Wednesday, March 9, 2011

John Tierney on energy efficiency

John Tierney, a "science" columnist at the New York Times, fancies himself a contrarian, and has dabbled in climate-change denial upon occasion. Yesterday's column finds him discovering the so-called rebound effect, whereby increased energy efficiency might paradoxically lead to increased energy consumption. Apparently Mr. Tierney finally got around to reading a longer New Yorker article on the same subject, which appeared in December, although he doesn't seem to cite it.

The rebound effect is cute, but it is probably very uncommon in the real world. To obtain a net increase in energy consumption would require an unrealistically large increase in the energy-using activity in response to the savings in energy costs. In other words, the existence of the effect depends on the demand elasticity, a concept near and dear to the hearts of Econ 101 students everywhere. In a response to the original New Yorker article, Matthew Kahn of UCLA offered a simple and rather devastating numerical example of how implausible the rebound effect would be, based on driving and fuel efficiency.

Energy efficiency standards are not the best way to address the climate change problem, because they do not provide a direct incentive for reduction in fuel use. Pricing carbon is the best way to go, because it places all forms of energy conservation and low-carbon fuels on an equal footing. But the notion that tightening CAFE standards will increase gasoline consumption is just a red herring.

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