Mellody Hobson is president of Ariel investments, a Chicago-based money management firm that serves individual investors and retirement plans through its no-load mutual funds and separate accounts. Additionally, she is a regular financial contributor and analyst for CBS news.
Tom: You are here today talking about energy?
Mellody: I am! I thought with all of the recent news about climate change, along with the expected announcement from president Obama regarding coal plant emissions; it might be a good thing to discuss energy consumption. Energy expenses – be they home or auto related – are some of the largest bills we have. because of this, our energy consumption is a great place to start if you want to put a little bit more green in your wallet while being a little bit more eco-friendly.
Tom: Where does the U.S. get its energy?
Mellody: Great question, tom. The largest component of American energy consumption is petroleum, or oil, which accounts for about 35% of the country’s energy demands. Our listeners can probably guess where that goes – especially if they are stuck in traffic this morning. The majority is used to make gasoline. When it comes to generating electricity in the U.S., we also rely heavily on fossil fuels – around 26% of our energy consumption is natural gas, and around 17% is coal. But here is where things get interesting – 40% of America’s electricity comes from coal, one of the cheapest but most carbon intensive sources.
The president’s new initiative expected Monday will aim to strengthen emissions standards on big power plants, which in turn will crack down on large coal and natural gas plants that emit great quantities of carbon. In doing so, American carbon emissions will continue to fall, but there might be some impact on the price of energy, particularly in coal-reliant regions, such as the Midwest. The president has already increased emissions standards for cars, which has made the current us auto fleet the most efficient in history – and helped give consumers more options to save on that gas money.
Tom: How do Americans consume use energy? What is the breakdown?
Mellody: Well Tom that can be a tricky question to measure, but the easiest way to break down energy use is by household. And the household numbers might surprise you. According to the energy information agency, the statistical bureau for the U.S. department of energy, American households consume the most energy – 41% – on their heating bill. The second largest category is appliances and electronics, which account for 35%, followed by water heating at 18% and air conditioning at 6%.
Tom: You mentioned that we can save some green. Give us some tips.
Mellody: Right! One of the great advantages of energy efficiency is that it is both good for your pocketbook, and good for the environment. Now there are two categories here: big changes and small changes. Let me start with the more long-term solutions. If you are a homeowner, you might want to consider solar energy and install solar panels. With numerous programs out there that allow for financing options, the costs of installing solar are going down, and savings are going up. And once you have them, you can save big. Depending on where you live, you can save between $500 and $1500 per year for the next 20 years! And you will recoup that value on resale.
A couple of other long-term options also involve your home. By making your house more energy efficient – through the installation of more efficient windows, or better insulation – will save money over time, and reduce your environmental impact. And you might be able to get tax credits for these improvements as well.
My final long-term energy saver? If you are in the market for a new car, consider the savings that will come with a hybrid. If you commute, the fuel savings will balance out any higher monthly payments, and allow you to save money in the middle to long term. You can put that money towards retirement, and feel a little greener. To check out savings or make comparisons between traditional and hybrid cars, you can go to fueleconomy.gov.
Tom: What about smaller actions that will get us greener?
Mellody: Because it is summer, let’s start out with air conditioning. set your air conditioner thermostat as high as comfortable when you’re at home – try 78 degrees – and turn it off or set it to at least 85 degrees when you’re gone. For every degree above 72 that you set your air conditioning, you will save 1-3% on your electric bill. Also, have your central air conditioner tuned up at the beginning of summer, and clean or replace the filters monthly.
Earlier, I mentioned that on average 35% of energy is used on appliances and electronics, and this is where my second tip comes in. while you cannot unplug the refrigerator, you can cut down on the amount of energy your electronics use. Plug your TV, computer, DVD player and other electronics into a power strip and turn it off when you are not using them, or when you leave. Almost anything with a plug will use energy even if it is not off!
Next, consider your lights. First of all, you should turn them off as much as possible, especially if you are still using incandescent lights, as they emit heat. And secondly, work to replace all of your old incandescent light bulbs with the newer, energy efficient led bulbs. By converting to more efficient lighting, you will reduce your energy use by around 7%, and the cost of lighting your house will be reduced by 75% a year, or from $264 to $66 for the average home.
Finally, remember that some of the most expensive energy you buy comes in the form of gas, so any efficiencies you can find there, whether it is filling your tires or taking mass transit will translate into more cash in your pocket.
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