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Posted on January 10, 2011

Voodoo Energy Economics

News flash: “Efforts to improve energy efficiency can more than negate any environmental gains,” according to a recent article in The New Yorker.

That’s as heretical to an environmentalist as telling a nutritionist that fruits and vegetables are bad for human health. But controversy sells magazines.

I love contrarian stories as much as anyone, but only when the facts cooperate. Too often—as we’ve seen with all the junk coverage of climate-change deniers—such stories do us all a profound disservice.

The author of The New Yorker story, David Owen, a contributing editor of Golf Magazine, takes issue with Secretary of Energy Steven Chu, the energy experts at McKinsey & Co., and “most economists and efficiency experts” to side with the few who claim that energy efficiency may be counterproductive.

The claim rests on a nugget of truth, already familiar to faithful readers of NEXT100 as the “rebound effect.” Because improvements in energy efficiency make it cheaper to use energy, people may end up offsetting some of their savings by leaving their lights on longer or cooling their house more.

But whereas most experts agree that the effect is relatively small, the author believes he has evidence to show them wrong.

Examples, please?

His first pertains to refrigerators. Secretary Chu reports that those sold in the United States use three-quarters less energy than those in 1975, even though they are 20 percent bigger. But Owen trumps him by observing that in those thirty-five years, “the world’s total energy consumption and carbon output, including the parts directly attributable to keeping things cold, have climbed.”

His causal leaps leave me reeling. He conflates the U.S. market with the world market, then jumps from refrigerators to world energy consumption. But you don’t need the rebound effect to understand the big picture. Incomes and population have grown throughout most of the world, so people are using more energy and yes, buying more refrigerators along with everything else. Surely to the extent that those refrigerators are more efficient, the environment is better off than it would be otherwise.

Later he asserts that people waste more food because widespread refrigeration makes them forget the expiration dates. (Huh?) Might Americans instead throw more food away because it has become relatively cheap? The percentage of income spent on food in the United States fell from 17.5 percent in 1960 to 9.8 percent in 2000. People tend to waste cheap things more than expensive things. You don’t need to blame efficient refrigerators for that.

He also notes that gasoline consumption has grown despite fuel economy regulations enacted in 1975. Again, the rebound effect had little to do with it. People bought more and bigger cars because median personal incomes grew about 30 percent from 1978 to 1998. They drove more miles and guzzled more gas because the real price of gasoline fell 38 percent from 1978 to 1998.

Owen is on firm ground when he points out that energy efficiency isn’t a panacea—the world needs to limit fossil-fuel consumption by putting a price on carbon if we’re really going to curb greenhouse gas emissions. But that important truth is lost in his contrarian manifesto.

Back in 1980, presidential candidate George H. W. Bush famously derided an extreme version of supply-side economics—which promised that cutting taxes would stimulate so much new growth that government revenue would actually increase—as “voodoo economics.”

The claim that energy-efficient technology will “more than negate any environmental gains” is voodoo economics for the 21st century, pure and simple.

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