Marten Ivan

Four Reasons Why Consumers Don't Reduce Energy Use

By Iván Martén

The Wall Street Journal brought together a group of industry and thought leaders—The Experts—to comment on issues raised in Journal Reports. In October 2014, BCG’s Iván Martén weighed in on several issues.

Many still fail to appreciate the huge potential for using energy more efficiently, which is probably the best way to reduce carbon emissions. In The Boston Consulting Group’s report The Energy Efficiency Opportunity: Winning Strategies for a High-Growth Market, which was published in May, we calculate potential energy savings of 200 megatons of oil equivalent (Mtoe) in the U.S., which is equal to 20% of annual energy demand.

In Europe, we project that energy-efficiency technologies will represent a market worth approximately €30 billion ($38.2 billion) by 2020.

The most robust growth will be in countries with high energy prices, determined regulators, stable regulatory environments, and established energy-efficiency markets.

Some important challenges remain in the residential market, however.

One challenge is that consumers perceive energy-efficiency projects as risky. They are unsure whether these projects can deliver the promised reduction in consumption. Utilities and service companies must make better efforts to explain the economics of these projects to residential customers and offer them attractive financing solutions.

Another obstacle is that not all buyers of energy-efficiency projects and services are themselves the beneficiaries. Take renters, for example. A landlord would have to invest in energy-efficient lighting for his building, but the tenants would realize the lower utility bills.

Residential customers have shown interest in projects with short payback periods, such as lighting, but are less interested in projects with payback periods of three years or more—even if they recognize that these projects will more than pay for themselves over the medium term.

Yet another hurdle is that energy costs in many houses and residential buildings do not rank high on the agenda compared with other expenses. Energy-efficiency projects require technical knowledge, specialization, and a good overall understanding of the services and products offered by utilities and services companies.

For these reasons, residential consumers often relegate energy efficiency to the back burner.

This blog was originally published by the Wall Street Journal.

Four Reasons Why Consumers Don't Reduce Energy Use