Three keys to energy efficiency: End subsides, end mandates, encourage innovation

As the Lawrence Berkeley National Laboratory explains, energy efficiency is NOT the same thing as energy conservation. Energy efficiency means using less energy to provide the same service, whereas energy conservation involves choosing natural lighting over electric lights, for example. Energy conservation is largely under the control of the end user, whereas energy efficiency is a function of energy production and transmission.

Energy efficiency is not the same as carbon efficiency, either. Indeed, carbon-based fuels today in most cases are far more energy efficient than renewables. One of the most serious (and valid) criticisms of subsidies for “renewable” energy is that they heighten the perception (but not the reality) that wind and solar are less expensive and more energy efficient than conventional fuels.

Energy efficiency and energy conservation are good for both consumers and society. We want to use energy as efficiently as possible, and minimize our use of energy, to keep expenses down. We want employers to minimize their energy costs as well, because that leaves more money for salaries, other benefits and profits that keep companies in business, which is good for employees, bosses, consumers and tax-dependent government agencies alike.

The key is not having government mandate, support and force us to use energy systems that don’t make practical, economic, technological or ecological sense – causing us to waste land, materials, energy and money.

Energy efficiency and conservation also help prolong the life of our existing fossil fuel energy deposits – and extend the time we need to develop alternative energy systems to the point where they too become energy efficient without subsidies. Indeed, using subsidies to lower direct prices for alternative energy does not truly lower the cost or make that energy efficient; it just transfers those costs from consumers to taxpayers (who in many cases are the same people).

In his seminal book Power Hungry, Robert Bryce debunks the worn-out claim that the U.S. lags in energy efficiency, that we as a nation are wasteful energy hogs. Bryce notes that between 1980 and 2006 the amount of energy needed to produce a dollar’s worth of gross domestic product fell by about 42 percent, second only to China (down 63 percent) and matched by the United Kingdom. This drop came during a period in which U.S. gross domestic product more than doubled, from $5.8 trillion to $12.9 trillion (constant 2005 dollars), and the U.S. population increased by 31.5 percent. During that same time frame, per capita energy consumption in the United States fell by 2.5 percent, third best worldwide.

However, Bryce added a major caveat to this otherwise glowing report. A major reason for these gains in energy efficiency was that energy-intensive businesses (steel, aluminum, glass and automobiles) have increasingly been moved overseas, as the USA shifted ever more toward a service based economy and higher cost energy. Moreover, increasing efficiency paves the way for the Jevons Paradox, which John Polimeni describes this way: “As you become more efficient, you do not have to spend as much to consume the same amount of (energy) resources. Thus, you can consume more with the same budget constraint.” In effect, this means that energy efficiency without energy conservation just leads to more and more consumption.

Comparing energy costs is today more of a political art than a science, largely because proponents of certain energy forms like to add intangibles to the actual cost borne by industrial, business and residential consumers. For example, wind and solar proponents add “social costs” to the price of fossil fuels that are based more on estimates and projections than on any accepted accounting methodology.

Similarly, fossil fuel proponents note that wind and solar energy are notoriously inefficient in terms of reliability on a 24/7 basis, and thus typically require fossil fuel plants to fully serve their customer base by generating 75-80 percent of annual electricity requirements. (Renewable energy proponents refer to these fossil power plants as “backup,” whereas in fact they are the primary energy generators.) The political costs of nuclear energy may even exceed the physical costs of energy production – and those costs are raised each time opponents campaign against nuclear power.

In a recent “primer” on electric generating costs, the Institute for Energy Research notes that the cost of generating electricity includes the capital costs, financing charges and production or operating costs – as well as the political costs (which include so-called social costs, both real and perceived). Thus, based on data submitted to the Federal Energy Regulatory Commission, the 2011 average production costs were 2.10 cents per kilowatt-hour for nuclear power, 3.3 cents/kWh for coal, and 4.51 cents/kWh for natural gas – all of which are generally available 24/7/365 to meet both normal and peak electricity demand.

As for wind, the IER points out that at 5:00 pm, on an average day when California hits its highest demand for energy, wind produces a mere 8.1 percent of installed capacity and contributes only 350 MW to the state’s peak load requirement – out of 4.3 gigawatts of total wind energy generating capacity. At night, when wind generation is greatest, electricity demand is at its low point, and the percentage may be higher; but the contribution of wind power to energy efficiency only really matters in terms of its contribution to peak load demand. The same is true for solar, which like wind does not generate a constant flow of energy but has peaks and valleys that often do not coincide with peak demand.

There are two chief reasons for the gross net inefficiency of wind and solar. First, power generation becomes valuable only as that power is transmitted to end users – primarily through power generation lines that traditionally have been much shorter and have not been routed through lands (or waters) that include areas with maximum wind and solar generation opportunities, but also important wildlife habitats.

Second, wind and solar power cannot easily be stored for later use, and thus much of the power generated is wasted. Neither of these difficulties exists for conventional power sources. Building new transmission lines is both costly and energy, raw material and land-intensive. In addition, adequate energy storage technology (perhaps through gigantic land and raw materials-intensive batteries) is not economically or even technically feasible at this time.

For these and other reasons, the real costs of wind and solar energy must include the costs of maintaining traditional energy sources that are needed to back up and augment the intermittent energy demand supplied by these so-called “renewables.” Remember: the wind and sun may be renewable, but the steel, concrete, and other materials needed for wind turbines, solar arrays, transmission lines and primary fossil fuel electricity generation are not!

A far better way to address the short-term need for increased energy efficiency is to utilize creative new financing mechanisms – but not subsidies, which only transfer the costs of energy use. Such instruments could make it more feasible and economically sensible for homeowners, landlords, and even commercial and industrial facilities to retrofit existing buildings and amortize the added costs of “green” construction, so that obtaining mortgages and business loans is not more expensive. Several might be worthwhile, including utility financing based on decreased usage versus actual cost (these would have to be transferable to future owners or renters until the full benefits are realized), or separate loan programs for energy efficiency projects that could be treated like liens in the event of a property ownership or occupancy transfer.

Even greater potential for increasing energy efficiency might lie in reducing energy loss through transmission lines and from the outlet to energy-using appliances or fixtures. As old power plants are retired, it may be possible to increase the use of distributed generation, which translates to smaller power plants closer to major population centers.

Nuclear power proponents have favored distributed generation as a tool for quickly increasing the availability of inexpensive, reliable electric power in many parts of Africa, for example. The same is true of gas-fired power plants that could take advantage of natural gas derived from “fracking” operations or redirected from oil production operations that are currently “flaring” that valuable energy resource, especially in poor countries that desperately need more electricity.

The bottom line is, well, the bottom line. Subsidies only transfer – and thus hide – the true costs of our energy sources. Mandates drive costs up, not down, by forcing us to build and rely on additional and more expensive energy systems would not otherwise find market penetration.

Above all, the rewards for energy conservation innovations need to be realizable. Otherwise, there is no incentive to reduce energy loss via duplicative generation and long-distance transmission, through power lines and between the breaker box and light bulb or wall socket.

With Duggan Flanakin

This article originally appeared in the National Journal

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About the Author: Craig Rucker

Craig Rucker is the executive director and co-founder of CFACT.

  • Stop using electricity to cook with, heat water, and heating. Two thirds of energy is lost is electricity production. Run natural gas lines to all homes and businesses where practical and use natural gas for heat instead of electricity

  • Ruth Bard

    No thanks…electricity doesn’t explode. Hydro is the cleanest way to produce it, but nobody has the cojones to build dams any more because of all the hairy hippies waving signs.

  • Thank you Craig for a good article. Can we sidestep and look at natural gas produced electricity? I know they say natural gas is not renewable and it creates CO2 emissions.

    How can we tell/ convince these people that natural gas is actually a very clean fossil fuel energy source?

    Natural gas gets combusted to make heat, that’s what natural gas is for. It gets combusted to make steam to turn turbines to make electricity and heat water to heat buildings and water for warm showers, and provide hot Hot Tubs.

    Got a furnace in your house? Got a chimney poking out of your roof from this furnace, water heater or boiler? What is leaving this chimney? HOT Exhaust?

    America wastes so much natural gas energy. Why when America wants to become Energy Efficient?
    Natural gas can be consumed only once – Like us- and when it is done, then what?
    Or can we be more energy efficient? Can we try to consume our energy efficiently more efficiently?
    What if we could be over 90% energy efficient? What if we could plan to give back much more than we first thought we had?
    Energy can be produced once.
    If we want to make a better America, we have to give back, and then make America the Country We WANT it To Be.
    It’s a Use it or Lose it Proposition.