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Saturday, November 19, 2005

Energy Conservation vs. Efficiency & Market Forces

From the New York Times, November 13, 2005

“WHEN oil and gas prices surged after Hurricanes Katrina and Rita, President Bush appealed to Americans to conserve energy. He asked people to cut back on nonessential travel, for example, and to carpool to work. Then, in October, the White House started a campaign for energy conservation in American homes, dusting off some old ideas like switching to fluorescent light bulbs and installing better insulation in attics.

Some critics derided the program as a bizarre flashback from the 1970's - a collection of worn-out ideas that evoked feelings of deprivation and gloom. It will be a pity, though, if an effective energy policy never gets off the ground. Much has been learned since the 70's about what works and what doesn't. Clearly, energy conservation isn't what it used to be.

The preferred term these days, however, is energy efficiency - something that economics and even chief executives can relate to. The phrase implies getting more out of what we have - and that's not gloomy at all. Technology can deliver increased benefits with less energy, in effect replacing some of that electricity and oil with brain power. And efficiency holds the promise of greater satisfaction, not self-sacrifice.

There are reasons for optimism. One is that market forces can help provide solutions: higher prices, on their own, can make people cut back. Just how responsive consumers are to price changes - what economists call the elasticity of demand - has been the focus of much research.”

“In the end, the most effective energy policy won't be one that fights against market forces. It will be one that helps them work better.”

Energy conservation is a good idea, but one that will not make the same kind of impact as energy efficiency. I must agree with these conclusions. I feel that too many factors stand in the way of convincing people to conserve energy. On the other hand, when it comes to saving money, and actually seeing the money saved – people will be more inclined to “buy into” a technology. Turning of the lights when you are not in a room, or avoiding an extra trip to town may be plausible, but hardly helpful in the scheme of making a real impact. Choosing fixtures and vehicles that are more efficient from the get-go would be much more appealing to the average American. Market forces would play the role in this change. It is hard to give up and conserve. It is much easier to pay a little extra and save in the long run.

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