To ensure energy audits help climate goals, target emissions

Industrial energy efficiency is crucial to climate change mitigation. Improvement efforts often involve energy audits, which reveal opportunities for companies to save physical energy use or cost by making firms aware of their own practices.

But without clear targets surrounding greenhouse gas consumption and emission reduction, these well-intentioned audits may not help companies achieve energy and emissions reductions. New research found that less well-managed firms in particular learned from audits how to reduce not just their energy use, but also their related costs, potentially limiting the audit’s effectiveness at achieving efficiency goals.

Valerie Karplus, professor of engineering and public policy and associate director of the Scott Institute for Energy Innovation, led this uniquely in-depth field experiment with companies in a metal machining industry cluster in China, working with a collaborator from Tsinghua University over an eight-year period to conduct randomized energy audit interventions and analyze the results. The findings were recently published in Nature Energy.

“We shouldn’t think of providing energy information to firms as necessarily leading to conservation,” Karplus said. “In the absence of external pressure to reduce energy and greenhouse gas emissions, managers might adjust in ways that make energy cheaper for them and then end up using more of it because it is relatively less expensive. We found these adjustments occurred disproportionately among less well-managed firms, pointing to a pre-existing energy management gap.”

The study found that, on average, the audit interventions reduced companies’ electricity unit cost by 8% but had no impact on electricity use. While firms with better-developed management practice structures adopted recommended changes at higher rates, companies with less-structured management practices saw a larger reduction in the average unit cost of electricity.

“Before the audit, managers at companies with less structured management practices didn’t realize how much they could be saving,” Karplus explained. “When provided with information on electricity expenditure, we found managers opted into better-suited tariff structures for their circumstances. So they end up paying less, but not necessarily using less energy or fewer greenhouse gases.”

The core finding has significance beyond China: companies with unstructured management practices may frequently miss basic ways to spend less on energy, especially if they lack structured management capabilities. The researchers found that monitoring and target setting practices had particularly strong correlations with the observed effect.

The study offers a new level of awareness that policymakers can incorporate into legislation aimed at unlocking cost-effective energy saving and emissions reduction opportunities, Karplus said.

“Policies should ideally set limits on total physical energy use, or total greenhouse gas emissions, to ensure firms are properly incentivized to reduce quantities alongside expenditure,” she explained. “We want firms to direct their management capabilities toward improving the environment, as well as economic outcomes—our work shows that better management does not necessarily lead to environmental improvement, and suggests external incentives are crucial.”

Da Zhang of Tsinghua University in Beijing, China also contributed to this research.