JLF Memo
Nov. 10th, 2011: - johnlocke.org Manage Subscriptions

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.

"Energy 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?

This 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 discoveries.

3. Weekly 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 Update archive.


Upcoming Events

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 SOLD OUT!

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"

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