In my reading about green issues, I have often run across the assertion that investing in energy efficiency is a losing proposition in terms of reducing energy use. The assertion is that as efficiency is increased, the marginal price of the good decreases, leading to overall more aggregate demand.
The New Yorker has focused attention on this assertion this week in an article written by David Owen. The Breakthrough Institute has added some commentary on the article and has posted additional research on the topic in the past.
The Natural Resources Defense Council has posted a counter point that asserts that energy efficiency does work to reduce energy use and improve living standards.
The most obvious rebuttal to “rebound effect” claims is the performance of the US economy since the early 1970’s: between 1973 and 2009, US economic production more than tripled even as total US energy use increased by less than a third. If “rebound effect” advocates were right, that record would have been flatly impossible, since savings in energy use would be offset by activities that demand energy, keeping energy use trends in lockstep with economic growth (just as they were for the first three decades after World War II).
This is one of those subjects where I do not have an informed opinion. On one hand, it can be argued that energy efficiency works as is demonstrated by the decline ratio of energy consumption versus GDP in the USA economy. On the other hand, it could be asserted that aggregate total demand for energy in the world has been increasing as countries with a high energy use to GDP ratio expand their economies.
Overall, I am reasonably confident that subsidizing energy use does not lead to energy being used more efficiently. In Manitoba, for example, I often wonder why we promote energy efficiency while at the same time employ export earning to keep prices of electricity set below competitive market rates that prevail in neighboring jurisdictions. Is that situation not equivalent to sucking and blowing at the same time?
In the bigger picture, I am reasonably comfortable the if economic signals are allowed to function, a supply-demand balance will emerge that does not starve the world for energy. In terms of fossil fuel production, the development of oil sands, shale gas, and tight oil offers a lot of room for growth, albeit at potentially higher prices than today. In the even longer term, there is ample energy that can be developed from geothermal, solar (including wind and bio-energy), and nuclear energy processes. Somehow, energy efficiency fits into that mix, but I doubt that any top-down, centralized design can deal with the complexity of the situation. It is an issue that is best left to open, competitive market forces.
