Viewpoint: Saving Energy

The US economy is saving a lot of energy right now. The unemployed don't have to drive to work, and shut-down factories don't need fuel for their machines or electricity for lighting. That is one way to "conserve" oil, but the lost output is surely worth more than the saved fuel. Some voices, however, are suggesting that energy use can be cut by 30-50 percent with no sacrifice at all. A free lunch.

It isn't chic to admit to reading Reader's Digest, but I do. The June issue had a piece by James Nathan Miller informing us that "there is an easy answer" to our energy problems. We can simply do without "the energy we squander." For credibility, Miller cited "a widely praised report" from the Harvard Business School. This is a slander on Harvard, which cannot be blamed for Energy Future just because a half-dozen of their lecturers, assistant professors, and students patched together something that looks like a book.

Energy Future gained momentary fame because of its conclusions, not because of the way they were reached. In this respect it replaced once-fashionable but now-discredited works such as A Time To Choose and the WAES volume Energy: Global Prospects. The latter "study" devoted a whole paragraph to the price system: "Another possibility for balancing energy supply and demand is that…higher prices…could encourage energy savings and stimulate alternative fuel supplies. We have not analyzed in detail these price and growth implications." Neither did Energy Future.

Over and over again, Energy Future asserts that "the United States can use 30 or 40 percent less energy than it does, with virtually no penalty for the way Americans live—save that billions of dollars will be spared." The 1975 estimate behind this assertion, however, involves replacing massive investments in cars, furnaces, windows, refrigerators, and so on, as well as added production from burning organic waste (a health hazard) and cogeneration. There is no estimate of how much this would cost or how long it would take. When Energy Future gets around to forecasting, however, their own plans show energy consumption rising by 24 percent in a decade, not falling by 40 percent.

But now we have Mr. Miller citing Harvard and hinting that we might be able to save "almost half of our total current energy consumption." Unfortunately, he switches around from current to future so quickly that it gets hard to follow.

If we don't improve insulation, Miller suggests that annual energy use in homes and offices would rise from 29 quads to 41 by the year 2010. Investing $25-$100 billion would, he says, cut such use to 22 quads by then. That's less than 9 percent of current energy consumption, and at best many years and dollars away.

Industry cut energy use by 10 percent from 1973 to 1978 while raising production by 12 percent. Miller implies this could go on forever, but unscrewing every other light bulb can't be done twice. Again, some study claims we could cut energy consumption by 25 percent over 30 years, but what has this got to do with the current problem?

Private cars, on Miller's figures, use 10 of the 80.8 quads of energy consumed (or 12.4 percent). Miller says smaller cars, more tune-ups, a 50-cent gas tax, and gas rationing could save 8 of the 10 quads. That involves a lot of double-counting and is plainly absurd. Somebody once added up all such potential gasoline savings and found that motorists would have to stop in from time to time to have their tanks emptied.

The energy-conversion loss from using, say, coal to make useful electricity "cannot be considered waste," admits Miller, but he nonetheless cites the "appalling" losses. He offers "one estimate" that cogeneration of electricity from industrial steam could produce ("save") six quads a year within five years, if the regulators would allow it. Even Energy Future could only come up with half that much.

So what do we end up with? Some potential, long-term energy savings of unknown size or expense superimposed on increased energy use from a growing population and economy. At best, energy use need not grow as fast as it would otherwise. This is hardly a reduction of "almost half our total current energy consumption." Where energy savings are economic, they are obviously being made already, so any additional current savings presumes that people are irrational—that they prefer to spend more for less.

Miller's supposedly "startling" conclusion is that "Congress and the Administration should focus on this enormous proven, cheap source, which we can start tapping immediately." Yet there is nothing at all in his article to suggest that viable conservation is enormous, proven, cheap, or immediate.

Suppose I added up all the claims made for various supplies of energy over the next 30 years, regardless of price, and then concluded that this justified a crash program to produce these supplies at taxpayers' expense. Everyone, even the editors of Readers' Digest, would immediately see that the argument makes no sense. They would ask why we should produce energy that is more costly than oil, why those who use it shouldn't pay for it, and why we should pursue some alleged long-term solution when other options are faster and more certain.

When writing about saving energy, however, rather than producing it, all standards of logic and evidence are tossed out the storm window. It then becomes acceptable to assert that conservation is cheaper without producing even a guess as to its cost. It becomes possible to claim that conservation is safer, though there are real problems with fumes in well-sealed houses and with auto accidents in tiny cars.

I have no doubt that when people face decontrolled energy prices, human ingenuity will devise many new ways to save as well as produce energy. Government cannot do that, because government is not a creative force and does not know which sources and uses of energy people prefer.

What bothers me about the conservation optimists is not their optimism but their blatant dishonesty. If we throw away centuries of learning about how to separate the known from the unknown, we will have lost something more valuable than all the oil and gas in Alaska.

Alan Reynolds is vice-president of research at a major US bank.