The Hidden Flaw of 'Energy Efficiency'

The Hidden Flaw of "Energy Efficiency"

August 24, 2012

Policies that increase energy efficiency have been implemented all over the world. The theory is that new technologies will lower energy bills for consumers, increase profits for producers, and have a positive impact on the environment. In practice, however, there seems to be undesired consequences, says Robert J. Michaels, a professor of economics at California State University, Fullerton, and a senior fellow at the Institute for Energy Research.

Efforts to make energy efficient will experience the "rebound dilemma," according to a recent Energy Institute Research survey.

• For example, energy efficient technologies mean that people can consume more goods that use electricity and businesses will use more energy creating them.
• Indeed, families that had one air conditioning unit may choose to install a central unit because energy has become more efficient, yet the energy output remains the same.
• Moreover, a factory that may get an energy efficient technology wouldn't discard the inefficient one. Rather, the inefficient machine would likely be used in a lesser-developed country.

Mexico's cash-for-coolers program provides policymakers with an example of the rebound dilemma.

• The program subsidized the swapout of inefficient air conditioners and refrigerators with efficient ones.
• A World Bank study claimed that the new refrigerators would use 30 percent less energy.
• However, a University of California Energy Institute study found that energy consumption was cut by only 7 percent.
• This was because people decided to buy bigger refrigerators or use their new air conditioners during the hot summer months.

Energy efficiency programs do not produce their desired effects and are costly endeavors.

Source: Robert J. Michaels, "The Hidden Flaw of 'Energy Efficiency'," Wall Street Journal, August 20, 2012.