Tapping into the growing reduction market
It's easy to get excited about new sources of energy. But Fortune's Marc Gunther points to one company that's making the most out of the vast and often overlooked benefits of conservation.
NEW YORK (Fortune) -- Here's some good news about energy conservation: Americans are a lot more efficient than we used to be.
Here's the bad news: We're still a lot more wasteful than we need to be.
A few numbers tell the story. Since the 1970s, per capita U.S. gross domestic product has grown far more quickly than energy use. "We're roughly half of where we were 30 years ago, in terms of BTUs per dollar of GDP," says Bill Prindle, deputy director of the Washington-based American Council for an Energy Efficient Economy (ACEEE), a non-profit group.
Refrigerators are three times as efficient as comparable 1980 models. Air conditioners are twice as efficient. Compact fluorescent light bulbs save money and electricity, too.
Of course, another big factor has helped as well - the shift from a manufacturing to a service economy. Making software requires less energy than making steel.
Yet the rest of the developed world is much more efficient than we are, according to a UN report that attempts to measure energy efficiency across different economies. The U.S generated 4.4 units of GDP for each kilogram of oil, behind Australia (4.8 GDP units) Germany (6.2), Japan (6.4) and the UK (6.6). Ahead of them all is tiny, frugal Denmark (8.1)
The comparisons are inexact. "We Americans have longer distances to travel and less compact urban areas," Prindle notes. Still, the EU's 25 nations managed to generate about $12.1 trillion in GDP in 2004, more than the U.S.'s $11.6 trillion, while using 22 percent less energy, according to the World Resources Institute's Earth Trends project.
Growth opportunities in reduction requirements
What this means is that there's lots of opportunity for the United States to become more energy efficient without sacrificing economic growth. Smart companies are profiting from that opportunity. A little-known industry leader is Danfoss, a $2.7 billion a year, privately held company that is based in Nordborg, a rural community on the island of Als in -- you guessed it -- Denmark.
Danfoss makes things most of us never see, think about or understand - valves, controls, pumps, compressors, drives, motors - that go into refrigeration, air conditioning and heating systems. You can learn more - and view an animation explaining just how a refrigerator works - at the Danfoss Web site. The company has 18,000 employees and 54 manufacturing sites all over the world.
This isn't a glamour business. "We're mostly behind sheet metal," says John Galyen, the president of Danfoss' North American refrigeration and air conditioning division, which is based in Baltimore.
But it's a business that matters, as the United States seeks to reduce its dependence on imported oil, and as companies and consumers try to save money as energy prices rise. Three examples:
- A U.S. Department of Energy regulation that took effect last January requires new residential air conditioners to be 30 percent more effective than before. Because Danfoss makes an expansion valve that improves the efficiency of AC units, its valves are now in about one in three new central AC systems.
The rules don't affect existing homes, but Danfoss's people tell me that it might be worth replacing your current central air conditioning system with a more efficient model if you plan to stay in your home for at least 10 years.
- Under pressure from environmental groups, McDonald's (Charts), Coca Cola (Charts) and Unilever (Charts) have agreed to seek alternatives to hydroflourocarbon (HFC) refrigerants because HFCs, a potent greenhouse gas, contribute to global warming. In response, Danfoss is developing a energy-efficient compressor for refrigerators that would use carbon dioxide, which pollutes less than HFCs and is less flammable than hydrocarbon refrigerants used in in Europe.
- Industrial air conditioning units are becoming about 30 percent more efficient by using Danfoss's Turbocor compressors that enable rotor shafts to float on a magnetic cushion when they are turning. These oil-free compressors are typically deployed in office buildings and hotels.
These products and others have made the United States the fastest growing market for Danfoss, according to Galyen. Sales growth was better than 30 percent last year.
The point is this: Whether the goal to reduce our dependence on foreign oil, or to curb global warming, it's lot more exciting to think about wind power, solar energy or even cellulosic ethanol than it is to ponder, say, industrial air conditioning.
But the potential benefits of energy conservation (changing our practices to use less energy) and energy efficiency (technology to enable us to use less energy to do a job) are vast and easy to overlook.