It wasn’t long after the world’s first commercial power plant fired up in 1879 that city dwellers made a basic discovery: Smoke-spewing power plants make bad neighbors. Before long, the young industry began shifting its operations far from America’s downtowns. It’s time to come back, argue Casten, head of a company that develops and runs decentralized energy projects, and Downes, a project engineer with the firm.

The shift to big generating plants in remote locations created economies of scale, but the need to transmit electricity over great distances and, more important, the inability to recycle waste heat for use in nearby buildings also introduced big inefficiencies. In fact, U.S. average net electric efficiency reached its peak around 1910, before the exodus began, at about 65 percent of the input energy. By 1960, efficiency had declined to 33 percent, and there it remains today.

With today’s technologies, it’s possible to convert more than 50 percent of the energy created by burning fuel (including coal) into electricity, while also emitting few pollutants. If smaller “direct generation” (or “cogeneration”) plants could be located near users in urban areas, the industry could easily see a return to the “good old days” of high efficiency. That’s not just a theoretical possibility. By recycling waste heat and minimizing losses to transmission, actual plants of that sort have achieved 65 to 97 percent net efficiency.

All told today, there are 931 such plants, and they generate eight percent of the nation’s electricity. Why aren’t there more? Shielded from competition and required by government regulations to pass along any savings from efficiency gains to their customers, utility companies have had little incentive to innovate.

Global demand for electricity will double over the next three decades, the International Energy Agency predicts. The authors claim that building smaller, decentralized plants would save $5 trillion in capital investment, consume the equivalent of 122 billion fewer barrels of oil, and halve carbon dioxide emissions, producing less global warming. But they see little likelihood of a radical overhaul of utility regulation. They propose instead adoption of a national fossil fuel efficiency standard, backed up with penalties and rewards. Do that, they say, and the other pieces will begin to fall into place.