Study Debunks Energy-Efficiency Claims

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Published: Tuesday, July 14th, 2015 @ 10:42 pm
By: John Locke Foundation ( More Entries )

Publisher's note: The author of this post is Jon Sanders, who is Director of Regulatory Studies for the Carolina Journal, John Hood Publisher.

RALEIGH As the name implies, North Carolina's 2007 renewable energy and energy-efficiency portfolio standards, REPS, mandate involves a portion of energy efficiency. As described in a 2008 John Locke Foundation report on the subject, the belief from the start was that the need for governmentally mandated energy efficiency was self-evident:

There never was any real reason provided during the discussion of Senate Bill 3 (the 2007 legislation that authorized energy-efficiency programs) as to why government intervention was necessary to increase energy-efficiency purchases. Legislators from both parties did not bother to ask this fundamental question. The notion that such programs were needed was taken for granted.

In the energy-policy research, the gist of the argument made by many energy-efficiency program proponents is that a market failure exists when it comes to energy efficiency. As described in a report by the Lawrence Berkeley National Laboratory (LBNL), which does energy-efficiency research for the United States Department of Energy, proponents believe that there is an "efficiency gap" that exists "between levels of investment in energy efficiency that appear to be cost effective ... and the (lower) levels actually occurring."

In the ensuing years, the renewable energy industry lobby has put out a heavily quoted — even while thoroughly dismantled in peer review — report claiming incredible savings to the state from the REPS law. Nevertheless, even in the report those savings, allowed to be portrayed as savings from the renewable energy mandate portion of the REPS, are actually savings attributed to energy efficiency.

As the peer review put it:

Hidden in the text, tables, and charts is that there is little to be said for the renewable energy subsidies themselves. The cost savings will be the result of "energy efficiency," not renewable energy. Everything else is trivial. But by giving the impression that "not using energy" counts towards "renewable energy," they claim renewable energy is cheaper.

Even those energy-efficiency savings aren't exactly what they're perceived to be:

This "energy efficiency," which will supposedly lead to so many cost savings, amounts to little more than energy-efficiency programs in government buildings and mandates in building codes. Cost-cutting measures in government buildings are admirable should they follow orthodox cost-benefit analysis, but that has everything to do with cost-benefit analysis and nothing to do with energy. The private market mandates, however, are at best superfluous.

A brand new study from the University of Chicago's Energy Policy Institute found that, in a surprise to even its authors, "Even when accounting for the broader societal benefits of energy-efficiency investments, the costs still substantially outweigh the benefits." The study's abstract begins by noting the "conventional wisdom" their findings overturn: "that energy efficiency (EE) policies are beneficial because they induce investments that pay for themselves and lead to emissions reductions."

As reported by Environment & Energy Publishing (emphasis added):

Examining a major Michigan weatherization program, the study found that while upgrades reduced consumption by about 10 to 20 percent, the total energy savings generated over a 16-year window amounted to less than half of the initial weatherization costs.

These savings were also much lower than initial predictions had estimated. And the study also found that, despite the promise of free weatherization upgrades and long-term savings on energy bills, program administrators had a difficult — and costly — experience convincing Michigan homeowners to participate in the program.

"Even when accounting for the broader societal benefits of energy-efficiency investments, the costs still substantially outweigh the benefits," the report concluded.

"We were surprised, to be perfectly frank," said co-author Catherine Wolfram, a professor at the University of California-Berkeley's Haas School of Business. "The perception is that energy efficiency is not just the low-hanging fruit, but the fruit already fallen on the ground, waiting to be picked up. The free lunch you're paid to eat."

Meanwhile, Duke Energy Progress has filed for a decrease in electricity rates for 2016. A close reading of the factors for the decrease show that the company seeks increases for (a) compliance with the REPS mandate and (b) higher costs for EE and Demand-Side Management programs.

So why a decrease? Because fuel costs — notably, natural gas and coal — are going down faster.

In short: Electricity rates would be increasing next year because of the state government's renewable energy mandates were it not for the lower fuel prices brought about by the private market's shale revolution.

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