Energy Efficiency Can Make The Environment Worse Off

How? By making energy so much cheaper that people demand and use more of it. In today's paper, New York Times' excellent science reporter John Tierney looks at the "rebound effect" of increased energy efficiency. The article cites a new study, "Energy Emergence: Rebound and Backfire as Emergent Phenomena, by the environmental/energy think tank the Breakthrough Institute. The report reviews the economic literature and finds: 

…extensive evidence that a large amount of the energy savings from below-cost energy efficiency are eroded by demand rebound, and that in some cases the rebound exceeds the savings, resulting in increased energy consumption from efficiency, known as backfire.

Tierney explains:

While there's no doubt that fuel-efficient cars burn less gasoline per mile, the lower cost at the pump tends to encourage extra driving. There's also an indirect rebound effect as drivers use the money they save on gasoline to buy other things that produce greenhouse emissions, like new electronic gadgets or vacation trips on fuel-burning planes…

Consider what's happened with lighting over the past three centuries. As people have switched from candles to oil-powered lamps to incandescent bulbs and beyond, the amount of energy needed to produce a unit of light has plummeted. Yet people have found so many new places to light that today we spend the same proportion of our income on light as our much poorer ancestors did in 1700, according to an analysis published last year in The Journal of Physics by researchers led by Jeff Tsao of Sandia National Laboratories…

…if your immediate goal is to reduce greenhouse emissions, then it seems risky to count on reaching it by improving energy efficiency. To economists worried about rebound effects, it makes more sense to look for new carbon-free sources of energy, or to impose a direct penalty for emissions, like a tax on energy generated from fossil fuels. Whereas people respond to more fuel-efficient cars by driving more and buying other products, they respond to a gasoline tax simply by driving less.

A visible tax, of course, is not popular, which is one reason that politicians prefer to stress energy efficiency. The costs and other trade-offs of energy efficiency are often conveniently hidden from view, and the prospect of using less energy appeals to the thrifty instincts of consumers as well as to the moral sensibilities of environmentalists.

But if the benefits of energy efficiency have been oversold, then that's more reason to consider alternatives like a carbon tax, and to look more carefully at the hidden costs and trade-offs involved in setting rigid standards for efficiency. Unlike a carbon tax, which gives consumers and manufacturers an incentive to look for smart ways to save energy, a mandated standard of efficiency can reduce flexibility and force people into choices they wouldn't ordinarily make….

Tierney then quotes Sam Kazman from the free market think tank, the Competitive Enterprise Institute:

"Efficiency mandates have become feel-good mantras that politicians invoke," Mr. Kazman said. "The results of these mandates have ranged from costly fiascos, such as once-dependable top-loading washers that no longer wash, to higher fatalities in cars downsized by fuel-efficiency rules. If the technologies were so good, they wouldn't need to be imposed on us by law."

The fact is that markets already strongly encourage people and firms to use energy ever more efficiently. As I noted in a 2009 column, How Green Is Your Crystal Ball?, a 1980 National Academy of Sciences study asserted that strong policy measures would be needed to dramatically boost energy efficiency by 2010. What actually happened?

Were various energy conservation measures adopted by federal and state governments over the past three decades responsible for substantially lowering the amount of energy Americans use? Nope. In 2004, Resources for the Future, a think-tank based in Washington, D.C., performed "a comprehensive review of energy efficiency programs in the United States, with a focus on the adoption of energy-efficient equipment and building practices." They found that energy efficiency programs reduced annual primary energy consumption by 4 quads below what it would otherwise have been. So most energy efficiency improvements in the U.S. over the past 30 years were adopted without government mandates.

The 1980 report also confidently predicted that "technical efficiency measures alone could reduce the ratio of energy consumption to gross national product…to as little as half its present value over the next 30-40 years." According to the a new NAS report, energy use per dollar of GDP has already fallen by 44 percent since 1980, dramatically exceeding expectations without dramatic government intervention.

Conclusion: Energy efficiency tends to encourage more energy use, not less. Assuming man-made global warming is a big problem, increased energy efficiency is not likely to be a big part of the solution to it.