More on Energy Efficiency

by Michael Levi

We can’t decarbonize economy unless we decarbonize our energy supplies, so how can energy efficiency ever solve our problems? It can’t, alone. But energy efficiency matters when economics and politics collide. Say my monthly electricity bill is $100. If policymakers want to force me to use renewable power, that bill might double – and I might reject such a big increase. Now imagine that energy efficiency has let me cut my bill to $25. I might be more open to the doubling of energy prices, since my bill would now only increase by $25, and still be half of its original amount. Think about this another way: If we can double the efficiency of wind farms or solar panels, we’re thrilled. We should be just as pleased if we can double the efficiency of the things that wind farms and solar panels power.

What about the fact that people use more cars/AC/fridges/whatever? People are richer than they used to be. They use more stuff. Yes, the fact that these things have become cheaper (including through lower energy costs) also increases their use. But if you ignore income growth, you’re missing a huge part of the picture.

Haven’t you ignored the multiplier effect of energy efficiency savings? In my post, I argued that if I saved $100 on gasoline, and spent it on a broad basket of goods and services, I’d end up cutting into society’s energy savings by about $6-$8, since energy costs are about 6-8% of GDP. Several people pointed out that my $100 of spending can generate more than $100 in increased GDP, since my money can circulate through the economy multiple times. They’re right, and I was wrong: it’s plausible that my $100 of spending could increase GDP by as much as $200-$300. But that would still leave society with only $18-$24 in extra energy costs, and a big net savings in energy consumption.

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