As Energy Prices Soar, Building Efficiency Is a Key Solution

Editor's Note:Alex Dews is the CEO of the Institute for Market Transformation. This article reflects the author's personal views.

Since 2000, the U.S. population has grown by 60 million, GDP has increased by 170%, yet energy consumption has remained roughly flat. How did we achieve this? Part of the answer lies in improving building energy efficiency.

As electricity demand surges, especially with the rapid growth of data centers and artificial intelligence, meeting power needs while balancing grid resilience, affordability, and climate impact has become an increasingly urgent issue. On both the supply and demand sides, the supply side often receives more attention—how do we bring more power generation projects online?

However, this perspective is incomplete. The demand side is where we can take immediate action, because improving building energy efficiency has proven to be a scalable solution that addresses both energy affordability and decarbonization. The key is that, compared to building new power generation facilities, we can meet a significant portion of energy demand at a much lower cost by improving building efficiency and adjusting energy usage timing.

The Role of Buildings in Energy Infrastructure

Buildings consume nearly 75% of U.S. electricity and more than one-third of its natural gas. A McKinsey study, "Powering a New Era of U.S. Energy Demand," opens with a chart showing that buildings constitute the bulk of energy demand, yet the study does not mention buildings in its analysis and recommendations. Similarly, as the federal government cuts clean energy investments, new discussions about climate action largely overlook the role of buildings. A recent episode of The Ezra Klein Show, titled "Is Decarbonization Dead?," made no mention of buildings despite them being the largest single end-user of energy.

Up to 80% of buildings that will still be in use over the next 25 years have already been built. The U.S. Environmental Protection Agency estimates that about 30% of energy in current commercial buildings is wasted. This is especially true for older buildings, which account for a large share of overall energy use and represent a vast, untapped opportunity to reduce demand.

Of course, supply-side discussions are also important because the fuel used for power generation determines vastly different paths. We can choose to invest in clean technologies, reducing air pollution and mitigating the worst effects of climate change; or we can support fossil fuels at great cost to health and financial well-being. Beyond dirtier air, if AI turns out to be a market bubble, utility customers could also be left paying for stranded assets.

But demand determines how much energy we need to produce. Essentially, energy efficiency should be viewed as a demand-side infrastructure solution. Higher demand drives up prices for all fuel types and increases the likelihood of blackouts. If there is one thing everyone agrees on, it is that we do not want to face blackouts while waiting for more electricity to come online.

Addressing Affordability and Decarbonization Challenges

At a fraction of the cost, time, and difficulty of building new power plants, we can improve how buildings use energy. In less than a year, building efficiency and demand flexibility measures—such as pre-cooling buildings during summer daytime hours—can reduce electricity demand, improve affordability, and ensure power supply. In contrast, new transmission lines and power plants typically take over a decade to design, permit, and construct.

Over the past 20 years, energy use in buildings has remained roughly flat, despite increasing building floor area and electrical equipment. This is because building codes and appliance standards have continuously improved, making new buildings more efficient.

Efficient buildings cost less to operate, and through smart lease structures, both landlords and tenants can benefit. Efficient buildings also hold more value. Six academic studies have found that ENERGY STAR-certified buildings command rent premiums of 5% to 16%, sale price premiums of 6% to 13%, and occupancy rates 3% to 6% higher.

Furthermore, upgrading inefficient buildings creates local jobs that cannot be outsourced. These jobs can be performed by people with a variety of skills and experience. Policymakers can intentionally develop these roles in areas with limited opportunities and provide job training for local residents. In 2024, the U.S. had 2,290,179 energy efficiency-related jobs, accounting for the majority of clean energy industry employment and surpassing all fossil fuel extraction and processing jobs, according to U.S. Department of Energy data.

For anyone concerned about climate action, buildings are critical. In many urban communities, buildings account for 50% to 75% of greenhouse gas emissions. This means that without reducing building energy use, climate goals cannot be achieved. Unlike clean energy, most policies affecting building efficiency are set and implemented by states and localities, making them less vulnerable to changes in federal incentive policies. More than 50 jurisdictions have enacted building energy benchmarking laws requiring owners to track energy use; 15 regions have adopted building performance standards that set energy savings targets.

Policymakers should engage real estate professionals and residents in building efficiency improvements, creating more opportunities for civic participation and discussion about the future vision of communities. Advances in building energy codes have been a powerful tool for improving the efficiency of new buildings. Building performance standards that drive retrofits of existing buildings hold promise for significantly reducing energy use. The National Building Performance Standards Coalition, comprising 49 local and state governments, is dedicated to advancing such policies. If all coalition members adopted building performance standards, the energy saved by 2040 could eliminate the need for over 100 gas-fired power plants.

More efficient buildings benefit everyone: reducing taxpayer expenditures, lowering utility bills for individuals and businesses, increasing net operating income, improving air quality, and reducing greenhouse gas emissions. Philanthropies, state and local governments, and businesses need to work together to reduce building energy waste. Energy efficiency may not yet have garnered enough attention, but it is a proven solution that is cheaper, faster, and more practical than most supply-side alternatives.