Energy Efficiency Leads to Increased Consumption

Energy-efficiency initiatives and regulations do little to cut energy use and often end up increasing consumption, according to a new report from CIBC World Markets.

"While seemingly perverse, improvements in energy efficiency result in more of the good being consumed -- not less," said Jeff Rubin, the chief economist and chief strategist at CIBC World Markets. He finds an efficiency paradox where consumers have taken the cost-savings gained through greater efficiency and turned around and spent those savings on more and bigger energy-guzzling products.

Rubin notes that with the depletion of conventional oil supply becoming more and more evident and concerns growing over greenhouse gas emissions, energy-efficiency regulations have been widely viewed as the answer. Efficiency gains play a prominent role in most government plans to manage energy consumption, including the latest U.S. Energy Act. But his work finds that these programs are compounding rather than solving the problem.

"The problem is that energy efficiency is not the final objective -- reducing energy consumption must be the final objective to both the challenges of conventional oil depletion and to greenhouse gas emissions," he said. "Despite the huge gains in energy efficiency, that is simply not happening. Instead, energy consumption is growing by ever increasing amounts."

The report finds that while energy use per unit of U.S. GDP has fallen by almost 50 percent since 1975, total energy usage in the U.S. economy has risen by more than 40 percent in the same period. Most government efforts to promote greater energy efficiency have been targeted at the transportation and residential sectors which together account for half of total energy consumption in the American economy.

"While these initiatives have largely been successful at promoting large increases in energy efficiency -- almost double the pace in the rest of the economy -- overall energy usage in the transportation and residential sectors has risen faster than in the rest of the economy," Rubin said. "In short, energy usage has risen fastest where energy efficiency gains have been the greatest."

The situation is the same for carbon emissions where emissions from the transportation and residential sectors have risen by 40 percent, double the pace of emission growth in the rest of the economy over the last decade.

The report notes that the transportation sector is one of the best examples of the efficiency paradox. The sector accounts for almost 30 percent of end-use energy consumption and accounts for 70 percent of oil consumption in the form of gasoline, diesel and jet fuel. The sector has seen steady and substantial improvements in energy efficiency since the OPEC oil shocks.

The report is available in PDF format at http://research.cibcwm.com.

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