Energy Efficiency, Consumption and Carbon Pricing

The Breakthrough Institute features a post with the title “Why Energy Efficiency Does not Decrease Energy Consumption,” which I suspect people on various sides of the climate policy issue may take as either fighting words or a rallying cry. Personally, it leaves me wondering whether it serves as yet another reminder that policies aimed at reforming energy usage, while desirable, may be harmful unless explicitly tied to curbs on carbon emissions.

Solid-state lighting. (Credit: Wikipedia)

The post discusses a recent report in the Journal of Physics,Solid-state lighting: an energy-economics perspective,” by a team of scientists at Sandia National Laboratories and energy economist Harry D. Saunders. They attempted to estimate how much energy consumption might decrease over time with the adoption of solid-state lighting, such as light-emitting diodes that could convert electricity into light two to five times as efficiently as traditional bulbs can.

As energy economists have long recognized, the answer is less straightforward than it might seem. Making everybody’s lights fivefold more efficient wouldn’t cut lighting costs by 80 percent because people would start using lights differently. If lighting is more affordable, they may install more lights, stop turning them off when they leave the room or simply leave them burning night and day. But of course, not everyone will. The challenge, then, is in trying to estimate how sizable this “rebound” usage may be.

And of course, the efficiency argument for lighting theoretically applies to many if not all areas of conservation, which may have their own forms of rebound phenomena. The lighting study is therefore potentially a bellwether for the general conservation benefits that might accrue from other efficient energy technologies.

Disappointingly, what the researchers found after looking at lighting data from around the world for the past 300 years is that in effect, expenditures on lighting rebound all the way. l“[T]he world spends about 0.72% of its GDP on light,” they wrote, “This was the case in the UK in 1700 (UK 1700), is the case in the undeveloped world not on grid electricity in modern times, and is the case for the developed world in modern times using the most advanced lighting technologies.”

Harry Saunders summarizes the bad news this way:

Many have come to believe that new, highly-efficient, solid-state lighting — generally LED technology, like that used on the displays of stereo consoles, microwaves, and digital clocks — will result in reduced energy consumption. We find the opposite is true, concluding “that there is a massive potential for growth in the consumption of light if new lighting technologies are developed with higher luminous efficacies and lower cost of light.”

Perhaps the most important part of their analysis is their explanation for why the rebound effect is so great. It is not simply a direct, intentional transfer of lumens—of, say, people turning on twice as many lights as efficiency doubles. Rather, Saunders and his colleagues say the most important culprit is the indirect, more subtle effect: namely, that people take the money they are saving on illumination and spend it on other goods and services, which implicitly use more illumination, too.

Indeed, a related story posted by the Breakthrough Institute staff reports that “decades of energy efficient lightbulbs and Energy Star appliances haven’t led to reductions in energy consumption in the average U.S. household, but they have given the average American relatively more disposable income to devote to new (energy-guzzling) gadgetry.”

As Saunders concludes (emphasis added):

There are significant potential implications of high levels of rebound. One is that greater energy efficiency may be a net positive in increasing economic productivity and growth but should not be relied upon as a way to reduce energy consumption and thus greenhouse gas emissions. Particularly in a world where many billions lack sufficient access to modern energy services, efficient technologies such as solid-state lighting may be central to uplifting human dignity and improving quality of life through much of the world. One might even argue that energy efficiency is still important from a climate perspective, because when efficiency leads to greater economic growth, societies will be better able and more willing to invest in more expensive but cleaner energy sources. But in this way energy efficiency is no different from other strategies for increasing economic growth. What should be reconsidered is the assumption that energy efficiency results in a direct, net decrease in aggregate energy consumption when there is a growing body of research suggesting the opposite.

Someone far more competent than I would be needed to find fault with their analysis, which sounds persuasive to my inexpert ears. Instead, I’ll simply comment on the meaning of the findings.

First, while this rebound result may not be welcome news, it shouldn’t be entirely surprising to anyone. I’m not sure that even conservation’s fiercest proponents literally expected improvements in efficiency to roll over straightforwardly into consumption reductions. They’ve tried to get the world’s attention by emphasizing that energy efficiency and conservation measures are inexpensive, easily implemented solutions with immediate returns, but I give them more credit than to think that efficiency and conservation alone would solve the energy and climate problems all by themselves.

Moreover, the strength of the rebound effect is especially likely given that the analysis includes indirect lighting costs. It’s not unlike the findings that say the health cost savings of getting people to quit smoking will be at least partially offset by all the accumulating costs of having those nonsmokers living longer and getting sick from other causes. This is what success looks like when only one part of the dynamic system changes. If people are spending less money directly on lighting, we implicitly assume and want them to spend what’s left on other things. That’s the definition of economic growth. We certainly want poor people around the world to achieve a higher standard of living, which would entail them buying things. And to the extent that lighting costs are embedded in all those other goods and services, such rebounds may be inevitable if nothing else changes.

What can and should change, of course, is the calculated cost of the energy. One reason that lighting expenditures may have tended to be constant over the past 300 years is that those costs didn’t include any of the externalities associated with, say, pollution. And they certainly didn’t factor in costs associated with carbon emissions and climate change, which is an urgent problem now. Saunders notes that by their calculation, a 12 percent increase in energy costs would serve to reduce the consumption of electricity.

What I then wonder—and don’t see addressed in any of the Breakthrough Institute commentary on the study—is, doesn’t this study therefore serve as yet another argument for a market-based carbon pricing scheme, such as cap and trade? The carbon-related charges would discourage some of the rebound spending, and the market-driven aspects would help to allocate those costs most efficiently. We would have more efficient, more affordable lighting but also reductions in CO2 emissions, which is what anyone truly concerned about both human welfare and the climate should want.

The converse is what concerns me about strategies, such as those championed by the Breakthrough Institute, to “make clean energy cheap” for everyone first, and to worry about explicit carbon reductions later. Clean energy can be defined many ways, not all of which equate to meaningfully lower CO2 emissions. Unless carbon becomes part of the equation now, then better energy systems will be a short-term win for human welfare but could greatly worsen the climate problems later.

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4 Responses to Energy Efficiency, Consumption and Carbon Pricing

  1. Pingback: Quick Links | A Blog Around The Clock

  2. Oh, so very, very much to comment on here. Your keen editors’ eye has selected one of the most important points (the most important point?) up for debate in the quest to figure out what to do first in order to reduce emissions.

    Stan Cox, a scientist who just wrote a really thoughtful book about how air conditioning is wrecking our world, recently said that of course energy efficiency doesn’t work, because “it’s like putting energy on sale”:

    Second, I had a discussion with Alexis Madrigal about this on his blog a while back that you might find interesting. It’s the ultimate matchup: Amory Lovins vs. Vaclav Smil, with a new twist courtesy of a physicist I interviewed a while back.

    Third, the weird thing about the Breakthrough Institute is that they would explicitly deny your claim that reducing the rebound effect can be accomplished through a price on carbon, although maybe just because they are doctrinaire rejectors of any such policy:

    Fourth, I had never considered that the strategy to “make clean energy cheap” fails the same test as energy efficiency – namely, that cheap energy leads to more use, not less.

    So we are left where we started: we either make energy expensive, either through a carbon price or by moving generation to sources that aren’t as subsidized as fossil fuels (and also possibly just plain more expensive at present, like solar PV or what have you) or we burn up all the carbon in the Earth’s crust and hope that Lomborg is right about our ability to adapt and geo-engineer our way out of that pickle – in other words, we find out whether or not we want to use the technology we’ve developed for moon and mars bases to sustain whoever is left on planet Earth.

    The other alternative I see gaining currency among commentators who can’t believe that the universe would be that unfair is the idea that energy will become more expensive no matter what – because we’re running out of oil, the shale gas boom will pass, and we might even be running out of high-quality coal. For that reality, see the second link, above. The takeaway in that case is: if there is less energy available, energy efficiency becomes important for a whole new set of reasons…

  3. Jac says:

    what about California’s experiment in efficiency standards. Hasn’t California’s net energy consumption stayed relatively flat despite economic and population growth?