Energy-efficiency skeptics and advocates: the debate heats up as the stakes rise
Energy efficiency (EE) is rapidly growing in many markets today, but its its cost-effectiveness and potential for growth are being hotly debated. These controversies impede public and private investment in efficiency programs, products, and services. As the stakes rise, the debate has heated up and the need grows to clarify the disagreements and disputes. We review the arguments of skeptics and advocates on 10 key questions concerning energy efficiency, attempting to answer three overriding questions: does an EE gap exist, how big is the gap, and how can the gap be shrunk? We tackle 10 areas of contention: the significance of market failures, the efficiency of investment levels, energy intensity as a measure of efficiency, the treatment of naturally occurring EE, the application of discount rates, accounting for transaction costs, treatment of the rebound effect, the practice of EE delivery, the integration of EE into utility business models, and opportunities for EE growth. Research needs in each of these areas are also described. By examining the divergent views of skeptics and advocates and by addressing the limitations of current knowledge, policymakers and stakeholders can make better-informed decisions supported by more defensible analysis.
KeywordsEnergy efficiency gap Energy efficiency potential Discount rates Rebound effect Transaction costs
This article deepens and extends arguments presented in Green Savings: How Markets and Policies Drive Energy Efficiency (Praeger, 2015). We thank our colleagues in the Climate and Energy Policy Laboratory and the Brook Byers Institute of Sustainable Systems at Georgia Tech for helping to crystallize many of these arguments.
- ACEEE. (2011). “How Does Energy Efficiency Create Jobs? Fact Sheet.” http://aceee.org/files/pdf/fact-sheet/ee-job-creation.pdf.
- Amann, Jennifer Thorne. (2006). Valuation of non-energy benefits to determine cost-effectiveness of whole-house retrofits programs : a literature review. Vol. 20036. Washington D.C.Google Scholar
- American Council for an Energy Efficient Economy (ACEEE), (2015). State Energy Efficiency Resources Standards (EERS) (April).Google Scholar
- Baumol, W. J., & Oates, W. E. (1975). The theory of environmental policy. Englewood Cliffs, N.J: Englewood Cliffs, N.J., Prentice-Hall.Google Scholar
- Birol, Fatih. (2012). “Chief economist at the International Energy Agency.” http://web.mit.edu/newsoffice/2012/3q-fatih-birol-world-energy-outlook-1127.html.
- Borenstein, S. (2015). A microeconomic framework for evaluating energy efficiency rebound and some implications. The Energy Journal, 36(1), 1–21.Google Scholar
- Bradley, Robert L. (2014). Capitalism at work: business, government, and energy. M & M Scrivener Press.Google Scholar
- Brown, Marilyn A, and Yu Wang. (2015). Green savings: how policies and markets drive energy efficiency: how policies and markets drive energy efficiency. ABC-CLIO.Google Scholar
- Brown, M. A., Johnson, E., Matisoff, D., Staver, B., Beppler, R., & Blackburn, C. (2016). “Impacts of solar power on electricity rates and bills,” Proceedings of the 2016 ACEEE Summer Study on Energy Efficiency in Buildings, Pacific Grove, CA. Washington, DC: American Council for an Energy-Efficient Economy.Google Scholar
- Deitchman, B. (2017). Climate and clean energy policy: state institutions and economic implications, Routledge.Google Scholar
- DOE EIA. (2011). “Residential demand module of the national energy modeling system model documentation report.” US DOE Energy Information Administration. http://www.eia.gov/FTPROOT/modeldoc/m067 (2011).pdf.
- Donahue, John D. (1989). The privatization decision: public ends, private means. Basic Books.Google Scholar
- Frederick, S., Loewenstein, G., & O’Donoghue, T. (2002). Time discounting and preference : a critical time review. Journal of Economic Literature, 40(2351–401). doi: 10.2307/2698382.
- Fri, R. W. (2003). The role of knowledge: technological innovation in the energy system. The Energy Journal, 24(4), 51–74 http://www.jstor.org/stable/41323012.
- Geller, H., & Attali, S. (2005). The experience with energy efficiency policies and programmes in IEA countries. Paris: Learning from the Critics.Google Scholar
- Gillingham, Kenneth, and Karen Palmer. (2014). “Bridging the energy efficiency gap: policy insights from economic theory and empirical evidence.” Review of Environmental Economics and Policy. Oxford University Press, ret021.Google Scholar
- Gillingham, K., R. Newell, and K. Palmer. (2009). “Energy efficiency economics and policy.” Resources for the Future. http://rff.org/rff/documents/RFF-DP-09-13.pdf.
- Goldstein, David B. (2014). “Efficiency really works!” NRDC. https://www.nrdc.org/experts/david-b-goldstein/efficiency-really-works.
- Herron, Seth and Eric Williams, (2013). “Modeling cascading diffusion of new energy technologies: case study of residential solid oxide fuel cells in the U.S. and internationally” Environmental Science and Technology. Google Scholar
- Hoffman, Ian M, Gregory Rybka, Greg Leventis, Charles A Goldman, Lisa Schwartz, Megan Billingsley, and Steven Schiller. (2015). “The total cost of saving electricity through utility customer-funded energy efficiency programs: estimates at the national, state, sector and program level.” Lawrence Berkeley National Laboratory. https://emp.lbl.gov/sites/all/files/total-cost-of-saved-energy.pdf.
- International Energy Agency (IEA). (2013). Energy efficiency market report 2013. Paris: OECD/IEA.Google Scholar
- International Energy Agency (IEA). (2014). Energy efficiency market report: market trends and medium-term prospects. Paris, France.Google Scholar
- IPCC. (2014). Climate change 2014: mitigation of climate change. Contribution of Working Group III to the Fifth Assessment Report of the Intergovernmental Panel on Climate Change. Cambridge, UK and New York, NY, USA.Google Scholar
- Jaffe, A.B., R.G. Newell, and R.N. Stavins. 2004. “Economics of energy efficiency.” Encyclopedia of Energy, Elsevier, Inc.Google Scholar
- Kushler, Martin, Dan York, and Patti Witte. (2006). “Aligning utility interests with energy efficiency objectives : a review of recent efforts at decoupling and performance incentives” 20036 (October).Google Scholar
- Laitner, John A Skip, Steven Nadel, R Neal Elliott, Harvey Sachs, and A Siddiq Khan. (2012). The long-term energy efficiency potential : what the evidence suggests. Washington DC. http://www.aceee.org/sites/default/files/publications/researchreports/e121.pdf.
- Lebot, Benoit, Paolo Bertoldi, and Phil Harrington. (2004). “Consumption versus efficiency : have we Designed the right Policies and programmes ? Is energy efficiency enough ? Short discussion on the rebound effect.” In ACEEE Summer Study on Energy Efficiency in Buildings, 206–17.Google Scholar
- Levinson, Arik. (2014). “California energy efficiency: lessons for the rest of the world, or not?” Journal of Economic Behavior & Organization, April. http://www.sciencedirect.com/science/article/pii/S016726811400119X.
- MacLean, J., & Purcell, D. (2014). Strategies for energy efficiency finance. Montpelier, VT: Regulatory Assistance Project.Google Scholar
- Makovich, L. J. (2008). The cost of energy efficiency investments. Cambridge, MA: CERA.Google Scholar
- McCoy, D., & Lyons, S. (2016). Unintended outcomes of electricity smart-metering: trading-off consumption and investment behaviour. Energy Efficiency, 1–20.Google Scholar
- National Research Council (NRC). (2009). “Hidden costs of energy: unpriced consequences of energy production and use.” National Academy Press.Google Scholar
- Nordhaus, T., Shellenberger, M., & Jenkins, J. (2013). “Energy efficiency: beware of overpromises.” Breakthrough Institute. http://thebreakthrough.org/index.php/programs/energy-and-climate/the-limits-of-efficiency.
- Office of Management and Budget (OMB). (2002). “Guidelines and discount rates for benefit–cost analysis of federal programs.” http://www.whitehouse.gov/sites/default/fi les/omb/assets/a94/a094.pdf.
- Office of Management and Budget (OMB). (2009). 2010 Discount Rates for OMB Circular No. A-94. http://www.whitehouse.gov/omb/assets/memoranda_2010/m10-07.pdf.
- Shah, Jigar V. (2015). “Beyond the cliche: why efficiency needs success stories, not catchphrases.” Greentech Media. http://www.greentechmedia.com/articles/read/beyond-the-cliche-why-efficiency-needs-success-stories-not-catchphrases?utm_source=Daily&utm_medium=Headline&utm_campaign=GTMDaily.
- Shellenberger, Michael and Ted Nordhaus. (2014). “The problem with energy efficiency.” The New York Times.Google Scholar
- Shipley, A. M., & Neal Elliot, R. (2006). Ripe for the picking: have we exhausted the low-hanging fruit in the industrial sector. Washington DC: American Council for an Energy-Efficient Economy.Google Scholar
- State and Local Energy Efficiency Action Network (SEEAction), Dec. 2015, “State approaches to demand reduction induced price effects: examining how energy efficiency can lower prices for all” (https://www4.eere.energy.gov/seeaction/system/files/documents/DRIPE-finalv3_0.pdf).
- Stern, Paul C., Kathryn B. Janda, Marilyn A. Brown, Linda Steg, Edward L. Vine, and Loren Lutzenhiser. (2016). “Opportunities and insights for reducing fossil fuel consumption by households and organizations” Nature Energy, May.Google Scholar
- Stevens, Noel, Nathan Caron, Christopher Chan and Pam Rathbun. (2016). “Innovative tools for estimating robust non-energy impacts that enhance cost-effectiveness testing and marketing of energy efficiency programs,” Proceedings of the 2016 ACEEE Summer Study on Energy Efficiency in Buildings, Pacific Grove, CA, (Washington, DC: American Council for an Energy-Efficient Economy).Google Scholar
- Sutherland, R. J., & Taylor, J. (2002). Time to overhaul federal energy R&D. Policy Analysis, 424, 1–21.Google Scholar
- Taylor, J. (1993). Energy conservation and efficiency: the case against coercion. Policy Analysis, 189, 1–13.Google Scholar
- Taylor, Jerry, and Peter Van Doren. (2007). “Energy myth five-price signals are insufficient to induce efficient energy investments.” In Energy and American Society – Thirteen Myths, 125–44.Google Scholar
- Thaler, Richard H. (1991). “‘Some empirical evidence on dynamic inconsistency.” Quasi Rational Economics 1. Russell Sage Foundation New York, NY, United States: 127–36.Google Scholar
- Thomas, S., Boonekamp, P., Vreuls, H., Broc, J.-s., Bosseboeuf, D., Lapillonne, B., & Labanca, N. (2012). How to measure the overall energy savings linked to policies and energy services at the national level? Energy Efficiency, 5(1) Dordrecht: Springer Science & Business Media, 19–35. doi: 10.1007/s12053-011-9122-x. CrossRefGoogle Scholar
- Tonn, Bruce, David Carroll, Erin Rose, Beth Hawkins, Scott Pigg, Daniel Bausch, Greg Dalhoff, Michael Blasnik, Joel Eisenberg, and Claire Cowan. (2015). “Weatherization works II—summary of findings from the ARRA period evaluation of the US Department of Energy’s Weatherization Assistance Program.” ORNL/TM-2015/139. Oak Ridge, Tennessee: Oak Ridge National Laboratory. http://weatherization.ornl.gov/RecoveryActpdfs/ORNL_TM-2015_139.pdf.
- U.S. Department of Energy (DOE), and Committee on Climate Change Science and Technology Integration (CCCSTI). (2009). “Strategies for the commercialization and deployment of greenhouse gas-intensity reducing technologies and practices.”Google Scholar
- U.S. Energy Information Administration (EIA). (2013). Commercial demand module of the national energy modeling system: model documentation 2013 (p. 146). Washington, DC: US Energy Information Administration.Google Scholar
- U.S. Energy Information Administration (EIA). (2015a). Analysis of the impacts of the clean power plan. Washington, DC: U.S. Energy Information Administration https://www.eia.gov/analysis/requests/powerplants/cleanplan/pdf/powerplant.pdf.
- U.S. Energy Information Administration. (2015b). Analysis of energy efficiency program impacts based on program spending, May 21, http://www.eia.gov/analysis/studies/buildings/efficiencyimpacts/.
- U.S. Energy Information Administration. (2016). Annual energy outlook 2016. Washington D.C. Report 0383 (2016).Google Scholar
- U.S. IAWG. (2013). “Technical support document: technical update of the social cost of carbon for regulatory impact analysis under Executive Order 12866.” Interagency Working Group on Social Cost of Carbon, United States Government. Washington, DC. http://www.whitehouse.gov/sites/default/files/omb/inforeg/social_cost_of_carbon_for_ria_2013_update.pdf.
- Vine, Edward, Marty Kushler, and Dan York. (2007). “Energy myth ten—energy efficiency measures are unreliable, unpredictable, and unenforceable.” In Energy and American society—thirteen myths, 265–88.Google Scholar
- Wagner, Gernot, and Kenneth Gillingham. (2014). “LEDs, energy efficiency and consumption.” The New York Times, A22–A22. http://www.nytimes.com/2014/10/18/opinion/leds-energy-efficiency-and-consumption.html.
- Weimer, David L., and Aidan R. Vining. (2011). Policy analysis: concepts and practice. Fifth Edit. Prentice Hall.Google Scholar
- York, Dan, Martin Kushler, Sara Hayes, Stephanie Sienkowski, and Casey Bell. (2014). “Making the business case for energy efficiency : utility performance with supportive regulation.” In 2014 ACEEE Summer Study on Energy Efficiency in Buildings, 358–69. Washington D.C.Google Scholar