A Negative Effect to Energy Efficiency Regulation?

A few days after a recent post in which I discussed issues surrounding government regulation of energy efficiency (Government Regulated Energy Efficiency and the Light Bulb), I read an interesting related article in The New Yorker magazine, by David Owen, The Efficiency Dilemma (December 20/27, 2010). 

In the article, Owen recalls the work of William Stanley Jevons, who published a book in 1865, “The Coal Question,” in which he argued that increasing the economy (efficiency) of the use of coal would not delay the exhaustion of England’s coal reserves, but would rather hasten it.  Jevons’ thesis, as Owen relates it, was that more efficient use of coal would lower the cost of whatever was being produced from coal, and so increase the demand for it, and so, ultimately, increase the use of coal.

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.”

Owen goes on to present arguments of modern economists for and against the idea that ‘effort to improve energy efficiency can more than negate any environmental gains.’  He refers to a negative, ‘rebound’ effect, in which improved energy efficiency actually leads to greater overall use of energy.

There are two issues I have with Owen’s arguments.  One is general: I feel he makes the fallacy of false equivalency; he states at one point that ‘most economists and efficiency experts have come to’ the conclusion ‘that the Jevons paradox has limited applicability today,’ but, he dedicates half the article to an economist who argues that Jevons was correct and his theory applies to modern economies.

My second issue with the article is that Owen begins with Jevons’ original theory, which Jevons applied to production processes, and extends it to the product efficiency improvements being regulated by the government.  Many of the arguments Owen presents seem to confirm at first glance the thesis that efforts to improve energy efficiency can negate environmental gains, but don’t stand up under further investigation. 

Taken together, though Owen has written a thought-provoking article on the larger trade-offs of the push for energy efficiency, his article sensationalizes the ‘rebound effect’ beyond what can currently be supported by data, and so goes too far in calling into question the benefit of having the government regulate energy efficiency to reduce energy use.

Automobile Fuel-Economy Regulation

Automobile development and fuel economy regulation are one example where I would argue that Owen’s data don’t support his conclusions:  Owen states that ‘the first fuel-economy regulations for U.S. cars … in 1975 … 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 traveled (up a hundred per cent since 1980), and car ownership.’  But look at this in more detail.  The plot below shows data from the site infoplease; the data is for ‘personal passenger vehicles, buses, and trucks.’  I have drawn in a dashed line for 1975, when the fuel-economy regulations were first introduced in the US.

 Looking more closely at Owen’s six claims, based on the data in the plot above:

• The total U.S. motor fuel consumption has increased, but the increase is basically on the same rate of increase as was already occurring from 1960 to 1975; in fact, if anything, there was a period of time from the mid-1970’s to around 1990, when fuel consumption dipped slightly.
• The vehicle miles traveled has increased, but the increase is again only slightly above the trend already established in the 1960’s and early 1970’s, before the fuel-economy regulations were introduced; as Owen reports, vehicle miles traveled were up 100% from 1980 to 2006, but, then, they were up 100% from 1960 to 1980, also.
• Vehicle ownership is increasing, but it can be seen to roughly track the US population increase, and is on the trend already established well before the 1975 regulations were introduced.  (I assume Owen meant vehicle (cars and light-duty trucks) and not car; the statistics at the same site show car ownership has actually flattened since the late 1980’s, most likely because of the increased purchase of SUV’s and light trucks.)
• Regarding the increases in horsepower and curb-weight, a plot from an earlier post is reproduced below.  As can be seen, vehicle weight dropped significantly in the 5 years after the regulations were introduced, and 0-60 time (related to horsepower) remained relatively flat, as manufacturers focused on meeting the regulations, but once the regulations were met, manufacturers had little motivation to improve fuel economy standards and so the focus went back to improving performance (for example, by reducing 0-60 times and making larger vehicles).

Later in the article, Owen states:

The Model T was manufactured between 1908 and 1927.  … its fuel economy ranged between thirteen and twenty-one miles per gallon.  …  But focusing on miles per gallon is the wrong way to assess the environmental impact of cars.  Far more revealing is to consider the productivity of driving.  Today, in contrast to the early nineteen–hundreds, any American with a license can cheaply travel almost anywhere, in almost any weather in extraordinary comfort; can drive for thousands of miles with no maintenance other than refueling; can easily find gas, food, lodging, and just about anything else within a short distance of almost any road; and can order an eat meals without undoing a seat belt or turning off the ceiling-mounted DVD player.

A modern driver, in other words, gets vastly more benefit from a gallon of gasoline --- makes far more economical use of fuel --- than any Model T owner ever did.  Yet motorists’ energy consumption has grown by mind-boggling amounts, and, as the productivity of driving has increased and the cost of getting around has fallen, the global market for cars has surged. 

All of this is clearly true, as a set of facts.  But, it lumps under ‘fuel efficiency improvements” many things that have been implemented not directly to improve fuel efficiency, but rather to provide an improved service, to improve the country’s business infra-structure, or to improve particular companies’ bottom-lines.  The interstate high-way system was not built to improve fuel-efficiency, any more than side roads were paved to do so, or companies located fuel stations on well-traveled roads to do so.  All of this happened, and will continue to happen, for many reasons, none of which are related to the regulation of vehicle fuel economy.

Thus the trends leading to increased energy consumption in motor vehicles existed well before the fuel economy regulations were introduced in 1975.  These trends were a result of the governments desire to improve the countries economic infra-structure, and manufacturers desire to sell more products by improving what we can generically call performance (e.g., horsepower and comfort), and none of this was driven by government regulation of fuel economy.  The fuel economy regulations only forced the manufacturers to also consider energy efficiency in their designs.  This is not to argue that increased fuel economy standards do not at all affect consumer behavior, and in theory lead to some overall increase in fuel usage as the cost impact of driving is reduced.  It is just not clear, based on the actual data, that the fuel economy standards themselves had any sort of significant ‘rebound’ impact leading to an overall increase in energy usage.

Refrigerator Energy Efficiency Regulation

Owen mentions refrigerators as another example.  He states that an ‘escalation of cooling capacity has occurred all over suburban America,’ adding that ‘as the ability to efficient and inexpensively chill things has grown, so have opportunities to buy chilled things --- a potent positive feedback loop.’  But, the question again is whether the ‘escalation of cooling capacity’ is really a function of improved energy efficiency, in particular. 

Below I reproduce another plot from the earlier post, this time showing both the average energy use per refrigerator and the average size of refrigerators over time in the United States.  From the starting point of the plot, in 1947, there is a roughly linear increase in the average size of refrigerators sold, and in the energy use per refrigerator sold, up through the point where energy efficiency regulations were introduced in the mid-1970’s.  Thus, purchasers of refrigerators were driving an increase in the size of the refrigerator, despite the fact that it meant higher energy use.  Only with the introduction of the energy efficiency regulations does the energy efficiency of refrigerators improve (dramatically); but, the size of the refrigerators purchased continues to increase, albeit, more slowly.

So, again, there is every indication that consumers would have continued to purchase larger, higher energy consuming refrigerators, even without energy efficiency regulations pushing down the energy costs for operation.  It is simply not clear that consumers make energy efficiency a key element in their purchase decisions (unless, possibly, subsidies such as tax rebates drive such behavior).

The Bigger Picture of Reducing Energy Use

Aside from the specific examples discussed above, where I feel that Owen has exaggerated any relationship that can be found in the data tying government energy efficiency regulation to a rebound effect of leading to higher energy use, there is the concern, that he also discusses, of a secondary effect, which can be summarized as follows: saving consumers money through increased energy efficiency in one area (say their automobile or refrigerator) and so reducing their energy costs, frees them to spend money on some other energy using device, and so leading to an overall increase in energy usage.

As Owen states in his article, such a relationship is intuitively appealing, but difficult to prove in the data.  Certainly the number of energy using devices owned by the typical American consumer is increasing.  But can this increase be ascribed primarily to having more disposable income due to energy efficiency improvements in existing devices, such as automobiles and refrigerators?  More likely (though I am admittedly stating it without supporting data) the lowered cost of these new devices and the U.S. government’s subsidies in support of low energy prices would appear to be the major drivers of this trend.

All of which points to a more appropriate, if still today politically untenable, approach to reducing energy usage: a carbon tax.  If reducing energy use is considered a good thing (for the environment, for our political situation in the world), then increasing the cost to the consumer of using energy will have the most direct impact on energy usage.  And, it will drive energy efficiency improvements across the board on products, through consumer demand, as opposed to having to be legislated piece-meal by the government.  (The movie Carbon Nation, for example, makes this argument.)