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When Does Efficiency Not Really Equate to Savings?

Aug. 29, 2012

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Robert Michaels

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Ask Robert Michaels about policies to promote energy efficiency and be prepared for a discussion on why such policies aren't as effective as we might think.

“Efficiencies often lead to lower energy costs, and lower costs tend to lead to increased use,” explains the economics professor, who recently completed “Energy Efficiency and Climate Policy: The Rebound Dilemma,” a study into how such policies end up not saving as much as simple arithmetic seems to suggest.

To explain his premise, Michaels uses the example of William Stanley Jevons, who studied the British coal industry and its contributions to economic growth.

“Coal facilitated the deployment of steam technologies for pumping, transportation and metalworking that were among the foundation of Britain's world leadership in the 19th century,” notes Michaels. “Ongoing improvements increased the useful work producible by steam and with it, the demand for coal. Then, as now, some thinkers stressed the importance of improving technological efficiency, in light of coal's finiteness.

“By extending coal’s capabilities, these improvements would help to postpone the seemingly inevitable economic decline that would follow supply exhaustion, but it didn’t,” Michaels went on.

“Jevons’ insight was a deep one: absent technological improvements, fuel gets ‘conserved’ forever. It goes into use only if it can be cheaply converted into services that people value. If a commercially viable engine is more fuel-efficient, its diffusion into new employments can lead to more coal being burned, rather than less.”

Michaels sees that same concept today, when it comes to mandated increases in energy efficiency.

“Such policies are very popular and have been implemented around the world,” he says in his study, written for the Institute for Energy Research, where he is a senior fellow. “They appear to be clear winners for almost everyone. If the costs of new technologies are within reason, they promise consumers lower energy bills and producers more profit, while mitigating the environmental costs of energy development and consumption.”

The problem, he insists, is that often those very efficiencies end up not saving as much as hoped, a phenomenon generally known as “rebound.”

Take the case of more energy-efficient refrigerators. Utility companies offer incentives for consumers to purchase them because the benefits of lower energy bills will outweigh the higher purchase cost. But what if a consumer keeps his old fridge — say putting it in the garage for the family sodas? The savings is less, and the energy consumed is actually higher.

Or the costumer might buy a larger unit than before, or one with additional energy-using options, like an ice-maker in the door.

Same with air conditioning units. Someone who has never had an air conditioner buys one, or because the new unit is more energy efficient, lowers the temperature during the summer months more than before the purchase.

“If climate change is an important issue, rebounds that occur outside of the U.S. promise to be far larger, as efficiency — possibly in combination with cheaper energy — motivates massive purchases by people who formerly lived without any of these appliances at all,” Michaels says.

So, should economic efficiency mandates be eliminated?

“Each case is different, and when new policies are under consideration, they should be formulated with rebounds in mind,” Michaels says.

And what does that mean for the future?

“Humans are highly adaptable creatures,” he says with a smile. “The use of coal stopped the deforestation of Great Britain and brought about Britain's industrial transformation. We will come up with new forms of energy and better ways of using it. I'm very optimistic about the future.”

To read more, go to “The Hidden Flaw of ‘Energy Efficiency’” on the web.

By: Pamela McLaren, 657-278-4852

Tags:  Academics & Research