Consuming myths1
By Fred Pearce
It is an article of faith, born of common sense and drummed into us by
environmentalists and governments, that conserving energy will not only save us
money but will also help save the planet.
An increasing number of European governments, with British ministers at the
forefront, believe that by promoting energy efficiency in homes, offices and factories
they can meet targets for reducing emissions of greenhouse gases without imposing
unpopular energy taxes. Indeed, in the last Budget, the Chancellor of the Exchequer
cut value added tax on energy-saving materials from 17·5 per cent to 5 per cent.
But these governments could be in for a nasty shock. A leading green analyst
is now claiming that policies to promote energy conservation could trigger such a
sharp fall in energy prices that fuel use and emissions of greenhouse gases will
actually rise. And several influential economists agree.
Horace Herring has spent a decade researching energy efficiency at the
Energy and Environment Research Unit of Britain's Open University. On a personal
level, he has impeccable green credentials as a cyclist and would-be promoter of
rickshaws on the streets of Britain. But he says classical economists have convinced
him of the folly of environmental orthodoxy.
In a paper currently being circulated among analysts called Does Energy
Efficiency Save Energy?, Herring answers his question with a resounding no. Most
academic economists would agree. But Herring points out that this conclusion
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NEW SCIENTIST [Archive: 5 September 1998]
"directly challenges one of the central beliefs of environmentalists" and strikes at the
heart of international policy on combating global warming.
A generation of environmentalists and climate scientists has claimed that
improving energy efficiency provides a "win-win solution" to the problem of global
warming by providing both economic and environmental benefits. The literature of the
UN's Intergovernmental Panel on Climate Change (IPCC) is full of claims for the
climatic benefits of cheap improvements to energy efficiency. Its second assessment,
published in 1995, said that existing technology could allow an immediate 25 per cent
reduction in energy use in industry, offices and homes, and a one-third reduction in
transportation, "without compromising comfort or performance".
These ideas have been adopted by European governments anxious to tackle
global warming while liberalising and deregulating their energy industries. But Herring
claims that while energy efficiency will undoubtedly reduce the energy used for a
particular task--whether running a refrigerator or a factory--this is far from the end of
the story.
The gains will be undermined first by the "rebound effect": if a domestic
refrigerator becomes cheaper to run, householders will invest in a larger model; or if
loft insulation lowers heating bills, they will just turn up the thermostat and bask in the
extra heat. Or they may buy other energy-using devices, such as a dishwasher.
Then there are the "macroeconomic" effects. If improved energy efficiency
makes it cheaper to run air-conditioning units, for example, more householders and
car owners will buy them. Nationally, low energy prices will stimulate economic
activity, pushing up energy demand.
"Policy makers don't want to confront this," says Herring. "But unless they do,
current European policies will be disastrous and there will be no hope of meeting
targets for emissions reductions. There needs to be a lot more hard thinking, and
much less mouthing of platitudes."
The British government's promise to cut national carbon dioxide emissions by
20 per cent by 2010, while at the same time liberalising the energy industry and
keeping energy prices low, is especially vulnerable. Its detailed strategy for meeting
the target is due to be published this autumn in a consultation paper. But the
approach, says Herring, "appears designed to increase energy consumption not
reduce it".
Among economists, the case made by Herring is known as the KhazzoomBrookes postulate, after its inventors, the American energy economist J. Daniel
Khazzoom and the former chief economist at the UK Atomic Energy Authority, Len
Brookes. But it also has significant support among economically literate
environmental thinkers.
Earlier this year David Pearce, Britain's leading environmental economist and
a former adviser to successive Conservative environment ministers, argued that
"energy conservation lowers the real price of energy and thus induces an energy
demand expansion". Herring also has support from Lester Brown, director of the
Worldwatch Institute in Washington DC, Donella and Daniel Meadows, coauthors of
the ground-breaking book The Limits to Growth, and Mathis Wackernagel and
William Rees, authors of a more recently acclaimed text, Our Ecological Footprint.
"Both economic theory and history support this view," says Herring. Improving
energy efficiency and escalating energy use have both been hallmarks of the entire
industrial era. "They go together." Claims that energy use and economic growth have
become "uncoupled" in the past 20 years do not stand up to examination, he says.
But not all energy economists agree. Over the past year, Michael Grubb of the
Royal Institute of International Affairs in London and Lee Schipper of the International
Energy Agency have been running an Internet discussion group dedicated to the
issue. They have argued that mature Western economies are on a long-term path to
improved energy efficiency. What might have been true in the days when advanced
economies ran on coal and steam does not hold in the days of computers and a
burgeoning service sector.
The question remains whether the stimulus to economic growth from low
energy prices will merely slow down the gains of reduced energy use or, as Herring
claims, overwhelm them. The answer is likely to come as governments strive to meet
their targets to cut greenhouse gas emissions.
In Britain, ministers have been encouraged by a sharp drop in national carbon
emissions during the 1990s. At 155 million tonnes, emissions of carbon in 1997 were
8 per cent down on 1990. But as the Department of Environment, Transport and the
Regions admits, this cut was a one-off, arising mainly because of greater use of gas
and reduced use of coal in power stations.
In the coming decades, gas-burning will probably grow, but it is unlikely to do
more than cancel out the impact of the closure of ageing nuclear power plants.
Ministers hope that future reductions in CO2 emissions will come mostly through
energy efficiency measures. To this end, environment minister Michael Meacher has
begun a series of negotiations with industry for "voluntary" efficiency. Meacher has
no immediate plans for carbon or energy taxes, though he has not ruled them out.
Herring remains an advocate of energy efficiency. "It is vital to improved
economic wellbeing," he says. The collapse of the Soviet Union had much to do with
its poor record in energy efficiency. But he stresses that improved efficiency will not
directly cut energy use.
His recipe for cutting emissions of CO2 is the less politically palatable route of
carbon taxes and regulation of the energy industry. Some economists question how
much taxes can reduce energy consumption. Even quite large tax hikes might not
change attitudes to energy use. Many people heat their homes and run their
refrigerators and cars regardless of small changes in cost.
Herring agrees, but says that taxes would also generate large amounts of
cash for green investments. Two high priorities for that investment, he says, should
be promoting carbon "sinks" such as forests, which can absorb some of the CO2
poured into the atmosphere, and technical development of alternative energy
sources. We can tackle global warming--indeed we have to--says Herring. But talk of
"win-win solutions" is a dangerous delusion. "There will be an economic cost. We
cannot escape that."