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The Efficiency Illusion

By Michael Shellenberger, Ted Nordhaus, and Jesse Jenkins

If there’s one thing everyone knows for certain, it’s that energy efficiency reduces energy consumption. President Obama, Steven Chu, Fortune 500 chieftains, Silicon Valley VCs, the U.N. and McKinsey all say it. This view has become so common-sensical to be nearly tautological.

Why, then, does ever-greater efficiency go hand-in-hand with ever-greater energy consumption? In this week’s New Yorker, journalist David Owen explains this apparent paradox. The essay (excerpted below) is as fascinating as anything written by Malcolm Gladwell. And the implications for energy and climate policy are of great significance.

Energy efficiency first burst onto the scene in the U.S. after the oil shocks of the mid-seventies. That was when then-Friends of the Earth activist Amory Lovins first started claiming that we wouldn’t need new nuclear power plants because increased efficiency would sufficiently reduce energy demand.

America indeed got efficiency savings — along with higher energy demand. “Between 1984 and 2005,” Owen notes, American electricity production grew by about sixty-six per cent — and did so despite steady, economy-wide gains in energy efficiency … per capital energy consumption rose, too, and it did so even though energy use per dollar of GDP fell by roughly half.”

This wasn’t a coincidence. Consuming energy more efficiently allows us to consume ever-greater quantities of it. Efficiency makes the many services energy provides ever cheaper. This is a central feature of human civilization.

Ancient Babylonians had to work 41 hours to earn enough wealth to power the equivalent of a 75 watt incandescent light bulb for an hour. By 1992, it took the average American just a half-second.

In other words, rising energy efficiency and rising wealth are deeply connected. Greater prosperity, energy demand, and energy efficiency reinforce and propel one another in non-linear and powerful ways.

Start with basic economics. The more efficiently you utilize any factor of production, whether labor, energy, or capital, the more of it you use — and the more the economy grows.

Efficiency advocates cloud the picture by saying things like, “people won’t vacuum more because their vacuum cleaner is more efficient,” or point to a handful of behavioral studies showing only small upticks in personal energy use following efficiency improvements in automobiles or home heating. But these almost deliberate efforts to narrow our attention to this micro-scale “direct rebound” is a mistake and can distract from the complex, macroeconomic dynamics in which serious rebound resides.

As Owens explains, “looking for rebound only in individual consumer goods, or in closely cropped economic snapshots, is as futile and misleading as trying to analyze the global climate with a single thermometer.”

But the cost of primary energy, efficiency advocates point out, is just six to eight percent of the economy — how could efficiency improvements have such a significant ripple on the larger economy?

That’s because, Owen writes, “every kilowatt we generate supports an ever larger proportion of our well-being.” The outsized importance of energy to the economy is quite clear, as Owen explains, “if you imagine eliminating primary energy from the world. If you do that, you don’t end up losing ‘between six and eight per cent’ of current economy activity … you lose almost everything we think of as modern life.”

Look around you and consider how much of modern life depends on energy compared to 100 years ago. “In less than half a century,” Owen notes, “increased efficiency and declining prices have helped to push access to air-conditioning almost all the way to the bottom of the U.S. income scale — and now those same forces are accelerating its spread all over the world… between 1997 and 2007, the use of air conditioners tripled in China…In India, air-conditioning is projected to increase almost tenfold between 2005 and 2020.”

The Luddites suffered under an illusion similar to that of efficiency enthusiasts. They thought the weaving machines would put them out of work. (That’s why they smashed them). Turned out that weaving machines made weaving vastly more efficient — and woven clothing became cheaper and widely available. Textiles now employ far more than in the Luddites day, and we consume more clothing than ever before.

Improvements to the productivity (aka “efficiency”) of energy are of even greater economic significance for the simple reason that we have been able to do a mind-boggling larger number of things with energy — including substituting it for labor wherever we can.

If efficiency resulted in less consumption of energy, notes the ecological economist Blake Alcott, “then less efficiency would logically mean more consumption. But this yields a reductio ad absurdum: engines and smelters in James Watt’s time, around 1800, were far less efficient than today’s, but is it really imaginable that, had technology been frozen at that efficiency level, a greater population would now be using vastly more fossil fuel than we in fact do?”

“Amory Lovins once wrote,” notes Owen, “that, if Jevon’s argument is correct, ‘we should mandate inefficient equipment to save energy.’ As Lovins intended, this seems laughably illogical — but is it? If the only motor vehicle available today were a 1920 Model T, how many miles do you think you’d drive each year, and how far do you think you’d live from where you work? No one’s going to ‘mandate inefficient equipment,’ but, unless we’re willing to do the equivalent — say, by mandating costlier energy — increased efficiency, as Jevons predicted, can only make our predicament worse.”

Indeed, the environmental costs of the efficiency illusion are high. In 1982 Amory Lovins predicted global energy consumption in 2000 would be 5.33 gigatons of oil equivalent. He was off by 40 percent. Lovins and other green efficiency advocates were successful in another way, however: they succeeded in halting the construction of nuclear plants. America went on a coal-building spree, instead.

Here’s excerpts from David Owen’s article, “The Efficiency Dilemma.” Find the full article on news stands in this week’s New Yorker…

The Efficiency Dilemma If our machines use less energy, will we just use them more? By David Owen

In April, the federal government adopted standards for automobiles requiring manufacturers to improve the average fuel economy of their new-car fleets thirty per cent by 2016. The Times, in an editorial titled “Everybody Wins,” said the change would produce “a trifecta of benefits.” Those benefits were enumerated last year by Steven Chu, the Secretary of Energy: a reduction in total oil consumption of 1.8 billion barrels; the elimination of nine hundred and fifty million metric tons of greenhouse-gas emissions; and savings, for the average American driver, of three thousand dollars.

Energy efficiency has been called “the fifth fuel” (after coal, petroleum, nuclear power, and renewables); it is seen as a cost-free tool for accelerating the transition to a green-energy economy. In 2007, the United Nations Foundation said that efficiency improvements constituted “the largest, the most evenly geographically distributed, and least expensive energy resource.” Last year, the management-consulting firm McKinsey & Company concluded that a national efficiency program could eliminate “up to 1.1 gigatons of greenhouse gases annually.” The environmentalist Amory Lovins, whose thinking has influenced Chu’s, has referred to the replacement of incandescent light bulbs with compact fluorescents as “not a free lunch, but a lunch you’re paid to eat,” since a fluorescent bulb will usually save enough electricity to more than offset its higher purchase price. Tantalizingly, much of the technology required to increase efficiency is well understood. The World Economic Forum, in a report called “Towards a More Energy Efficient World,” observed that “the average refrigerator sold in the United States today uses three-quarters less energy than the 1975 average, even though it is 20% larger and costs 60% less”–an improvement that Chu cited in his conversation with me.

But the issue may be less straight-forward than it seems. The thirty-five-year period during which new refrigerators have plunged in electricity use is also a period during which the global market for refrigeration has burgeoned and the world’s total energy consumption and carbon output, including the parts directly attributable to keeping things cold, have climbed. Similarly, the first fuel-economy regulations for U.S. cars–which were enacted in 1975, in response to the Arab oil embargo– were followed not by a steady decline in total U.S. motor-fuel consumption but by a long-term rise, as well as by increases in horsepower, curb weight, vehicle miles travelled (up a hundred per cent since 1980), and car ownership (America has about fifty million more registered vehicles than licensed drivers). A growing group of economists and others have argued that such correlations aren’t coincidental. Instead, they have said, efforts to improve energy efficiency can more than negate any environmental gains–an idea that was first proposed a hundred and fifty years ago, and which came to be known as the Jevons paradox.

Great Britain in the middle of the nineteenth century was the world’s leading military, industrial, and mercantile power. In 1865, a twenty-nine year-old Englishman named William Stanley Jevons published a book, “The Coal Question,” in which he argued that the bonanza couldn’t last. Britain’s affluence, he wrote, depended on its endowment of coal, which the country was rapidly depleting. He added that such an outcome could not be delayed through increased “economy” in the use of coal–what we refer to today as energy efficiency. He concluded, in italics, “It is wholly a confusion of ideas to suppose that the economical use of fuel is equivalent to a diminished consumption. The very contrary is the truth.”

He offered the example of the British iron industry. If some technological advance made it possible for a blast furnace to produce iron with less coal, he wrote, then profits would rise, new investment in iron production would be attracted, and the price of iron would fall, thereby stimulating additional demand. Eventually, he concluded, “the greater number of furnaces will more than make up for the diminished consumption of each.” Other examples of this effect abound. In a paper published in 1998, the Yale economist William D. Nordhaus estimated the cost of lighting throughout human history. An ancient Babylonian, he calculated, needed to work more than forty-one hours to acquire enough lamp oil to provide a thousand lumen-hours of light–the equivalent of a seventy-five-watt incandescent bulb burning for about an hour. Thirty-five hundred years later, a contemporary of Thomas Jefferson’s could buy the same amount of illumination, in the form of tallow candles, by working for about five hours and twenty minutes. By 1992, an average American, with access to compact fluorescents, could do the same in less than half a second. Increasing the energy efficiency of illumination is nothing new; improved lighting has been “a lunch you’re paid to eat” ever since humans upgraded from cave fires (fifty-eight hours of labor for our early Stone Age ancestors). Yet our efficiency gains haven’t reduced the energy we expend on illumination or shrunk our energy consumption over all. On the contrary, we now generate light so extravagantly that darkness itself is spoken of as an endangered natural resource.

Jevons might be little discussed today, except by historians of economics, if it weren’t for the scholarship of another English economist, Len Brookes. During the nineteen-seventies oil crisis, Brookes argued that devising ways to produce goods with less oil–an obvious response to higher prices–would merely accommodate the new prices, causing energy consumption to be higher than it would have been if no effort to increase efficiency had been made; only later did he discover that Jevons had anticipated him by more than a century. I spoke with Brookes recently. He told me, “Jevons is very simple. When we talk about increasing energy efficiency, what we’re really talking about is increasing the productivity of energy. And, if you increase the productivity of anything, you have the effect of reducing its implicit price, because you get more return for the same money– which means the demand goes up.”

Nowadays, this effect is usually referred to as “rebound”–or, in cases where increased consumption more than cancels out any energy savings, as “backfire.” In a 1992 paper, Harry D. Saunders, an American researcher, provided a concise statement of the basic idea: “With fixed real energy price, energy efficiency gains will increase energy consumption above where it would be without these gains.”

In 2000, the journal Energy Policy devoted an entire issue to rebound. It was edited by Lee Schipper, who is now a senior research engineer at Stanford University’s Precourt Energy Efficiency Center. In an editorial, Schipper wrote that the question was not whether rebound exists but, rather, “how much the effect appears, how rapidly, in which sectors, and in what manifestations.” The majority of the Energy Policy contributors concluded that there wasn’t a lot to worry about. Schipper, in his editorial, wrote that the articles, taken together, suggested that “rebounds are significant but do not threaten to rob society of most of the benefits of energy efficiency improvements.”

I spoke with Schipper recently, and he told me that the Jevons paradox has limited applicability today. “The key to understanding Jevons,” he said, “is that processes, products, and activities where energy is a very high part of the cost–in this country, a few metals, a few chemicals, air travel–are the only ones whose variable cost is very sensitive to energy. That’s it.” Jevons wasn’t wrong about nineteenth-century British iron smelting, he said; but the young and rapidly growing industrial world that Jevons lived in no longer exists.

But troublesome questions have lingered, and the existence of large-scale rebound effects is not so easy to dismiss. In 2004, a committee of the House of Lords invited a number of experts to help it grapple with a conundrum: the United Kingdom, like a number of other countries, had spent heavily to increase energy efficiency in an attempt to reduce its greenhouse emissions. Yet energy consumption and carbon output in Britain– as in the rest of the world–had continued to rise. Why?

Most economic analyses of rebound focus narrowly on particular uses or categories of uses: if people buy a more efficient clothes dryer, say, what will happen to the energy they use as they dry clothes? (At least one such study has concluded that, for appliances in general, rebound is nonexistent.) Brookes dismisses such “bottom-up” studies, because they ignore or understate the real consumption effects, in economies as a whole.

A good way to see this is to think about refrigerators, the very appliances that the World Economic Forum and Steven Chu cited as efficiency role models for reductions in energy use. The first refrigerator I remember is the one my parents owned when I was little. They acquired it when they bought their first house, in 1954, a year before I was born. It had a tiny, uninsulated freezer compartment, which seldom contained much more than a few aluminum ice trays and a burrow-like mantle of frost. (Frost-free freezers stay frost-free by periodically heating their cooling elements–a trick that wasn’t widely in use yet.) In the sixties, my parents bought a much improved model–which presumably was more efficient, since the door closed tight, by means of a rubberized magnetic seal rather than a mechanical latch. But our power consumption didn’t fall, because the old refrigerator didn’t go out of service; it moved into our basement, where it remained plugged in for a further twenty-five years–mostly as a warehouse for beverages and leftovers–and where it was soon joined by a stand-alone freezer. Also, in the eighties, my father added an ice-maker to his bar, to supplement the one in the kitchen fridge.

This escalation of cooling capacity has occurred all over suburban America. The recently remodelled kitchen of a friend of mine contains an enormous side-by-side refrigerator, and a drawer-like under-counter mini-fridge for beverages. And the trend has not been confined to households. As the ability to efficiently and inexpensively chill things has grown, so have opportunities to buy chilled things–a potent positive-feedback loop. …

… there are environmental downsides [to this trend], beyond the obvious one that most of the electricity that powers the world’s refrigerators is generated by burning fossil fuels. … Jonathan Bloom, who runs the Web site and is the author of the new book “American Wasteland,” told me that, since the mid-nineteen-seventies, per-capita food waste in the United States has increased by half, so that we now throw away forty per cent of all the edible food we produce. And when we throw away food we don’t just throw away nutrients; we also throw away the energy we used in keeping it cold as we lost interest in it, as well as the energy that went into growing, harvesting, processing, and transporting it, along with its proportional share of our staggering national consumption of fertilizer, pesticides, irrigation water, packaging, and landfill capacity. According to a 2009 study, more than a quarter of U.S. freshwater use goes into producing food that is later discarded.

Efficiency improvements push down costs at every level–from the mining of raw materials to the fabrication and transportation of finished goods to the frequency and intensity of actual use– and reduced costs stimulate increased consumption. … Efficiency-related increases in one category, furthermore, spill into others. Refrigerators are the fraternal twins of air-conditioners, which use the same energy-hungry compressor technology to force heat to do something that nature doesn’t want it to. …

Modern air-conditioners, like modern refrigerators, are vastly more energy efficient than their mid-twentieth-century predecessors–in both cases, partly because of tighter standards established by the Department of Energy. But that efficiency has driven down their cost of operation, and manufacturing efficiencies and market growth have driven down the cost of production, to such an extent that the ownership percentage of 1960 has now flipped: by 2005, according to the Energy Information Administration, eighty-four per cent of all U.S. homes had air-conditioning, and most of it was central. … One consequence, Cox observes, is that, in the United States, we now use roughly as much electricity to cool buildings as we did for all purposes in 1955.

In less than half a century, increased efficiency and declining prices have helped to push access to air-conditioning almost all the way to the bottom of the U.S. income scale–and now those same forces are accelerating its spread all over the world. According to Cox, between 1997 and 2007 the use of air-conditioners tripled in China (where a third of the world’s units are now manufactured, and where many air-conditioner purchases have been subsidized by the government). In India, air-conditioning is projected to increase almost tenfold between 2005 and 2020; according to a 2009 study, it accounted for forty per cent of the electricity consumed in metropolitan Mumbai.

All such increases in energy-consuming activity can be considered manifestations of the Jevons paradox. Teasing out the precise contribution of a particular efficiency improvement isn’t just difficult, however; it may be impossible, because the endlessly ramifying network of interconnections is too complex to yield readily to empirical, mathematics-based analysis. Most modern studies of energy rebound are “bottom-up” by necessity: it’s only at the micro end of the economics spectrum that the number of mathematical variables can be kept manageable. But looking for rebound only in individual consumer goods, or in closely cropped economic snapshots, is as futile and misleading as trying to analyze the global climate with a single thermometer.

Schipper told me, “In the end, the impact of rebound is small, in my view, for one very key reason: energy is a small share of the economy. If sixty per cent of our economy were paying for energy, then anything that moved it down by ten per cent would liberate a huge amount of resources. Instead, it’s between six and eight per cent for primary energy, depending on exactly what country you’re in.” (“Primary energy” is the energy in oil, coal, wind, and other natural resources before it’s been converted into electricity or into refined or synthetic fuels.) Schipper believes that cheap energy is an environmental problem, but he also believes that, because we can extract vastly more economic benefit from a ton of coal than nineteenth-century Britons did, efficiency gains now have much less power to stimulate consumption. …

… [But] there’s a more fundamental problem, described by the Danish researcher Jørgen S. Nørgård, who has called energy decoupling “largely a statistical delusion.” To say that energy’s economic role is shrinking is a little like saying, “I have sixteen great-great-grandparents, eight great-grandparents, four grandparents, and two parents–the world’s population must be imploding.” Energy production may account for only a small percentage of our economy, but its falling share of G.D.P. has made it more important, not less, since every kilowatt we generate supports an ever larger proportion of our well-being. The logic misstep is apparent if you imagine eliminating primary energy from the world. If you do that, you don’t end up losing “between six and eight per cent” of current economic activity, as Schipper’s formulation might suggest; you lose almost everything we think of as modern life.

Blake Alcott, an ecological economist, has made a similar case in support of the existence of large-scale Jevons effects. Recently, he told me, “If it is true that greater efficiency in using a resource means less consumption of it–as efficiency environmentalists say– then less efficiency would logically mean more consumption. But this yields a reductio ad absurdum: engines and smelters in James Watt’s time, around 1800, were far less efficient than today’s, but is it really imaginable that, had technology been frozen at that efficiency level, a greater population would now be using vastly more fossil fuel than we in fact do?” Contrary to the argument made by “decouplers,” we aren’t gradually reducing our dependence on energy; rather, we are finding ever more ingenious ways to leverage B.T.U.s. Between 1984 and 2005, American electricity production grew by about sixty-six per cent–and it did so despite steady, economy-wide gains in energy efficiency. The increase was partly the result of population growth; but per-capita energy consumption rose, too, and it did so even though energy use per dollar of G.D.P. fell by roughly half. Besides, population growth itself can be a Jevons effect: the more efficient we become, the more people we can sustain; the more people we sustain, the more energy we consume.

Chu has said that drivers who buy more efficient cars can expect to save thousands of dollars in fuel costs; but, unless those drivers shred the money and add it to a compost heap, the environment is unlikely to come out ahead, as those dollars will inevitably be spent on goods or activities that involve fuel consumption– say, on increased access to the Internet, which is one of the fastest-growing energy drains in the world. (Cox writes that, by 2014, the U.S. computer network alone will each year require an amount of energy equivalent to the total electricity consumption of Australia.) The problem is exactly what Jevons said it was: the economical use of fuel is not equivalent to a diminished consumption. Schipper told me that economy-wide Jevons effects have “never been observed,” but you can find them almost anywhere you look: they are the history of civilization.

Decreasing reliance on fossil fuels is a pressing global need. The question is whether improving efficiency, rather than reducing total consumption, can possibly bring about the desired result. Steven Chu told me that one of the appealing features of the efficiency discussions at the Clean Energy Ministerial was that they were never contentious. “It was the opposite,” he said. “No one was debating about who’s responsible, and there was no finger-pointing or trying to lay blame.” This seems encouraging in one way but dismaying in another. Given the known level of global disagreement about energy and climate matters, shouldn’t there have been some angry table-banging? Advocating efficiency involves virtually no political risk–unlike measures that do call for sacrifice, such as capping emissions or putting a price on carbon or increasing energy taxes or investing heavily in utility-scale renewable-energy facilities or confronting the deeply divisive issue of global energy equity. Improving efficiency is easy to endorse: we’ve been doing it, globally, for centuries. It’s how we created the problems we’re now trying to solve.

Efficiency proponents often express incredulity at the idea that squeezing more consumption from less fuel could somehow carry an environmental cost. Amory Lovins once wrote that, if Jevons’s argument is correct, “we should mandate inefficient equipment to save energy.” As Lovins intended, this seems laughably illogical–but is it? If the only motor vehicle available today were a 1920 Model T, how many miles do you think you’d drive each year, and how far do you think you’d live from where you work? No one’s going to “mandate inefficient equipment,” but, unless we’re willing to do the equivalent–say, by mandating costlier energy–increased efficiency, as Jevons predicted, can only make our predicament worse.

At the end of “The Coal Question,” Jevons concluded that Britain faced a choice between “brief greatness and longer continued mediocrity.” His preference was for mediocrity, by which he meant something like “sustainability.” Our world is different from his, but most of the central arguments of his book still apply. Steve Sorrell, who is a senior fellow at Sussex University and a co-editor of a recent comprehensive book on rebound, called “Energy Efficiency and Sustainable Consumption,” told me, “I think the point may be that Jevons has yet to be disproved. It is rather hard to demonstrate the validity of his proposition, but certainly the historical evidence to date is wholly consistent with what he was arguing.” That might be something to think about as we climb into our plug-in hybrids and continue our journey, with ever-increasing efficiency, down the road paved with good intentions.


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