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Why So Inefficient?

Upping the energy efficiency of the economy is, as we keep hearing, the ultimate magical unicorn—a quick way to slash our electricity consumption without cramping our lifestyles, hack away at carbon emissions, reduce our oil imports, save money, create jobs, put a smile on the face of every child in America, blah blah. But if there's so much untapped potential lying around (and all signs say this is our biggest energy resource), why aren't more people tapping it? Are they stupid? That was essentially the question posed at a panel at the Center for Strategic and International Studies today, and it centered around this nifty graph from McKinsey:

The study's here, but basically, on the left-hand side, McKinsey listed a bunch of things you could do to cut CO2 emissions (and maintain our current lifestyle) that were cheaper than, say, building new coal plants—screwing in CFL lightbulbs, ratcheting up appliance standards, boosting car fuel-economy, recycling the heat wasted from power plants—one presenter put up a picture of a plant in Craig, Colorado, where two-thirds of fuel energy was being lost as heat. McKinsey claims the United States could cut one-third of its carbon emissions by 2030 and actually save money. (There was a debate among panelists about whether these measures should be seen as having negative cost, or as eliminating waste, or as simply productive investments—I'd lean toward the latter.)

So why haven't these things happened already if they're so awesome? Joe Loper of the Alliance to Save Energy listed a whole slew of reasons. Sometimes there are split incentives at work—landlords buy appliances while tenants pay the energy bills, so landlords have few incentives to buy pricier, more-efficient furnaces and dishwashers, since they won't reap the savings. Sometimes there's poor information about the efficiency of various items. Sometimes financing for the upfront costs is hard to come by, and consumers don't always behave rationally—not everyone buys a more expensive dishwasher thinking it will save money over the long term. And, sometimes, companies and factories just aren't aware of all the ways they can save energy, or don't know how to do so.

Many of those barriers are simple market failures that can be overcome with standards, building codes, or even simple labeling (it's easy to find out how many miles per gallon a car will get, but harder to do the equivalent for, say, buildings). But this all involves government regulation, which is why, for instance, John McCain has avoided all this stuff—he just wants to set a price on carbon and let the market work things out. The problem is the price of carbon under a cap-and-trade regime will be significantly higher if you don't take these measures—as a recent CIER study looking at the carbon-trading market in Maryland found. So part of it's ideological: If you look at the states that have adopted efficiency policies, generally the bluer states are leading the pack—presumably, liberal legislators are simply more comfortable with rules and regulations than their red-state counterparts.

Anyway, the other notable tidbit at the event was a quickie presentation on using behavioral incentives to get people to conserve. That sounds, uh, creepy, but the example offered was anodyne enough: In California, where electric utilities have incentives to reduce demand (because, unlike in many states, their profits are "decoupled" from how much electricity they actually sell), the utilities have started providing information to their customers about how much electricity they use compared with how much their neighbors use. No one likes to be a greedy outlier, so people start conserving, and the overall effect was pretty significant, something like a 6 percent reduction in electricity use. It seems wrong to think of that as having negative cost, since it takes time and effort to remember to unplug the television, flip off the lights, etc. But it's a cheaper way to satisfy our energy needs and cut carbon than most of the alternatives, which is, after all, what we're obsessing over here.

--Bradford Plumer