wind, ethanol and other bio-fuels—can be very land transforming. So, as we pursue clean energy, we need to broaden consideration of what’s “green.” Yes, the carbon footprint and other air emissions matter. But so, too, should we think about the landscape footprint and wildlife impacts.  We need only look at the Mojave Desert and the scramble to site solar and wind projects to anticipate their associated challenges of land transformation. There is an old Chinese adage that observes that in our challenges reside opportunities. The Nation’s challenge is how to minimize this broader environmental footprint of energy on landscapes.

Shaping a smart energy future also confronts other challenges. Among those challenges is the marketplace itself—and institutional procurement practices. Sometimes, energy efficient technologies and practices generate lifecycle savings but cost more upfront. Many firms and governments acquire goods calculating relative purchasing costs, not long-term or life cycle costs. Success, therefore, of energy efficient technologies may hinge as much on changing contracting rules as on the merits of the technology. And we need to be wary of legislated technology prescriptions. Mandating one good idea may preclude other new ideas.

The Environmental Protection Agency currently has a pot pourri of voluntary and mandatory energy efficiency standards for appliances, lighting, and other products. The agency also has many certification programs. Regulations, standards and certifications can stimulate results but can also stifle creativity. Prudent decision making requires considering these potential unintended consequences.

Baseball player/pop philosopher Yogi Berra once quipped that: “the future ain’t what it used to be.” Perhaps in a more sophisticated—and less ironic—way, scholar Richard White made a similar point when he wrote that: “All the context in the world doesn’t explain tomorrow, which is where you always end up.” I have offered some context. I have summarized some current circumstances, challenges, and trends. Yet “stuff happens.” So my observations are not akin to Cassandra peering into a crystal ball but, rather, as a perennial optimist that human ingenuity can lead us to a better future—but that will depend on how we shape our institutions, direct our investments, and evaluate our actions and their consequences.