Morgan Stanley
  • Research
  • Dec 2, 2015

Fight Against Climate Change Starts at Home

New technology that taps into the Internet of Things could help make our homes smarter and greener, with potential savings for consumers, benefits for the planet, and opportunities for investors.

While world leaders are hammering out international agreements and policies that they hope will fight climate change, research reveals that the efforts we make at home may be just as important. Daily household tasks, from using the washer to turning on heating, account for 17% of the world's carbon-dioxide emissions.

However, new technology and innovations could help rein in household emissions, according a recent Morgan Stanley Research report, "Consumers and Climate Change: The Home Energy Efficiency Opportunity." The burgeoning Internet of Things (IoT) promises to make our houses smarter and more energy efficient, passing cost savings to consumers, creating opportunities for investors and perhaps most importantly, benefiting the planet in the process, according to the report.

“When it comes to addressing climate change, discussions often center around industrial and transportation sectors, as they are the main sources of carbon emissions," says Eva Zlotnicka, an analyst for the Sustainable + Responsible Investment research team. “(But) consumers produce a considerable amount of carbon dioxide globally."

Residential Sector Accounts for Nearly One Fifth of Total Global Carbon Emissions

Source: Based on IEA data from “CO2 Emissions from Fuel Combustion (2014 Edition)” ©OECD/IEA 2014, IEA Publishing; modified by Morgan Stanley Research

Think of all of the appliances, gadgets and gear that need to be plugged in, always on, charging and recharging. Radiators to stay warm, refrigerators to keep food cold, lamps to light homes, big-screen TVs, desktops, and all of our portable devices—they drink vast amounts of energy. We bear the cost in bills, but also the longer-term cost in emissions. In the US alone, lighting and electrical appliances accounted for 51%—and rising—of home energy consumption in 2015, according to Morgan Stanley's report.

In Europe, household energy consumption varies widely between regions. For instance, home appliance and electricity consumption in Scandinavian countries is nearly triple that in some Eastern European countries. Still, regardless of where people live, changes in consumer purchases and behavior could have a significant impact on global warming.

Smarter Homes

The IoT—or the world of connected devices—can make real the promise of a “smart home." In this house, everything from the bedroom lights to shower-water temperature can be monitored and auto-adjusted. For instance, automatic scheduling and remote-control options can help reduce appliance run-time. Additionally, these connected devices could allow you to schedule less critical operations during nonpeak energy-use hours to maximize efficiency and reduce energy bills.

“From the consumer's perspective, the idea of the smart/connected home is primarily making people's lives easier through automation, but there are obvious energy efficiency benefits," Zlotnicka says.

The technology is already available and relatively affordable. WiFi smart thermostats can "learn" user’s habits, auto-heating rooms to a preferred temperature, then switch to energy-efficient mode when no one is home. Air-conditioners can change temperature settings based on the time of day, track electricity usage and be remotely controlled via a smartphone. Smart meters empower consumers to monitor their utility bills and better control usage, given real-time feedback and increased transparency.

Beyond convenience, these products can help reduce energy consumption: One study revealed that a smart thermostat saved 11.3% of AC-related energy usage per day for users in California. Moreover, they produce a wealth of Big Data that can help both hardware and software makers continuously upgrade and improve products and services. At a higher level, the data may also help utilities optimize their production, delivery, and market strategies.

Additional Ways to Reduce Emissions

Connected devices aren’t the only way consumers can cut energy use and related CO2 output. Buying more efficient appliances helps. So does replacing incandescent with compact fluorescent or LED lighting, which on average uses 75% and 85% less energy, respectively, than traditional light bulbs.

Also, sourcing electricity from low carbon fuels can reduce household emissions. “Though not available everywhere, consumers in certain regions can opt to buy power from an energy supplier that uses renewable power generation, or to invest in solar panels for their own private use," Zlotnicka says. Surprisingly, choosing greener energy sources can also be more cost effective.

In US, Levelized Cost of Renewables Is Attractive, Even Without Incentives

Source: Morgan Stanley Research
*Production Tax Credit (PTC); **Investment Tax Credit (ITC)

Consumers around the world have voiced concerns about global warming and an interest in energy-saving products. As their interest grows, the companies behind these efforts may offer investors with a wealth of new opportunities—and the planet may end up the ultimate winner.

For more Morgan Stanley Research on energy efficiency and sustainable & responsible investing, ask your Morgan Stanley representative or a Financial Advisor for the full report, “Consumers & Climate Change: The Home Energy Efficiency Opportunity” (Nov 3, 2015). Plus, see more of our Ideas.

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