Energy Efficiency: Paid Lunch or False Shortcut?

Peter Bosshard

Energy efficiency looks like the perfect solution to our energy problems. Efficiency gains not only reduce our energy consumption, but typically pay for themselves. They are “not a free lunch, but a lunch you’re paid to eat,” Ernst Ulrich von Weizsäcker, Amory Lovins and Hunter Lovins argue in their influential book, Factor Four. Their twin benefits make efficiency improvements politically more feasible than measures such as carbon taxes.

A recent story in The New Yorker magazine has cast doubts about the effectiveness of energy efficiency. “The problem with efficiency gains is that we inevitably reinvest them in additional consumption,” argues David Owen in his article, "The Efficiency Dilemma." His story has triggered a heated debate in the blogosphere. Here is an overview of the issues at stake.

David Owen illustrates his critique with the history of refrigeration. A study by the World Economic Forum found that the average refrigerator sold in the US today uses three quarters less energy than in 1975, even though it is 20% larger. This looks like the perfect win-win situation for the environment and consumers. Yet, says Owen, “the issue may be less straightforward than it seems.” The cheaper use has allowed refrigerators to proliferate in ever new areas (such as hotel rooms). And it has helped boost the wasteful frozen food sector, which may cancel out the gains achieved through efficiency improvements. Such indirect impacts are called the “rebound effect” or, after a British economist from the mid-19th century, the Jevons paradox.  

Will gains in energy efficiency...
Will gains in energy efficiency...
Charles Komanoff, an energy economist from New York, developed the critique further in the online journal Grist. He pointed out that in spite of important breakthroughs in energy efficiency, overall energy consumption in the US in 2008 was 38% higher and electricity consumption twice as high as in 1975. He concludes that “efficiency advocates have been winning the micro battles but losing the macro war. Through engineering brilliance and concerted political and regulatory advocacy, we have increased energy efficiency in the small while the society around us has grown monstrously energy-inefficient and canceled out those gains. Two steps forward, two steps back.”

Not so, argue experts like Amory Lovins, the founder of the Rocky Mountain Institute and an energy efficiency pioneer. Energy demand has soared not because efficiency improvements have caused prices to drop, but because overall income has increased. Yet even with higher incomes and lower prices, demand for frozen food, car miles and other energy uses will eventually taper off.

Responding to Komanoff’s growth figures, Amory Lovins points out that while energy consumption grew by 38% 1975-2008, the US economy as a whole grew by 171% during this period. If it had not been for efficiency gains, energy consumption would thus have grown 4.5 times faster than it actually did. In nine of the past 34 years, says Lovins, efficiency gains outpaced economic growth “without our even paying attention.” This suggests that if efficiency improvements were pursued more seriously, they could reduce overall energy demand.

But could they do so on their own? In a rejoinder, Komanoff argues that energy consumption fell precisely when prices increased. “Contrary to your assertion,” he tells his friend Lovins, “we were paying attention: prices compelled us to.” This suggests that the best way to reduce energy consumption – “the antidote to the Jevons paradox” – is to make energy more expensive, for example through a carbon tax.

Energy efficiency, adds F. James Handley, “seems to have offered a ‘false short cut’ around the hard path of pricing carbon.” Money saved through efficiency gains will almost always be spent on other goods, with associated environmental impacts. In contrast, argues Blake Alcott, an environmental economist and old friend from my activist days in Zürich, emission caps, carbon taxes and similar measures will translate into a direct reduction in energy consumption and environmental impact.  

... be offset by allowing demand to soar?
... be offset by allowing demand to soar?
At the end of the day, it is impossible to quantify to what extent the rebound effect eats up efficiency gains. So have efficiency gains left the glass half empty (because they could not stop growth in energy demand) or half full (because demand would have grown even more without them)? For Mother Nature, this question is irrelevant as long as we consume as much as we do.

The environmental impacts of efficiency gains are limited, but they have important welfare impacts, in that they allow people to consume more for the same amount of impact. My personal welfare is not improved by frozen food and additional car miles. But in poor countries, efficiency improvements allow people to increase their use of much-needed goods and services without a commensurate increase in environmental impacts.

Energy efficiency doesn’t offer an easy way around hard measures to reduce energy consumption. But hard and soft approaches are not mutually exclusive. To the contrary, efficiency gains can make the required hard measures politically more feasible. We need to protect fragile ecosystems from oil exploration, coal mining and dam building. We need to reduce our energy consumption through emission caps and carbon taxes. The vast potential of energy efficiency will allow us to do so without sacrificing jobs, quality of life, and development for the poor.

Peter Bosshard is the policy director of International Rivers. He blogs at