# Mind the Electric Gap

Thirty percent of U.S. electricity consumption could be erased through gains in energy productivity, according to the Rocky Mountain Institute. (Related: see R.M.I. chairman Amory Lovins‘s recent guest post.) The institute’s analysis arrived at electricity productivity stats for all 50 states by dividing each state’s G.D.P. by the kilowatt hours of electricity it consumed.

New York state topped its list. For each kilowatt hour of electricity (the equivalent of burning one 100-watt light bulb for 10 hours) the Empire State consumes, it generates \$7.18 in G.D.P. Mississippi, squarely on the bottom of the electric productivity list, generates just over \$3 per kilowatt hour. The R.M.I. claims significant cutbacks in carbon emissions could be made (pdf) if all 50 states could increase their productivity to match the top 10 most productive states (in descending order: New York, Alaska, Connecticut, Delaware, California, New Jersey, Massachusetts, Rhode Island, New Hampshire, and Colorado). They call it “closing the efficiency gap.”

See for yourself. To visualize its data, R.M.I. has launched a cool interactive map, where you can see how your state stacks up in energy productivity, and the potential carbon savings it could make through productivity enhancements alone.

The institute is currently at work on a follow-up paper that will offer some solutions for closing that gap. What kinds of strategies should they use?

#### Ben D

"kilowatt hour of electricity (the equivalent of burning one 100-watt light bulb for one hour)"

That would equal 0.1 kilowatt hours. You are off by a factor of 10.

#### MBirchmeier

Is there a real or even supposed link between energy efficiency and GDP? I would imagine that New York's GDP is higher due to the presence of a strong financial industry, and this is independent of any electric efficiency that may exist between New York and Mississippi.

#### Alex

This study assumes all kinds of weird relationships between energy and GDP that just don't seem to be accurate. You know why New York is so high on that list? Because banking takes a lot less energy than farming does to produce money. You know why Mississippi and Kentucky are at the bottom? Because farming and coal mining are energy intensive and produce inexpensive products.

So what's the answer then? Stop farming and make every state convert to a white collar economy? Doesn't seem feasible to me.

#### the Gooch

New York being #1 in GDP/kWh just shows what you can do by fabricating earnings on Wall Street. They will not be #1 on that list for long.

Also, do they count the revenues of the utility companies in the state as part of the state's GDP? If so, you could easily catapult your state to the top by jacking up utility rates...but increased energy prices aren't the (overt) goal of the energy conservation movement.

#### Terry

This looks similiar to a service-economy state vs manufacturing-economy state map. If we eliminated our manufacturing sector, sure we would be more efficient, but also less diverse.

#### Energy Guy

There's certainly many opportunities for efficiency improvements, but their measure of efficiency is too crude to be useful.

How many hot climate states do you see on the list of the most efficient? Maybe we should see if we can drag all the states in cooling-dominated climates up to colder locales so that they wouldn't need so much air conditioning?

You will also find higher "efficiency" as they define it in states with greater access to natural gas and in states with higher electricity prices. Electricity-intensive industry and all-electric homes are much more common in places with historically cheap power -- like the hydroelectric dominated Northwest and coal dominated states like Kentucky.

A simple regression model with a few factors such as climate (especially cooling degree days), the saturation of electrically heated homes, and electricity prices will explain the vast majority of the inter-state differences and lead to a very different ordering. Many of the apparently high efficiency states will be shown to have higher natural gas usage too.

The main conclusion may be that high electric prices will lead to lower electric usage (not a surprise) , but with relativley low short-term elasticity but high long-term elasticity. Thus raising prices will work, but there will be some short-term pain and lots of people/businesses who lose out due to fuel choices and locations selected based on low power prices.

#### Devin

What would be more interesting to see is if rural NY is just as productive per kilowatt as NYC. Manhattan is still a financial core of for the world, and the city is very dense with people, buildings and business. It's easier to acheive electri-nomics of scale in that situation. As for Alaska, most of their population is near Anchorage, and they have a greater incentive to be efficient given their climate. Of course that cant explain everything related to the study, but just a thought.

So basically the bottom states need to move to higher latitudes and become dense centers for capital flows.

Or just price electricity to reflect it's true cost to consumers. Simple!

#### Hunter

Grrr. Look at the list of the most efficient by kWh. 7 of the 10 have little in the way of "real" wealth creation industries - by which I mean either farming/extraction or manufacturing. If you want to create real wealth that doesn't involve repackaging money or ideas a dozen times, then I think a different metric is required.

#### erik

Different industries have different ratios of GDP per KWH. A state with a lot of farms will have a different ratio than a state with a lot of banks or movie studios or whatever. It is just plain goofy to suggest that that Mississippi can improve its ratio by, say, supplanting Hollywood.

#### Mike

It's been a while since I took microeconomics, but, even if we buy the argument RMI is making (and there are plenty of reasons not to as the other commenters have noted), wouldn't increasing GDP per KWh lead to an increase in KWh consumed? If I could get double the value from electricity, the marginal cost would have to rise or I'd want as much electricity as I could get.

Just as with CAFE standards (which don't work, unless your goal is to bankrupt auto makers) vs. gas taxes (which would), if the goal is to decrease the quantity used, make it cost more. Increasing efficiency by itself won't result in less consumption.

#### Baseball Mike

Has anyone noticed that other than CA, these appear to be the most populus and productive of the "cold" states? How in the world can RI make any list, in the face of 10% unemployment and not much industry to speak of? And why doesn't a state like TX make the list? I'll bet that the list more closely tracks the use of air conditioning (or lack thereof) than it does anything else. So -- if you want to pick on states that use a lot of electricity or have homes that are too large for their own good -- can't you find other ways to do that?

#### Helen

How are the TARP funds going to factor into the calculations? Are the massive losses from 2007 - 2010 (I'm an optimist, you see) of the NY financial firms going to erase the "energy productivity" advantage the state appeared to enjoy at the peak of the bubble (2005)?

#### Xian

Yeah, lets see how effcient the top ten will be after all the chips fall from this 'Banking Crisis' that obviously over-inflated their GDP. Alaska would be the only state that is actually going to keep up even though oil prices has dropped drastically, lets go back ten years and see some real evidence that these states are truely efficient in producing goods and services. so if RMI wants the entire US to be as efficient as New York, lets see you eat when the midwest turns from farming to 'soft industry' or the previously profitable banking sector.

#### Mike

If we turn out all the lights and use candles/firewood etc, our electricity efficiency would be infinite!!!

The Amish must have very high electricity efficiency.

#### DCF

Without having read the study which generated the map this may be premature, but I agree with others saying that this is kind of a silly map. It shouldn't surprise anyone that the states which do well (with the notable exception of California), do not have much of state production from farms. If the US ceased farming, then people would not discover how to farm more efficiently, and unless people want to starve, the world will produce roughly the same amount of food requiring roughly the same amount of power as before the US implemented the suggestions from this study.

A potentially more interesting analysis of the data would be to control for output type (i.e. is a dollar of farming output in California more energy efficient than a dollar of farm output in Mississippi). As a hypothesis, I suggest controlling for output type would eliminate the large disparities.

#### Nuclear Mom

I think the comments about variations in GDP are well-founded, but the League of Women Voters did a study of California energy production/usage about 3 years ago, and we had gone from above-average use per capita (not per GDP) to 30% below the US average per capita.

1. The biggest use of energy in California is pumping water up and down the state. Higher electricity prices also translate into higher water prices here.

2. California made a choice years ago to be "green" and to get nearly none of its energy from coal and a diminishing fraction from oil. About a third of the energy now is nuclear (although that's in danger of declining), and close to 20% is renewable (sun, wind, co-gen). Therefore our energy prices are higher than average - another incentive to be frugal/efficient.

3. As with water, the cheapest new kilowatt hour comes from conservation by current users rather than generating a new kWh. We are constantly getting calls from the gas company and the electric company offering to caulk or replace our windows or give us rebates for purchasing energy efficient appliances or newer central heating/cooling units, fluorescent bulbs, etc. I believe the figure was 12 new power plants did NOT have to come online since 1980 due to increased efficiency (compared to typical use per capita in 1980), a big cost saving.

#### Bruno

I'm disappointed to see an example of terrible economics on this site.

#### AR

For those complaining about the advantage to states with northern climates - if you follow the links to profiles of individual states, you will see that they include an adjustment for climate. So states in the humid south receive a boost of as much as \$.50 per kilowatt hour, while states with moderate climates like Washington, Oregon, and California receive no handicap.

And then for those complaining about the comparison of economic mixes in various states, they also include an adjustment for commercial vs. industrial economic production. California actually loses \$.17, while Kentucky gains \$.52.

Don't assume that a study isn't rigorous just because an unaffiliated blog post doesn't mention all variables considered. You can quibble with the way they calculated these adjustments - I feel like there are some northern states that receive a rather large climate boost, personally - but you can't argue that they didn't even consider them.

#### Natalie Mims & Mathias Bell, RMI

As the authors of the paper, we would like to clear up a few things. Our findings are based on months of work normalizing the data. Many of you are correct to point out that an analysis based on unadjusted \$GDP/kWh would be far too simple. To better understand electric productivity, we normalized for climate and GDP factors.

The findings of the analysis have been a surprise to many. Who would think that the productivity gap between states could be 1.2 million GWh? Even if you threw countless variables into the analysis in a “kitchen-sink” approach to explain the disparity, the productivity gap still exists.

A couple of surprises to us:

The state of New York has one of the most “productive” industrial sectors in the US. One would think that this is caused by the fact that New York has far less “intensive” industry than the rest of the nation. To the contrary, 63 percent of New York's industrial electricity is used for “intensive” industries, such as manufacturing cement, concrete, paper, steel, glass, iron, aluminum and chemicals. This is just one example of a state with high electric productivity that also having industrial electric productivity. In contrast, Mississippi only uses 40 percent of its industrial electricity on these intensive industries.

Climate certainly does affect electricity consumption, but not to the effect one might think. If you took a house built to code in Alabama and then moved it to the temperate California climate, energy consumption would only decrease by 20 percent.

There's no doubt that the cost of electricity affects electricity consumption. States with expensive rates have been motivated to emphasize efficiency to reduce costs (though Texas and Hawaii are clear outliers). Since it is in the near-term control of states to set electricity rates (unlike climate and most of GDP), we decided rates would be better used to determine how states can cost-effectively use efficiency to close the gap rather than explain why the gap is marginally smaller.

The intent of this analysis was not to call out under performing states, but to show the efficiency potential that exists if all the states performed similarly to what the top states are doing today.

We are working on the solutions to cost-effectively close the electric productivity gap for each state, and it is likely that our recommendations will include simple solutions such as updating building energy codes and providing electric utilities with appropriate compensation for using energy efficiency.