EFFICIENCY CUTS EMISSIONS – A LOT

The Positive Economics of Climate Change Policies: What the Historical Evidence Can Tell Us
John A. “Skip” Laitner, July 2009 (American Council for an Energy Efficient Economy)

SUMMARY
The Positive Economics of Climate Change Policies: What the Historical Evidence Can Tell Us, by John A. “Skip” Laitner of the American Council for an Energy Efficient Economy (ACEEE), is essentially a critique of interpretations.

Laitner says the economic analyses of Energy Efficiency-boosting policies are mistaken in concluding that cutting greenhouse gas emissions (GhGs) will be costly.

The paper uses the misinterpreted historical record to diagnose recent economic models and arrives at an improved understanding of missed Energy Efficiency (EE) opportunities.

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An accurate analysis of the data shows:

(1) As much as 50% of the GhG reductions needed through 2050 can come from spending for improved Energy Efficiency (EE).

(2) Investment in New Energy can cut consumers’ energy costs through 2050 as much as $2 trillion.

(3) Spending on the more labor-intensive EE adds more to U.S. Gross Domestic Product (GDP), creating a small but net positive gain in the economy.

(4) Shifting from Old Energy to New Energy and EE to reduce energy demand will boost employment and make the economy stronger.

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The fact is that EE tends to be a more dynamic economic factor than the policy models assume. Current climate change policy assessments are based on underspecified underestimates of the EE resource.

It is possible assessments miss the opportunity in EE because it is essentially an “invisible” resource.

The main reason for the misinterpretation is that analysts misunderstand the flaws in the models that are based on predictions about the correlation of between energy consumption and GDP growth. Fallacious predictions lead to misinterpreted data and inaccurate conclusions.

Legislation such as that now making its way through Congress can therefore be expected to benefit, not burden, the U.S. economy. The report includes ACEEE’s detailed analysis of H.R. 2454, The American Clean Energy and Security Act of 2009 (ACESA).

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COMMENTARY
EE has already proven itself to be the biggest energy resource available to meet rising U.S. demand. It has met 75% of the increase in U.S. energy demand since 1970. As a result, the country has increased U.S. energy productivity (the amount of GDP per unit of energy consumed) and reduced U.S. emissions per unit of GDP.

Recent analyses suggest the potential for savings have barely been exploited. There are recognized barriers that require new technologies and new social structures to overcome. But current economic models don’t recognize historical realities or question the embedded assumptions that sustain barriers to EE. Seeing and correcting such embedded assumptions is the first necessary step to changing the future of EE.

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The available evidence shows that affordable public policies can make it possible for consumers and businesses to make more productive investments that increase energy productivity. Better energy productivity translates into reduced costs and decreased GhGs through mid-century. Decreased energy consumption is merely the first and most easily quantifiable of the economic benefits of EE. It also leads to a wide variety of other valuable economic and environmental benefits, including increased energy security and better air quality that leads to better public health and decreased health care costs.

The assessment of HR 2454 (ACESA) is detailed and explores several policy variations that expand EE provisions.

First, there is a “business-as-usual” reference case through 2050.

Second, there is the impact of HR 2454 as it was modeled by EPA and others using typical fallacious assumptions and reaching inadequate interpretations.

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Third, there is an alternative assessment incorporating (1) more productive investments in EE and New Energy and (2) a more accurate accounting of the economic impacts of HR 2454’s costs and its energy savings from EE and New Energy investments. These 2 changes in the method of assessment result in a small but net positive gain in the U.S. GDP.

This third method is not “the likely impacts of HR 2454” but a demonstration of how significant the typical fallacious assumptions in traditional economic analyses can be. It shows how likely it is that changes in assessment methods will reach different conclusions, including an increased benefit from EE and New Energy investment.

There are 2 basic reasons for the economic benefits of EE:
(1) EE makes changes in production patterns, making production patterns more cost-effective over time. (2) The improved value in energy intensity and other intensities from these changed patterns is more economically beneficial than those from spending on Old Energy.

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QUOTES
- James Barrett, economist and climate policy expert: “…[I]n contrast to climate policies based on international offsets and so-called flexibility mechanisms, an efficiency-powered policy can provide a benefit to the climate while actually causing a small but net positive increase in the nation’s economy and employment.”
- Karen Ehrhardt-Martinez, PhD and Research Associate, ACEEE: “[EE] is the energy we don’t use in meeting our nation’s many demands for goods and services.”

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- From the ACEEE report’s conclusion: “…the historical record and the economic evidence suggests that if the United States chooses to develop a more productive pattern of investments that substitutes innovation and energy efficiency for the more conventional production and consumption of energy, the impact on the U.S. economy is likely to be small but net positive…[T]he ACEEE energy efficiency scenario merely represents a different recipe of technology investments compared to the reference case, but it is one that emphasizes a more productive investment pattern that enables the U.S. economy to substantially reduce overall greenhouse gas emissions — should we choose to invest in and develop that larger opportunity.”