Energy efficiency isn't quite as efficient as it's cracked up to be


It's true that this information is from the US. It's also true that this shows more than a dash of Hayek's "fatal conceit". The idea that the clever people can plan things for us and we'll all go off and do them just as we're planned to do. Human beings don't really work like that which is why planning so often fails. But to the information itself: energy efficiency programmes don't have the effects the planners thought they would:

Conventional wisdom suggests that energy efficiency (EE) policies are beneficial because they induce investments that pay for themselves and lead to emissions reductions. However, this belief is primarily based on projections from engineering models. This paper reports on the results of an experimental evaluation of the nation’s largest residential EE program conducted on a sample of more than 30,000 households. The findings suggest that the upfront investment costs are about twice the actual energy savings. Further, the model-projected savings are roughly 2.5 times the actual savings. While this might be attributed to the “rebound” effect – when demand for energy end uses increases as a result of greater efficiency – the paper fails to find evidence of significantly higher indoor temperatures at weatherized homes. Even when accounting for the broader societal benefits of energy efficiency investments, the costs still substantially outweigh the benefits; the average rate of return is approximately -9.5% annually.

What we are looking for in an investment is a positive rate of return of course. The idea that the outputs of whatever it is that we do are worth more than the original value of the resources we have to put into doing it. A negative rate of return is evidence that we shouldn't be doing this, whatever it is, because it is making us poorer.

Which is why, if action to deal with climate change there is going to be we have always insisted that that action should be a carbon tax. It's analagous to the argument over Greece and the euro. The horrendous economic pain there is because they must go through internal devaluation. That austerity: in order to screw down the price level for local labour. It's far easier, and there's a great deal less pain, if just the one price, the exchange rate, can be changed and thus realign the economy in a much simpler manner. So it is with the carbon tax and climate change. By changing that one price we make it rational to perform those tasks where the savings are greater than the costs. Including, of course, those social costs of carbon emissions.

We thus don't need to have armies of engineers making plans where the outcomes aren't going to live up to the hype. It becomes in the rational self-interest of each consumer to do those things which help and not to do those things which don't. So, consumers do those beneficial things.

We're generally of the view that government is best kept out of the operation of the economy. Yet even we agree that sometimes intervention is necessary. But when intervening, keep that intervention to the simplest action that will achieve the task: in both of these cases that means just the one single change to the price level and then let the market calculate out the implications of it.