Comfortable conservation and global warming

November 27, 2009

kemp.jpg– John Kemp is a Reuters columnist. The views expressed are his own –

Energy efficiency will have to make the single most-important contribution if policymakers are serious about limiting greenhouse gas emissions and dampening growing demand for fossil fuels.

Energy efficiency will not remove the need to invest in large volumes of wind, solar and nuclear generation, or in technology for carbon capture and storage, but it does form the third leg of the triad.

In the United States, nowhere have efficiency initiatives been given higher prominence and become as deeply entrenched in the public policy process as in the state of California. In response to a series of power crises, the state has adopted some of the toughest standards anywhere in the world.

The 1974 Warren-Alquist Act, signed by then-governor Ronald Reagan, created the State Energy Resources Conservation and Development Commission, now renamed the California Energy Commission (CEC), with a mandate to develop minimum efficiency requirements for new construction and appliances.

Efficiency improvements have been enforced through a strict standard-setting process.

Title 24 of the state code of regulations prescribes detailed requirements for all new buildings and major redevelopments in the state. Title 20 establishes standards for appliances sold to in-state customers, including heating and cooling systems, lighting units and refrigerators. Both have been repeatedly tightened to require higher levels of efficiency.

The objective is to limit the need to build new generation and transmission capacity by cutting electricity consumption in heating and lighting applications.

Measuring the amount of generation and greenhouse emissions avoided this way is difficult since it involves a counterfactual — comparing the amount of energy actually used and the amount that would have been needed in the absence of conservation measures — which can never be known for certain.

But by any yardstick, the amount of generating capacity and greenhouse gas emissions avoided by these “negawatts” has been substantial.

THE ART OF ENERGY EFFICIENCY

Prior to 1974, California’s installed generating capacity was 30 Gigawatts (GW) and growing 6 percent per year, with more than half the annual increase required to supply new homes and buildings.

California Energy Commissioner Art Rosenfeld, one of the godfathers of the efficiency movement, claims Title 24 building standards cut energy use per square foot for heating and cooling in new buildings by 50 percent in the ten years between 1975 and 1985. A decade later savings had avoided the need to build 2.5 GW of new generation.

Rosenfeld claims even larger success for standards to improve domestic refrigerators. Progressively tighter state and federal regulations for new appliances, as well as improvements in technology, have cut annual energy consumption from an average of 1800 kilowatt hours (KWh) in 1974 to 450 kWh in 2001.

Consumption has been cut even as the typical refrigerator’s volume has grown 10 percent from 18 cubic feet to 20, making a compound efficiency gain of 5 percent per year.

Rosenfeld estimates the amount of energy saved, in California and now nationwide as standards have been adopted at federal level, is equivalent to around 50 GW of generating capacity (see the diagram on page 48 of Rosenfeld’s famous paper on “The Art of Energy Efficiency”.

CPUC ADOPTS AMBITIOUS TARGET

The drive to reduce power consumption has accelerated following the state’s devastating power crisis in 2000-2001.

“Energy efficiency is the first priority in California’s loading order for energy resources” (ahead of solar, wind, nuclear or fossil fuels) according to the California Public Utilities Commission (CPUC), which regulates electricity rates charged by investor-owned utilities (IOUs) in the state.

CPUC has now included energy efficiency objectives in its IOU rate-setting process. Utilities receive an increase in the rate charged per kilowatt hour in return for meeting certain load-reduction targets.

CPUC has adopted targets that would cut peak generation about 450-500 MW per year between 2006 and 2013. Assuming they are met, California’s four IOUs would avoid the need for around 4 GW of generating capacity by the end of 2013 (roughly four large nuclear or coal-fired plants)

For comparison, the Western Interconnection, of which California is the largest component, has around 178 GW of generating capacity at present, so the avoided capacity would be equivalent to around 2 percent of all generating capacity on the western power grid.
CASH FOR CLUNKERS, REDUX

California’s approach is now being adopted by the Obama administration (Energy Secretary Steven Chu is a self-described “energy efficiency nut”).

The administration has already run a cash-for-clunkers programme to provide a boost for automakers while giving customers an incentive to retire older, less efficient vehicles in favour of modern cars that achieve higher mileage per gallon.

But the American Recovery and Reinvestment Act also provides $296 million of funding for State Energy Efficiency Appliance Rebate Programs (SEEARP) — a cash-for-clunkers system to replace aging clothes washers, refrigerators and room air conditioners with more energy efficient versions.

California’s share is $35 million, and the state proposes to make rebates available for purchases made during a one-month period from March 17 and ending on April 22, 2010. Rebates will be offered for 125,000 washing machines, 150,000 refrigerators and 100,000 air conditioners.

“COMFORTABLE CONSERVATION”

Rosenfeld has calculated that the amount of energy used to produce a dollar of GDP fell by a factor of 4.5 between 1845 and 1998, after adjusting for inflation, a compound annual improvement of 1 percent, driven by market forces.

But the average concealed substantial variations. Conservation rose to as much as 4 percent per year following the first oil shock, until real oil prices fell in the late 1980s and through the 1990s, slowing the pace of improvement.

If the rate could be raised to 2 percent per year — double the long-term average but just half the rate achieved after the first oil shock — energy consumption per unit of output could be cut by two-thirds in just over 50 years.

“Comfortable conservation” (getting the same quality of heat, light and output for a fraction of the energy by reducing waste) is now the central objective for the coterie of physicists advising the White House, and is likely to be one of the central policy themes over the remaining years of the Obama administration.

Such gains are perfectly feasible. U.S. motor manufacturers achieved even larger improvements in engine efficiency in the early 1980s, though the gains were used to build larger and more powerful vehicles rather than reduce fuel consumption.

The real prize, however, is in the emerging markets, where most appliances and buildings still operate at just a fraction of the efficiency of their advanced-country counterparts, and where the scope for efficiency gains is huge.

In effect, the only way to continue raising living standards, especially in developing countries, while limiting emissions is to take the success achieved in California refrigerators and replicate it across all the other energy-consuming sectors on a worldwide scale.

7 comments

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Can you name all the countries with polar bears? Try this quiz:http://www.sporcle.com/games/statma ster/countries_with_polar_bears

Posted by Mike | Report as abusive

I wish more folks were willing to see the advantages of to changing habits. Year to date I have saved a little over $500 with one month to go. Changed all my light bulbs, put in a programable thermostat and put all my electronics on surge protectors (turned them off when I wasn’t using the computer, surround sound, or dvd player). My out of pocket cost is a little over $100 for the bulbs and thermostat. Now what I did with the savings…I don’t have any idea!

Posted by Marcus | Report as abusive

Anyone who is not super-testosteroned or brain damaged sees the evidence and knows now that with the loss of our environmental centrifuge, companies cannot continue to make tonnes of junk (goods) to ship around the world to sell at a profit. Go to you nearest shopping center; 90% of the goods are Chinese and Pakastani, almost none of them made in your hometown, or even in your country.Even if free clean energy were to be a reality, which it isn’t, we still have that challenge, and it won’t go away. Do you see how it works? The companies that “make stuff” will be obliged to cut back, either becaseu of market or legislative restrictions, which will mean overall, a cut back in profits. Why would investor buy stocks in companies that do not make a profit? So long stock market!Welcome to the real world; mainly hunger, mainly political unrest. In 10 to 20 years there won’t be a population that has sufficient wealth to buy stocks, since they won’t have enough to buy food! It is just a matter of time.Buy Canadian and American, and nothing else!A citizen of the World.

I sure wish we had high quality LED lights available for the standard dim-able incandescent ceiling flood. That will be a huge win when they final get those products up to a usable quality and price point.

Posted by Dane | Report as abusive

Energy efficiency pays for itself overtime with reduced energy costs, it has the greatest potential to reduce greenhouse gas emissions quickly, and it reduces American reliance on foreign oil. What are we waiting for?!

Posted by Jason | Report as abusive

If ever solar and wind become the core energy sources, those countries with vast desert area will be the next “Middle East”.There will be a power shift in world economy when oil runs out, and clean and green alternate energy becomes the core sources.

Lets talk again about carbon taxes

Let me put it bluntly, that the idea of carbon tax swap based on swapping fixed taxes with carbon tax failed to impress the American public has as much to do with the American electorate as it is with the champions of this idea such as Thomas Friedman and Charles Krauthammer. It’s the way in which this concept was presented and being presented to the American public that has doomed the carbon tax swap from the beginning. Let me explain.

Lets put coal aside for a while and concentrate on oil which unlike coal has tremendous geopolitical externalities with much of the world’s oil concentrated in the hands of rogue regimes and Islamic Sharia states. The Middle East alone costs the US billions. The oil market is massively unstable, never mind the OPEC and it price manipulations. Cheap gasoline encourages suburban sprawl and waste of space with local taxes required to support the infrastructure then decimating US taxpayers. If you don’t believe in anthropogenic global warming, that’s fine with me, the world is cooling down. There are still more than enough reasons for the US to want to slap a massive carbon tax to bill all those expenses into the price of gas/oil. So lets talk about swift implementation of a sizable carbon tax swap. We are going to swap payroll taxes, income taxes, VAT… You name it, we can swap it for a carbon tax. Say we swap 50c immediately and then we swap 10c every next year over the course of a decade. Does it mean that the American nation is required for painful sacrifices to rid itself of its addiction to oil? No. That’s the point! It does not at all!

For a start, when you swap a tax for a tax in a revenue neutral manner, it’s not that there are no winners and no losers. There is a simple law of microeconomics that postulates that regardless if a tax is imposed on the consumer or the producer, the price usually falls somewhere in between with a loss getting split between the two. Those who believe that the demand for oil is too inelastic for the carbon tax to be subject to this law, should check what happened in Oregon where gas taxes have ended with such a dramatic fall in tax revenues that the state had to consider replacing them with a mileage tax. This is very relevant for the US which accounts for 25% of the global oil consumption. The US is twice as much a global swing consumer as Saudi Arabia is a global swing producer. This means that a gas tax of $1 does not make the price of gas go up by all $1. It will go up, say, 80c. Given that taxpayer is fully refunded through the swap, the taxpayer wins 20c on every gallon. In this case the producer takes a loss of 20c and, given that so much of the US oil is imported, it’s a loss inflicted on foreign producers. Those still confused can try to read this: http://happyarabnews.blogspot.com/2009/0 5/great-committment-of-president-obama.h tml.

Next, a carbon tax swap means that we are swapping regular taxes, say payroll taxes, with a “please don’t pay me” tax. If the taxes are swapped dollar for dollar, it’s enough that a taxpayer then finds a job close to home and he is already winning. If the taxpayer switches to a hybrid or electric car, he is sabotaging the whole system. That’s why any swap of regular taxes for carbon taxes amounts to sheer cutting taxes. A revenue neutral carbon tax swap won’t stay revenue neutral even for a year as the taxpayers will quickly start defunding the state by avoiding carbon taxes. It’s a stimulus package that requires taxpayer to do a certain work for his personal benefit and the benefit of his country to get his taxes down. It’s a tax cut in which taxpayers cut their own taxes. It’s way better than this senseless throwing of money around we’ve seen until now.

Finally, if a certain taxpayer prefers to pay carbon tax, he is not losing a penny as long as a tax swap is done dollar for dollar. But if in other corners of the economy people and business do their share of avoiding carbon taxes, they are bringing the price down for all taxpayers. You don’t want to change? No problem. Let others change and benefit from their work.

In fact, with a bit of imagination carbon tax swap can be modified to serve all kinds of additional purposes. For example, rich tend to have a larger carbon footprint than poor. The swap can be designed in such a way that it does not refund the upper 10 percent, but instead redistributes their taxes between the rest. So such a swap can be used as another method of wealth redistribution, in which case an average taxpayer is more than compensated for carbon tax right from the beginning.

The reality of carbon tax swap is that it’s one of the best deals that could have been ever offered to the US taxpayer and this tremendous opportunity was squandered because of the misguided and confused marketing campaign by Thomas Friedman and his colleagues. The correct presentation of the swap should have been this:

“We give you, taxpayers, a perfect deal, from which you almost immediately benefit, first, by the simple law of tax incidence described in every introduction to microeconomics for dummies and, second, because we are replacing your fixed taxes with a “please avoid me” tax about which you can do all kinds of things to pay less of it or stop paying it completely. In the worst and almost impossible scenario you just don’t lose. In any other case you can only win. Have some mercy on yourselves and your wallets and allow us put a few government’s dollars and a bit of the Arab Sheikhs’ money back into your pocket. One should be an idiot to refuse such an offer.”

Talking about national good, long term vision, patriotism is all nice and good, but fundamentally carbon tax swap is first of all an issue of unenlightened or semi enlightened self interest. Carbon tax swap belongs to the same category of things as tax cuts, stimulus packages and their likes. And it is this aspect of the swap that was completely missed both by TF and others.

The most surreal aspect of the situation is that the public recently got so irrational about taxes that it refuses to allow the government to cut taxes just because the public has heard the word “taxes”! No tax reform, no restructuring of taxes seems to be possible these days even when it benefits taxpayers! There is no way the public can be excused for its irrationality and plain stupidity.

However, neither the proponents of carbon taxes are clean on this because of the misguided way the carbon tax swap was presented to the public. And this is my advise to all carbon tax promoters: Stop blaming the public for your own fault. First, get your facts about carbon tax swap straight, then we will see how the public responds.

Obviously I am only scratching the surface here. I could write ten times more. There is a difference between coal and oil. We can take a massive action on oil immediately, but not on coal. Another one: tax on imported oil may be actually preferable to gas tax. Yet another one: When it comes to oil no carbon tax is needed, cutting oil consumption is pretty much the same as cutting emissions. Where emissions are out of proportion to oil consumption carbon tax may be necessary, but in all other cases regular taxes are more straightforward and easy to implement while they are just as effective. We can discuss all of this stuff and more, but first we should restart the debate on carbon tax swap and we should do it better.

Posted by NB12 | Report as abusive