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End-Use/Least-Cost Approach

For a quarter-century, RMI's concept of finding the best and cheapest way to do each desired task—rather than simply expanding supply without regard to the right amount, quality, and scale—has offered penetrating and successful insights into a wide range of resource issues.

During the "energy crises" of the 1970s, the instinctive response of American policymakers was to increase the supply. If the problem was that there wasn't enough energy, they reasoned, then the solution was to get more—of any kind, from any source, at any price.

Paying Attention to Demand Produces Better Solutions

Along came a young physicist named Amory Lovins who wrote a paper questioning this "supply-side" strategy and suggesting that more attention be paid to demand. People don't want kilowatts of electricity or barrels of oil, he wrote, but rather the "end-use services" they provide. They want lighting, heating, refrigeration, mobility. The trick is to reframe the question as, "What are we trying to do, and what's the best and cheapest way to do it?"

So if people want hot showers and cold beer, one starts with these end-use services, then asks how much energy, of what kind, at what scale, and from what source, would do each desired task in the cheapest way.

Within a few years, Lovins's heretical views had become accepted wisdom, at least in the energy field. Automakers designed cars that got people around just as well, but used less fuel. Homeowners insulated their buildings, making them just as comfortable but more efficient. Individually and collectively, people chose such measures over massive supply-side increases because they delivered the same (or better) end-use services more cheaply.

This "End-Use/Least-Cost" approach has since become a standard tool in our analysis of almost all resource issues.

Applying the end-use/least-cost principle to corporate strategy yields the third principle of natural capitalism: shifting from producing goods to providing services. For example, by providing "cooling services" instead of selling air conditioners, a company would be free to find the cheapest way to keep its clients comfortable—an arrangement that is likely to produce more innovative and responsive solutions, and save money (and energy) for all parties.