In my Weekly Standard article out today on the EPA’s so-called “Clean Power Plan,” I note one of the more curious and significant changes from the original draft rule of a year ago and the final rule released on Monday of this week: namely that the fourth “building block” for state compliance—energy conservation/efficiency measures—was dropped from the rule. Here’s the key part of the argument as summarized in the article:
This change involves environmentalists having to undergo an embarrassing about-face and recognize that one of their favorite slogans isn’t true. For years environmentalists have promoted energy conservation measures for buildings and homes with the claim that such improvements “paid for themselves” and were more cost-effective than building new power plants. The EPA and the Department of Energy happily touted claims that conservation resulted in lower energy bills, and were therefore competitive, cost-effective investments.
But there’s a growing body of economic research going back more than 15 years that finds the conservation claims to be exaggerated, when they are not completely wrong. Last month the National Bureau of Economic Research published a devastating study that concluded energy efficiency investments on average had a negative 9.5 percent rate of return, and that the actual reduction in energy use was less than half as much as the government models assert.
Some sharp-eyed environmentalist probably noticed this problem and tipped off the EPA to drop the conservation building block. The conservation talking point also threatened to undermine environmentalists’ goal of killing hydrocarbon energy, because it opened the door to states promoting energy conservation as a cost-effective way of achieving the Clean Power Plan’s mandated reductions, on paper at least. With this telling change, the movement should file for intellectual bankruptcy.
Here’s the abstract of the NBER study (subscription or university access required, alas) from last month:
DO ENERGY EFFICIENCY INVESTMENTS DELIVER? EVIDENCE FROM THE WEATHERIZATION ASSISTANCE PROGRAM, by Meredith Fowlie, Michael Greenstone, and Catherine Wolfram
Conventional wisdom suggests that energy efficiency (EE) policies are beneficial because they induce investments that pay for themselves and lead to emissions reductions. However, this belief is primarily based on projections from engineering models. This paper reports on the results of an experimental evaluation of the nation’s largest residential EE program conducted on a sample of more than 30,000 households. The findings suggest that the upfront investment costs are about twice the actual energy savings. Further, the model-projected savings are roughly 2.5 times the actual savings. While this might be attributed to the “rebound” effect – when demand for energy end uses increases as a result of greater efficiency – the paper fails to find evidence of significantly higher indoor temperatures at weatherized homes. Even when accounting for the broader societal benefits of energy efficiency investments, the costs still substantially outweigh the benefits; the average rate of return is approximately -9.5% annually.
These findings are absolutely devastating to the constant environmental refrain that there are huge gains to be had through conservation and efficiency investments. A few years back a had a hammer and tong debate with the slippery Ralph Cavanaugh of the Natural Resources Defense Council, who kept saying that we could achieve our emissions reduction goals through conservation measures like home weatherization, etc. When pressed for data or realistic estimates of amounts, costs, and so forth, he merely repeated his clichés, because he obviously didn’t have any serious data.
But if it’s all bullshit (to quote Jon Stewart), then it would blow a big hole in the Clean Power Plan if states could claim big emissions reductions on paper using the EPA and Dept. of Energy’s standard models, which would obviate the need to close down coal-fired power plants. Oops. Can’t have that. Closing out coal is the whole point of the Clean Power Plan.
As the paper, written before the final rule dropped this option, explains:
Energy efficiency investments are a critical part of the U.S. government’s proposed Clean Power Plan (ICF, 2014), U.S. electric utilities are rapidly expanding their energy efficiency programs, and federal and state regulators routinely tighten energy efficiency building codes, appliance standards, and fuel economy standards for automobiles and trucks. (Emphasis added.)
A “critical part” no longer, though. Moreover, from the conclusion:
Finally, we also calculate the average cost per ton of avoided CO2 under a range of assumptions. The most plausible estimates are approximately $329/ton, which is about an order of magnitude larger than the U.S. government’s estimate of the monetized benefits of avoided emissions (i.e., the social cost of carbon) of roughly $38.
In other words, conservation measures even fail the EPA’s own absurdly contrived cost-benefit test.
So guess who latched on to this analysis? Environmentalists! Because they had to confront that their own favorite talking point could undermine their drive to kill coal. But it also offers more evidence (as if more is necessary) that environmentalists will simply lie or at the very least ignore any evidence that gets in the way of their clichés and near-term goals. “Conservation” was great when you could use it to oppose any new power plants at all, but not so great if it might impede your drive to kill coal.