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Energy efficiency 101: What is it and why is it important?

A comprehensive overview of energy efficiency; how to achieve it, and why it matters.

Table of contents

Energy efficiency definition

Energy efficiency can be described as using as little energy as possible to perform the same task. The goal of energy efficiency is to eliminate energy waste. In other words, the energy efficiency formula can be defined as a ratio between energy input and energy output. It is not to be confused with energy conservation, which refers to eliminating a good or service to save energy. Instead, it is the process of maximizing the productivity of the energy that is available to us to provide the same or better products and services.

To understand energy efficiency, we must first understand what energy is. This understanding will allow us to investigate why energy efficiency is important, how to make our homes and businesses more energy-efficient, and more. We will then explore energy-saving tips, specific digital activities that use the most energy, and why entrepreneurs should be interested in energy efficiency for their bottom line.

Forms of energy

Energy comes in many different shapes and sizes. No matter the form, energy can be converted or changed into other forms of energy. The difference lies within how each form of energy is captured and utilized. Energy falls into two main categories: potential and kinetic.

Potential energy

Potential energy is known best as stored energy. The various types of potential energy include:

  • Chemical Energy: The bonds of atoms and covalent and ionic bonds of molecules stores potential energy. Examples of chemical energy in action include batteries, petroleum, and biomass.
  • Mechanical Energy: This form of energy is stored within an object’s tension. For example, flattened springs and stretched rubber bands are both cases of stored mechanical energy.
  • Nuclear Energy: Nuclear energy holds the nucleus of an atom together. A colossal amount of energy is released when nuclei are either combined or split. Nuclear energy is most commonly harvested at nuclear power plants.
  • Gravitational Energy: Produced by an object’s mass (such as a planet), the storage of this energy form is directly proportional to the height and heaviness of an object. The higher and heavier, the more energy is stored. Hydropower is a great example of the use of gravitational energy.

Kinetic energy

Kinetic energy exists in the motion of waves, electrons, and even objects. The different forms of kinetic energy include:

  • Radiation Energy: Electromagnetic energy that travels in traverse waves, includes light, x-rays, gamma rays, and radio waves. Sunlight is the best-known form of radiant energy.
  • Thermal Energy: Otherwise known as heat, this energy form is produced by constantly moving particles. As atoms and molecules move faster, more thermal energy is produced. Geothermal energy from the Earth’s core is a great example of this.
  • Motion Energy: The polar opposite of potential energy, motion energy is produced from the movement of things. Energy is required to make an object move but it is also released to make an object stop. A perfect example of this is a car crash. From an energy production standpoint, a windmill is an illustration of the capture of motion energy.
  • Sound Energy: As energy travels as longitudinal waves through matter, sound is produced.
  • Electrical Energy: Otherwise known as electricity, electrical energy is created from negatively charged particles called electrons. A lightning bolt is a great instance of natural electrical energy. 

Each form of energy can be harnessed and used by humans for the production of goods and services. Unfortunately, many sources of energy are finite. In addition, energy is difficult to effectively harness which leads to unnecessary waste. Energy efficiency is the conversion process of getting the most out of each form of energy as possible.

Why is energy efficiency important?

Energy efficiency is important for both environmental reasons as well as economic reasons:

Energy efficiency and climate change

Since many forms of energy are finite and difficult to harness, it makes it imperative to make the most out of the energy that we are able to capture. Much of the electricity produced today is thanks to the form of chemical energy through a chemical reaction known as combustion. Unfortunately, the combustion of resources like biomass, petroleum, natural gas, and coal emits harmful toxins into the air that are bad for both human health and the environment. As of 2019, a whopping 84% of the global energy supply came from the combustion of fossil fuels.

When it comes to driving gasoline-powered cars, only 30% to 35% of gasoline is effectively converted into energy that is necessary to move a car down the road. This means that roughly 65 cents are wasted for every one dollar of gas purchased. The finite availability of gasoline paired with the detrimental effects of its combustion process are destroying our economy as well as our planet. Transportation alone accounts for 14% of global greenhouse gas emissions.

Energy efficiency and climate change are closely related. The less energy efficient we are as humans; the more accelerated climate change becomes. Climate change is caused by five main human and natural events:

  • Greenhouse Gases: This includes carbon dioxide, methane, and nitrous oxide. Since the industrial revolution, the combustion of fossil fuels has led to a 40% increase in carbon dioxide in the atmosphere, 2.5 times the methane, and 20% the nitrous oxide. The more greenhouse gases that exist in the atmosphere, the less infrared radiation is capable of escaping. This leads to a phenomenon known as global warming.
  • Reflectivity or Absorption of the Sun’s Energy: Urban heat islands are a phenomenon caused by asphalt and other manmade objects absorbing the sunlight rather than reflecting it. Roofs, for example, tend to reflect less sunlight than the natural vegetation that previously existed.
  • Changes in the Earth’s Orbit and Rotation: This is a natural process that is out of our control. During the ice age, there was much less sunlight hitting the northern hemisphere than there is now.
  • Volcanic Activity: Volcanic eruptions emit a catastrophic amount of carbon dioxide into the atmosphere. That said, human activities emit more than 100 times as much carbon dioxide into the atmosphere as volcanoes do each year. This is another natural process out of our control. There are other naturally occurring releases of carbon dioxide caused by changes in our oceans.
  • Variations in Solar Activity: The sun’s energy output changes over time. It’s theorized that these changes play very little role in the changes to our climate in recent years due to its stability.

As you can see, climate change is being accelerated by mankind’s actions, particularly through the combustion of fossil fuels. Energy efficiency is a critical first step in reducing the emissions of harmful greenhouse gasses.

Energy efficiency and its economic importance

The benefits of energy efficiency extend far beyond environmental factors. Energy efficiency improvements have been shown to have positive macroeconomic and microeconomic benefits that can boost the economy and lead to increased employment. In addition, lowering the cost of energy consumption frees up resources for other endeavors.

In 2017, the European Commission modeled four scenarios that assessed the energy efficiency goals of the European Union by the year 2030. The models measured the projected changes in Europe’s gross domestic product (GDP). This includes employment data, trade balances, energy prices, and more. The four models all resulted in a positive change ranging from a 0.1% increase to a 2.0% increase. It’s been calculated that energy efficiency investments create more jobs per dollar invested than traditional energy investments.

The job market isn’t the only part of the economy that benefits from an energy-efficient society. Energy efficiency effectively reduces the energy load required to power homes and businesses. More efficiency means less infrastructure such as utility poles and transmissions. It means less waste and more utilization. In the United States, avoided costs can be as high as $200/kWh.

What are some examples of energy efficiency?

Now that we understand the different forms of energy efficiency and their importance to humanity, we can explore some different energy efficiency solutions. Some different energy efficiency solutions include:

1.   Water and wastewater facilities

According to the EPA, water and wastewater facilities are the largest consumers of energy for municipalities. By improving the energy efficiency of equipment, these facilities can reduce energy costs, greenhouse gas emissions, and increase the efficiency of the treatment process. Energy efficiency in this sector is a win-win for both the energy sources as well as water conservation.

2.   Reuse of materials

The reuse of materials is a much more energy-efficient approach than building from scratch. For example, renovating an old building will typically require far less energy than demolishing it and bringing in new materials.

3.   Efficient designs

Just about anything that consumes energy can be designed to be more efficient. Motor vehicles, for example, can be designed to increase the car’s miles-per-gallon (MPG). Incandescent lightbulbs convert just five percent of their energy into visible light whereas LED light bulbs can exceed 20%. In the northern hemisphere, buildings can be constructed with more south-facing windows to receive more direct sunlight throughout the day, effectively reducing the demand from a furnace.

4.   Public transportation

As discussed previously, the transportation sector accounts for a large number of greenhouse gases emitted into the atmosphere. Offering more public transportation options such as electric busses, light rails, and pedestrian bike paths is a great way to get fossil fuel-combusting cars off the road.

5.   Energy utilization

Venezuela and Saudi Arabia have the largest oil reserves on Earth. Unfortunately, both countries are thousands of miles away from the United States. The energy required to extract and transport oil from foreign countries in addition to the potential hazards (like leaks and other emissions) can be thwarted by utilizing natural resources that we have right here at home. Areas that receive a lot of sunshine can increase their energy utilization by using solar panels to harvest solar energy. Areas near powerful rivers can use hydraulic dams to harvest energy. Areas near thermal plumes can use geothermal heat to harvest energy.

How can I make my home more energy-efficient?

In the United States, residential energy consumption accounts for a whopping 21% of its total energy consumption. This makes energy efficiency for homes extremely important in combatting the effects of climate change. Energy efficiency for houses will also save homeowners a good chunk of change. The United States Department of Energy estimates that the average household can save up to 25% on utility bills, or $2,200 annually, by implementing energy efficiency home improvements.

Below are some examples of how to make your home more energy efficient:

1.   Energy efficiency light bulbs

Lighting accounts for approximately 15% of a home’s electricity use. The average household can save up to $225 per year by switching to energy efficiency lighting such as LEDs. This makes a simple switch from incandescent light bulbs to LED light bulbs one of the fastest and easiest ways to make your home more energy efficient. Installing timers and dimmers will also increase your savings.

2.   Energy efficiency appliances

ENERGY STAR, the leading energy efficiency rating system in home appliances, estimates that if every appliance in the United States were ENERGY STAR certified, we would prevent greenhouse gas emissions equivalent of up to 215,000 cars – which would save a whopping $360 million annually in energy costs alone. Some examples of certified appliances include refrigerators, freezers, dehumidifiers, air purifiers, dishwashers, clothes washing machines, and clothes driers.

3.   Energy efficiency heaters

Heating and cooling make up approximately 42% of household energy usage. Energy efficiency heating and cooling can be achieved through the installation of smart programmable thermostats that optimize the temperature throughout your house. An energy efficiency furnace and energy efficiency hot water heaters are a bit pricier upfront but pay off in the long run. Consider consulting an energy efficiency HVAC professional to optimize the way that hot and cold air flow throughout your home.

4.   Energy efficiency insulations

According to the North American Insulation Manufacturers Association, approximately 90% of single-family homes are improperly insulated. The EPA estimates that the average homeowner can save up to 15% on heating and cooling costs by adding insulation to attics, crawl spaces, and basement rim joists. It’s also important to check that your windows and doors are adequately insulated.

How can businesses be more energy efficient?

Energy efficiency for businesses is very similar to energy efficiency for homes. When it comes to energy efficiency for buildings, the stakes are higher since more energy is required to keep them running. According to the Intergovernmental Panel of Climate Change (IPCC), retrofitting existing commercial buildings can save up to 50% to 75%.

The same tips from above can be implemented at commercial locations, but additional steps are needed at businesses:

1.   Energy efficiency employee travel

For businesses that require frequent traveling, fleet vehicle purchasing should be mindful of the vehicles’ efficiency. Scheduling virtual meetings instead of traveling is preferred. If flying is necessary, then there are carbon offsetting programs that your business can get involved in. Encouraging employees to work from home where possible is a great way to save energy from a commuting standpoint. The State of Utah has gone as far as requiring eligible employees to work from home when the air quality is above a certain threshold of pollution.

2.   Energy efficiency manufacturing

The manufacturing process is typically tailored to the product being produced. Because of this, there isn’t a good ‘one size fits all’ approach to energy efficiency in manufacturing. A process engineer should be able to optimize the manufacturing process which should minimize waste. Many manufacturing operations use compressed air. Slight adjustments here can result in large savings. Failed motors are another common source of energy loss. Variable speed drives (VSD) motors can provide up to 60% savings in a motor’s energy cost. When it comes to process heating and cooling, something simple like an insulation blanket or refrigerant line can provide significant savings.

3.   Energy efficiency supply chain

Energy efficiency and sustainability start with effective supply chain solutions. Where a company ships and receives raw materials and other goods should be considered. The distance traveled, the form of travel (train, truck, air), should also be considered. By optimizing shipping routes, businesses can save on time and transportation costs.

How is energy efficiency important for entrepreneurs?

GreenPrint, a global environmental technology company, found that 75% of millennials are willing to pay more for an environmentally friendly product. 63% of Genz Z, 64% of Gen X, and 57% of Baby Boomers all agree. The survey also revealed that 77% of Americans are concerned about the environmental impact of the products that they buy.

As an entrepreneur, caring about energy efficiency can be a huge advantage in the market. Energy efficiency is a triple threat in today’s world: it’s good for the environment, it’s good from an economic savings perspective, and it’s good marketing.

False or misleading claims of energy efficiency, better known as greenwashing, should be avoided at all costs. Greenwashing can lead to a damaged reputation, loss of sales, and even lawsuits. 

What are some energy saving habits?

There are quick and easy ways to save energy on a personal level. Some energy efficiency examples to implement at home include:

  • Switching off lights
  • Use fewer bulbs with higher wattages
  • Install dimmer switches
  • Switch to CFL or LED bulbs
  • Take shorter showers
  • Install low-flow showerheads
  • Fill the dishwasher completely before washing
  • Fill the washing machine completely before washing
  • Use cold water to wash clothes and dishes
  • Tumble dry or hang dry clothes when possible
  • Select the shortest possible washing setting
  • Open the windows to allow in a breeze instead of using air conditioning
  • Bundle up in layers instead of using excess heat
  • Use smart power strips
  • Use natural light during the day
  • Replace air filters
  • Unplug appliances when not in use
  • Defrost your refrigerator and freezer on a regular basis

What digital activities are using the most energy?

The digitization of just about everything has afforded humanity many conveniences. Unfortunately, digital activities are increasing our need to consume energy. In 2018, digital technologies led to the emission of 3.7% of global greenhouse gases. Digital technologies include data centers, networks, televisions, computers, smartphones, and other end-user devices. Below are some of the most energy-intensive digital activities today:

  • Energy efficiency in cloud computing is a growing issue. Google data centers consume about 0.013% of the world’s energy consumption, which is enough to power 200,000 homes.
  • Cryptocurrency mining operations consume about 135 terawatt-hours of electricity per year. Bitcoin alone accounts for 0.55% of the world’s energy consumption.
  • High-definition streaming accounts for 6% of monthly coal consumption in the United States. By switching to a lower quality option, it could reduce monthly greenhouse gas emissions by 3.5 million tons.
  • Video games account for about $6 billion in energy consumption each year in the United States, which is equivalent to as many as 2.3 million extra cars driving around.
  • Charging smart devices like iPhones or Androids only accounts for 1kWh per year, or about $0.12 cents. This is equivalent to powering ten 100-watt incandescent lightbulbs for an hour. Nothing to worry about here!


This article is intended to inform the reader on the ins and outs of energy efficiency, why it’s important, and how they can do their part in making their home or business more energy efficient. As climate change progresses, energy efficiency is increasingly more important. Not only can energy efficiency help curb the effects of climate change, but it can also save consumers money through cost savings.

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