Energy efficiency and economic efficiency: they're not the same
By Dr. Roy Cordato
This weekly newsletter, focused on environmental issues,
highlights relevant analysis done by the John Locke Foundation and other think
tanks, as well as items in the news.
1. Energy efficiency and economic efficiency:
they're not the same
The John Locke Foundation has recently published a new Spotlight report written
by yours truly on the subject of energy efficiency. The bottom-line conclusion
of the paper is that energy-efficiency policies forcing or incentivizing people to use what are
considered energy-saving appliances or light bulbs, or to install energy-efficient
windows, etc., have nothing to do with economic efficiency and are likely to
harm the efficient working of the market economy. That is because those
policies induce people to act contrary to what would otherwise be their own
calculation of personal costs and benefits.
Efficiency, Economic Efficiency, and the Pretense of Knowledge" demonstrates
that the problems faced by bureaucrats in trying to design energy-efficient
mandates and programs that advance overall economic efficiency are the exact
same problems faced by socialist central planners in trying to design an
efficient economy more generally. Here is a summary of key facts from the report:
- Energy efficiency, as defined by those who embrace it as a
policy guide, is focused strictly on saving energy even if it means sacrificing
overall economic efficiency.
- Energy efficiency programs focus on the relationship between
one input into the production process, energy, relative to the output generated
by that process.
- This simplistic view makes no consideration for the strong
possibility that other inputs -- labor, plastic, steal, copper, glass, etc. --
might actually increase.
- Economic efficiency, on the other hand, relates total costs
to the value of the output that those costs generate.
- We may observe people making decisions that we consider to
be inefficient, but the proper conclusion to draw is that we, not they, are
misperceiving their costs and benefits.
- In order for an increase in energy to translate into an
increase in economic efficiency, it would have to result in an overall decrease
in the average cost of production or, if you are a consumer, the cost of
consumption. The people implementing the energy efficiency plan would have to be
better off from their own perspectives.
- Mandates and special incentive programs would not have to be
put in place to promote energy efficiency, unless we assume that the government
is in a better position to judge the best interest of individuals or businesses
than the individuals or businesses themselves.
- When experts and policy advocates push energy taxes,
incentives, and mandates to promote energy efficiency, they are doing what
Nobel Prize-winning economist F.A. Hayek warned against: crafting public policy
through a "pretense of knowledge." They pretend to have information
about other people's preferences and alternative uses of resource that they
could not possibly obtain.
- Ultimately, energy efficiency programs are necessarily an
exercise in paternalism and behavior modification.
2. Could the Western nations of North
America and Europe bring OPEC countries to their knees using free markets?
article from the Financial Post makes an interesting prognostication
regarding the fate of the oil and gas rich countries of the Middle East,
Russia, and Venezuela. Energy analyst Lawrence Solomon argues that:
Within a decade, this energy order
could flip. Many of the Western democracies are likely to become major oil and
gas producers, helping to glut the world and collapse energy prices. And today's
energy-rich countries, most having undiversified economies, will then lose the
lion's share of their revenues and become neutered politically.
He goes on to argue that:
The game-changer is "unconventional
fossil fuels," much of it trapped in shale -- rock that often contains oil
or gas. In the case of gas, the U.S. is developing so much, so fast in so many
places that the domestic price for natural gas has more than halved. ... A
similar tale of unconventional riches is unfolding in oil, where the U.S. has
in excess of two trillion barrels, the world's largest store. China comes next,
with some 350 billion barrels, followed by Israel's 250 billion barrels, an
amount close to Saudi Arabia's 260 billion barrels of conventional oil.
Thirty-five other countries, including 15 in Europe, are believed to have
lesser amounts of unconventional oil, but they may not remain lesser for long --
with each new assessment in recent years, the estimates have climbed with new
Ozone Report: A Year-End Summary
Each week during the summer (and most of the autumn) ozone
season this newsletter will report how many, if any, high-ozone days had been
experienced throughout the state during the previous week, where they were
experienced, and how many have been recorded during the entire season to date. While
many environmental groups express concern about air quality, the John Locke
Foundation is the only organization that keeps up-to-date track of the actual
ozone data and reports it in an unfiltered manner on a regular basis.
The ozone season began on April 1 and ended on October 31.
Despite the rigid standard implemented several years ago, during the 2011 season there have been only 99 readings on various North Carolina monitors throughout
the year that exceeded federal standards of 0.75 parts per billion. Those
occurred over a period of 26 days. North Carolina has a total of 40 ozone
monitors. Twelve of the 40 registered no high-ozone readings for the entire
season, and ten more registered only one. Five monitors in the state are out of
compliance with federal EPA standards. Three of these are in Mecklenburg
County, one is in Forsyth County, and on is in Rowan County. That means that 35
of North Carolina's 40 monitors are in compliance with EPA standards, which
includes all Raleigh area monitors.
Click here for the Environmental
Saturday, Nov. 12th, 2011 at 1 p.m. - 5 p.m.
A Constitutional Workshop in Hendersonville, NC
with our special guests Dr. Troy Kickler & Dr. Michael Sanera
Workshop #2 in Hendersonville: "What would the Federalists and Anti-federalists say about the current political and economic crises?"
Monday, Nov. 14th, 2011 at 12:00 pm Noon
A meeting of the Shaftesbury Society
with our special guest Roger W. Knight
"Real Jobs NC and the expanding role of Independent Expenditures Groups in North Carolina."
Monday, Nov. 21st, 2011 at 7:00 p.m.
An Evening of Living History
with our special guests John Adams and Thomas Jefferson
Jefferson and Adams: A Debate on the Future of the United States of America
Monday, Nov. 21st, 2011 at 12:00 pm Noon
A meeting of the Shaftesbury Society
with our special guest Wilbur Jones
"Wilmington, N. C.: America's World War II City."
Monday, Dec. 5th, 2011 at 7:00 PM
A wind power workshop
with our presenters Daren Bakst, Esq., John Droz, Jr, David W. Schnare, Esq. Ph.D
"The Truth About Wind Power on the Coasts of North Carolina"