# Mind the Electric Gap

Thirty percent of U.S. electricity consumption could be erased through gains in energy productivity, according to the Rocky Mountain Institute. (Related: see R.M.I. chairman Amory Lovins‘s recent guest post.) The institute’s analysis arrived at electricity productivity stats for all 50 states by dividing each state’s G.D.P. by the kilowatt hours of electricity it consumed.

New York state topped its list. For each kilowatt hour of electricity (the equivalent of burning one 100-watt light bulb for 10 hours) the Empire State consumes, it generates \$7.18 in G.D.P. Mississippi, squarely on the bottom of the electric productivity list, generates just over \$3 per kilowatt hour. The R.M.I. claims significant cutbacks in carbon emissions could be made (pdf) if all 50 states could increase their productivity to match the top 10 most productive states (in descending order: New York, Alaska, Connecticut, Delaware, California, New Jersey, Massachusetts, Rhode Island, New Hampshire, and Colorado). They call it “closing the efficiency gap.”

See for yourself. To visualize its data, R.M.I. has launched a cool interactive map, where you can see how your state stacks up in energy productivity, and the potential carbon savings it could make through productivity enhancements alone.

The institute is currently at work on a follow-up paper that will offer some solutions for closing that gap. What kinds of strategies should they use?

1. Ben D says:

“kilowatt hour of electricity (the equivalent of burning one 100-watt light bulb for one hour)”

That would equal 0.1 kilowatt hours. You are off by a factor of 10.

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2. MBirchmeier says:

Is there a real or even supposed link between energy efficiency and GDP? I would imagine that New York’s GDP is higher due to the presence of a strong financial industry, and this is independent of any electric efficiency that may exist between New York and Mississippi.

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3. Alex says:

This study assumes all kinds of weird relationships between energy and GDP that just don’t seem to be accurate. You know why New York is so high on that list? Because banking takes a lot less energy than farming does to produce money. You know why Mississippi and Kentucky are at the bottom? Because farming and coal mining are energy intensive and produce inexpensive products.

So what’s the answer then? Stop farming and make every state convert to a white collar economy? Doesn’t seem feasible to me.

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4. the Gooch says:

New York being #1 in GDP/kWh just shows what you can do by fabricating earnings on Wall Street. They will not be #1 on that list for long.

Also, do they count the revenues of the utility companies in the state as part of the state’s GDP? If so, you could easily catapult your state to the top by jacking up utility rates…but increased energy prices aren’t the (overt) goal of the energy conservation movement.

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5. Terry says:

This looks similiar to a service-economy state vs manufacturing-economy state map. If we eliminated our manufacturing sector, sure we would be more efficient, but also less diverse.

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6. Energy Guy says:

There’s certainly many opportunities for efficiency improvements, but their measure of efficiency is too crude to be useful.

How many hot climate states do you see on the list of the most efficient? Maybe we should see if we can drag all the states in cooling-dominated climates up to colder locales so that they wouldn’t need so much air conditioning?

You will also find higher “efficiency” as they define it in states with greater access to natural gas and in states with higher electricity prices. Electricity-intensive industry and all-electric homes are much more common in places with historically cheap power — like the hydroelectric dominated Northwest and coal dominated states like Kentucky.

A simple regression model with a few factors such as climate (especially cooling degree days), the saturation of electrically heated homes, and electricity prices will explain the vast majority of the inter-state differences and lead to a very different ordering. Many of the apparently high efficiency states will be shown to have higher natural gas usage too.

The main conclusion may be that high electric prices will lead to lower electric usage (not a surprise) , but with relativley low short-term elasticity but high long-term elasticity. Thus raising prices will work, but there will be some short-term pain and lots of people/businesses who lose out due to fuel choices and locations selected based on low power prices.

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7. Devin says:

What would be more interesting to see is if rural NY is just as productive per kilowatt as NYC. Manhattan is still a financial core of for the world, and the city is very dense with people, buildings and business. It’s easier to acheive electri-nomics of scale in that situation. As for Alaska, most of their population is near Anchorage, and they have a greater incentive to be efficient given their climate. Of course that cant explain everything related to the study, but just a thought.

So basically the bottom states need to move to higher latitudes and become dense centers for capital flows.

Or just price electricity to reflect it’s true cost to consumers. Simple!

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8. Hunter says:

Grrr. Look at the list of the most efficient by kWh. 7 of the 10 have little in the way of “real” wealth creation industries – by which I mean either farming/extraction or manufacturing. If you want to create real wealth that doesn’t involve repackaging money or ideas a dozen times, then I think a different metric is required.

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9. erik says:

Different industries have different ratios of GDP per KWH. A state with a lot of farms will have a different ratio than a state with a lot of banks or movie studios or whatever. It is just plain goofy to suggest that that Mississippi can improve its ratio by, say, supplanting Hollywood.

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10. Mike says:

It’s been a while since I took microeconomics, but, even if we buy the argument RMI is making (and there are plenty of reasons not to as the other commenters have noted), wouldn’t increasing GDP per KWh lead to an increase in KWh consumed? If I could get double the value from electricity, the marginal cost would have to rise or I’d want as much electricity as I could get.

Just as with CAFE standards (which don’t work, unless your goal is to bankrupt auto makers) vs. gas taxes (which would), if the goal is to decrease the quantity used, make it cost more. Increasing efficiency by itself won’t result in less consumption.

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11. Baseball Mike says:

Has anyone noticed that other than CA, these appear to be the most populus and productive of the “cold” states? How in the world can RI make any list, in the face of 10% unemployment and not much industry to speak of? And why doesn’t a state like TX make the list? I’ll bet that the list more closely tracks the use of air conditioning (or lack thereof) than it does anything else. So — if you want to pick on states that use a lot of electricity or have homes that are too large for their own good — can’t you find other ways to do that?

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12. Helen says:

How are the TARP funds going to factor into the calculations? Are the massive losses from 2007 – 2010 (I’m an optimist, you see) of the NY financial firms going to erase the “energy productivity” advantage the state appeared to enjoy at the peak of the bubble (2005)?

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13. Xian says:

Yeah, lets see how effcient the top ten will be after all the chips fall from this ‘Banking Crisis’ that obviously over-inflated their GDP. Alaska would be the only state that is actually going to keep up even though oil prices has dropped drastically, lets go back ten years and see some real evidence that these states are truely efficient in producing goods and services. so if RMI wants the entire US to be as efficient as New York, lets see you eat when the midwest turns from farming to ‘soft industry’ or the previously profitable banking sector.

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14. Mike says:

If we turn out all the lights and use candles/firewood etc, our electricity efficiency would be infinite!!!

The Amish must have very high electricity efficiency.

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15. DCF says:

Without having read the study which generated the map this may be premature, but I agree with others saying that this is kind of a silly map. It shouldn’t surprise anyone that the states which do well (with the notable exception of California), do not have much of state production from farms. If the US ceased farming, then people would not discover how to farm more efficiently, and unless people want to starve, the world will produce roughly the same amount of food requiring roughly the same amount of power as before the US implemented the suggestions from this study.

A potentially more interesting analysis of the data would be to control for output type (i.e. is a dollar of farming output in California more energy efficient than a dollar of farm output in Mississippi). As a hypothesis, I suggest controlling for output type would eliminate the large disparities.

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16. Nuclear Mom says:

I think the comments about variations in GDP are well-founded, but the League of Women Voters did a study of California energy production/usage about 3 years ago, and we had gone from above-average use per capita (not per GDP) to 30% below the US average per capita.

1. The biggest use of energy in California is pumping water up and down the state. Higher electricity prices also translate into higher water prices here.

2. California made a choice years ago to be “green” and to get nearly none of its energy from coal and a diminishing fraction from oil. About a third of the energy now is nuclear (although that’s in danger of declining), and close to 20% is renewable (sun, wind, co-gen). Therefore our energy prices are higher than average – another incentive to be frugal/efficient.

3. As with water, the cheapest new kilowatt hour comes from conservation by current users rather than generating a new kWh. We are constantly getting calls from the gas company and the electric company offering to caulk or replace our windows or give us rebates for purchasing energy efficient appliances or newer central heating/cooling units, fluorescent bulbs, etc. I believe the figure was 12 new power plants did NOT have to come online since 1980 due to increased efficiency (compared to typical use per capita in 1980), a big cost saving.

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17. Bruno says:

I’m disappointed to see an example of terrible economics on this site.

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18. AR says:

For those complaining about the advantage to states with northern climates – if you follow the links to profiles of individual states, you will see that they include an adjustment for climate. So states in the humid south receive a boost of as much as \$.50 per kilowatt hour, while states with moderate climates like Washington, Oregon, and California receive no handicap.

And then for those complaining about the comparison of economic mixes in various states, they also include an adjustment for commercial vs. industrial economic production. California actually loses \$.17, while Kentucky gains \$.52.

Don’t assume that a study isn’t rigorous just because an unaffiliated blog post doesn’t mention all variables considered. You can quibble with the way they calculated these adjustments – I feel like there are some northern states that receive a rather large climate boost, personally – but you can’t argue that they didn’t even consider them.

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19. Natalie Mims & Mathias Bell, RMI says:

As the authors of the paper, we would like to clear up a few things. Our findings are based on months of work normalizing the data. Many of you are correct to point out that an analysis based on unadjusted \$GDP/kWh would be far too simple. To better understand electric productivity, we normalized for climate and GDP factors.

The findings of the analysis have been a surprise to many. Who would think that the productivity gap between states could be 1.2 million GWh? Even if you threw countless variables into the analysis in a “kitchen-sink” approach to explain the disparity, the productivity gap still exists.

A couple of surprises to us:

The state of New York has one of the most “productive” industrial sectors in the US. One would think that this is caused by the fact that New York has far less “intensive” industry than the rest of the nation. To the contrary, 63 percent of New York’s industrial electricity is used for “intensive” industries, such as manufacturing cement, concrete, paper, steel, glass, iron, aluminum and chemicals. This is just one example of a state with high electric productivity that also having industrial electric productivity. In contrast, Mississippi only uses 40 percent of its industrial electricity on these intensive industries.

Climate certainly does affect electricity consumption, but not to the effect one might think. If you took a house built to code in Alabama and then moved it to the temperate California climate, energy consumption would only decrease by 20 percent.

There’s no doubt that the cost of electricity affects electricity consumption. States with expensive rates have been motivated to emphasize efficiency to reduce costs (though Texas and Hawaii are clear outliers). Since it is in the near-term control of states to set electricity rates (unlike climate and most of GDP), we decided rates would be better used to determine how states can cost-effectively use efficiency to close the gap rather than explain why the gap is marginally smaller.

The intent of this analysis was not to call out under performing states, but to show the efficiency potential that exists if all the states performed similarly to what the top states are doing today.

We are working on the solutions to cost-effectively close the electric productivity gap for each state, and it is likely that our recommendations will include simple solutions such as updating building energy codes and providing electric utilities with appropriate compensation for using energy efficiency.

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20. B White says:

This relationship is normal. Poorer countries (or states) burn more electricity per unit of GDP. E.g. China and India produce twice as much as unit of GDP compared with the USA. If one looks at the most efficient states mentioned, one will also see they are the richest, whereas Missasippin is one of the poorest states in the union and therefore the dirtyest.

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21. Andrew Fiebert says:

Interesting, I just calculated out the savings per year for the country if all states achieve the average. \$132 billion per year savings. That could definitely help in cutting a chunk out of that oh so tiny deficit we run.

1.2 million gigawatts to kilowatt (google) = 1,200,000,000,000

Average household kWh cost = 11 cents [Source: http://michaelbluejay.com/electricity/cost.html

1 200 000 000 000 x 0.11 = \$132 000 000 000

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22. Rob says:

This method of measure seems to favor states in northern climates with high population density. It also seem not to favor states in which agriculture is a major player in the economy.

It also appears that many of the states with the most favorable GDP/Kwh balance are also states with serious air quality problems Go figure.

Any suggestions for how to make Mississippi more like New York? It will be interesting to see if anything positive comes from this data or if it will just be used to advance a political agenda loosely tied to the study.

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23. Jim says:

What this doesn’t take into account is that it’s unlikely to even be possible for some states to improve it’s efficiency to the degree that the top 10 have. The top 10 states are generally states with higher loads, more congestion, and fewer cheap generators. The less efficient states generally have cheap power, less infrastructure, and spend more power on electricity intensive industry by nature.

Further, even if New York’s industrial electricity is more efficient, there is no comparison of that nature.

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24. Steve says:

Just sell Mississippi, Alabama, Arkansas, Louisiana, and several other low productivity southern states to Mexico. Their energy use will decline rapidly once the subsidies end. Any auto plants there, will relocate back to the US too, once their ability to gain subsidies to employ low productivity workers stops with the end of federal largess. Once the cretins in these places start to earn Mexican wages, they’ll be plenty of work for them. They may eventually regret their lack of interest in education, but there is no guarantee of that.

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25. Bill W, Florida says:

This post smelled by the second paragraph, for all the reasons cited in the sensible criticisims here. I come here regularly for thoughtful insights about our floundering economy. What happened?

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26. USC90 says:

Does the study account for states that have retiree populations, e.g. Florida?

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27. USC90 says:

EDIT #26 … that would be states with “*high* retiree populations”.

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28. ruralcounsel says:

As most commenters have pointed out, the reality behind these metrics shows R.M.I.-style “economics” have an incredible amount of ignorance embedded in them.

So how does the Rocky Mountain Institute calculate it’s “GDP”? Does it’s study have the value of just the paper it’s written on? (As appears to be the case here!) And how much electricity does it use?

If these guys are sincere about wanting to improve the nation’s energy efficiency, they need to start doing better quality work with less PR-stunt BS. Where are the engineers and people who know how the economy really works and produces things? No more ivory-tower idiocy, please.

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29. 5cott says:

Didn’t this article just say that everything would get better if some states would just “work harder”?

Ugh.

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30. Jim S. says:

How much of the disparity can be explained by poulation/economic density? Since there is energy loss during transmission, less dense states would be at a disadvantage because they lose more power just getting it where it needs to be.

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31. Tim says:

Utterly retarded. I cannot imagine how this even deserves serious analysis for all the reasons listed.

The better question to me: what nefarious angle is the RMI trying to support with such bogus analysis? If I had to guess it’ll be quoted by lobbyists as “research” to support shifting dollars in some unexpected direction.

To answer the question posed by the post, however, echoed by most comments already: the most effective strategy used to equalize this ratio would be to stop all that difficult farming and start selling derivitive contracts. Brilliant.

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32. Energy Guy says:

The authors of the study replied ”

Climate certainly does affect electricity consumption, but not to the effect one might think. If you took a house built to code in Alabama and then moved it to the temperate California climate, energy consumption would only decrease by 20 percent.”

This statement is misleading as you are conufusing electricity and energy. Your analysis is of electricity consumption but you only state how energy consumption would differ. If you also included natural gas in the analysis then you could better make that argument but you specifically focused on electricity.

It’s not just that electricity is used for cooling, but also that in warmer states you are much more likely to find electric heating (less of a load as well as lower prices makes it more viable) and therefore also electric water heating. The typical electric usage for an all-electric home in a hot climate is about 16,000-20,000 kWh/yr but if you moved that home to San Diego and switched the water heating fuel to gas, the usage would be half that or less. Your 20% claim is incorrect.

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33. Eric M. Jones says:

Regarding climatic costs factors…RMI says, “If you took a house built to code in Alabama and then moved it to the temperate California climate, energy consumption would only decrease by 20 percent.” I rather doubt this, but you could select the location in California to prove the statement. Lake Tahoe, Arrowhead, San Diego, Death Valley. So clearly the statement is vapid and fatuous. But an interesting experiment could be designed: Suppose you took a large RV (or many identical ones) and lived in them for a year in thousands of places? This would give you some clear measure of comparison. I’ll take the one in Hawaii, please.

Seriously, the US weather guys (NOAA), do have all the info from their little weather observation houses that would enable one to remove these cost considerations. But please note that nearly (99%) everyone uses electric air conditioning, but in the north, very few use electric heat. This skews the figures somewhat.

In passing, one has to opine on the curious occurrence of most of the industrial revolution in cooler temperate zones. I speculate that this is because–before air conditioning–below the latitude of say, the Carolinas, a factory would have been nearly uninhabitable half the year.

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34. Greg says:

It’s easier to achieve higher electricity efficiency if you transfer your HVAC (Heating, Ventilation, and Air Conditioning) costs to non-electric sources like natural gas or heating oil.

There are some buildings where I work that have individual condo owners paying for their own electric baseboard heat, but a shared bill for natural gas. This perverse incentive causes owners to heat their condos (as much as possible) with their gas fireplaces, which is no doubt less efficient!

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35. Duncan says:

I feel like I’ve gone through the looking glass. Could this post really be happening on an economics blog?

Did Steven Levitt read this post before it went out, and not care about that 1 + 1 = -2 logic?

Increased efficiency will INCREASE electric consumption, not decrease it. How could raising the marginal value lead to reduced usage?

The only way to reduce consumption is to raise the cost of electricity, like they did in California.
Well, CA didn’t reduce consumption but they lowered the rate of increase.
Well, that assumes the per-capita numbers for CA are valid, and the older numbers include illegal aliens like the new numbers do.
Well, CA also drove energy-reliant industry out of the state by refusing to provide reliabel power supplies.

But in any case, one thing California did NOT do was reduce consumption by increasing efficiency.

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36. Energy Guy says:

#35 Duncan is confused. If I replace my light bulb with one that uses 75% less electricity per hour, do I want to burn it 4x as many hours? Energy is not something we consume for the sake of consuming it with boundless appetite — it is something that provides an amenity.

There are certainly elasticity effects to consider — both effective price and income elasticity related to greater efficiency, but Jeavon’s paradox is absurd for the vast majority of situations.

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37. ruralcounsel says:

#36 is also confused.

If I replace my light bulb with one that uses 75% less electricity per hour, I may leave it on more, and I may be less likely to go around the house screaming at my kids to turn off the lights inrooms that no one is in. I’ll be less sensitive to wasting it, because it doesn’t cost so much.

Energy is something we consume thoughtlessly when it is cheap. And over the long run, we’ll be less likely to invest in energy efficient appliances, because the ROI will be lower.

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38. Energy Guy says:

# 37 ruralcounsel is the one who’s confused — well actually just needs to learn how to read. I did mention that there are real elasticity effects — which is what you are describing and pretending I deny. It’s just that the elasticity would need to be unrealistically large for energy usage to actually increase from greater efficiency. As I directly mentioned — I would have to leave the light on 4x as much to just get back to equal energy usage. The things you talk about are trivial in comparison. Please actually read a comment and try to understand it before refuting something that it doesn’t say.

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39. Dr. Manak says:

Europe and Japan are twice as efficient at the U.S. in term of GDP/unit energy – I guess if you believe the posters here they don’t create any “real” wealth there either – never mind the more efficient states tend to be more populated, urbanized and affluent (with Alaska being a notable exception, oil helps). Apparently “real” wealth only comes from the extraction of minerals from the ground and farming, forget designing machines, drugs, and in general adding value to the raw material extracted… we have a name for countries that only farm and produce raw materials – we call them the third world….

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40. Bruno says:

To AR at #18
The most obvious problem is that the electric gap will probably be very correlated to the TFP gap.
The study is saying that Mississippi is not as productive as NY state. Great finding.

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41. IAS says:

This fundamental message that I took away from the RMI report is that there are significant opportunities for efficiency gains, without any breakthrough technologies, simply by being as efficient as some states already are. While I agree that a large potential exists, I am not convinced that it is fair or accurate to use differences in electric productivity as an analog for differences in electric efficiency. In order for that to be a fair assumption then GDP would have to be an indicator of electrical service provided, which is not necessarily the case.

Many economic activities can contribute to GDP, but have no relation to electrical services. Even after normalizing for industrial intensity and climate differences, some states likely receive more electrical services per dollar of GDP than others do–just as some people demand more electrical services than others.

Consumers in some states may spend a smaller percentage of their income on electrical services (either because of climate, energy prices, or energy efficiency) and therefore have more money to spend in other sectors which are likely more labor intensive than electricity. Doing so creates more jobs, more economic activity, and more GDP. So, there is probably a bit of compounding: more efficient states use less energy, leading to even higher GDP, which further reduces energy intensity. Assuming that the relationship between electric productivity and efficiency is linear, as was done in this report, is incorrect. Assuming that the productivity gap can be filled in with efficiency is also incorrect since GDP may not be a robust indicator of electrical services.

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42. Duncan says:

#36 Energy Guy your spelling is as bad as your analogy. It took me a while to find the Jevons Effect from googling your “Jeavon’s Paradox”. This blog post is about ready for the dustbin of non-history anyway, so this is almost pointless…

There’s nothing paradoxical about the Jevons Effect. It’s very straightforward economics. That’s why the snake oil being sold as “negawatts” can’t possibly be true.

Under any circumstances.

Even Anecdotally.

Whatever anecdotal evidence RMI can provide of reduced consumption due to increased efficiency is a mirage. Increased efficiency can’t help but increase consumption; to argue otherwise is like saying that gravity is an upwards acceleration.

If I replace my old lightbulb with one that uses 25% the electricity, does the new lightbulb cost the same as the old one? If it does, I’ll buy 2 or 3 lightbulbs and not bother turning them off except when I want to go to sleep. I may hook one of them up to a motion sensor by my back door to scare away burglars and stray cats. I’ll definitely hook one up to the electric garage door opener I’ll install with the savings from all my lightbulbs.

Even if *I* stop buying new gadgets before I get back to my previous energy consumption, my lowered consumption will force Con Ed to lower rates and my neighbors will start using more electricity until as a group we’re using more than we started with.

You think I’m being facetious? Look at all the office buildings in our city that leave the lights on all the time because the cost is so low there’s no benefit to going around and turning them off. If a company’s Director of Green gets the company to install systems to turn off those lights, the company eats the added cost to gain positive PR, not because it saves money.

Better yet, buy an old house and upgrade the wiring. No one has ever brought an old building up to code by reducing electric capacity – every generation uses more electricity as marginal costs go down. If the costs weren’t going down, we’d still use as much electricity per capita as our grandparents.

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43. Energy Guy says:

Duncan-
Your own examples show your ignorance. Many people have bought CFL bulbs and their electric usage does indeed decrease. I know because I evaluate energy efficiency programs for a living — doing statistical analysis of the energy bills of many thousands of households in many different programs around the nation.

You are quite clueless about this topic and also about economics (but it doesn’t stop the arrogance…).
Do you even know what elasticity means and understand price and income elasticity effects? Do you think these elasticities are greater than 1? Think about it — who would add more bulbs and turn them on more often to the point of using 4x as much lighting just because their bulbs use less power? In the developed world, — people already have all the lighting they want and so elasticity effects are generally quite small — certainly far less than 1. I guess you would just drive all the time if you got a high mileage car?

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44. Ike says:

@#24 Steve…

Actually, those of us in the South were really considering selling off Michigan. If we do so before all those automotive bailouts are paid, we can really get out from under a bad debt. You guys are costing me boatloads of cash.

Granted, with your surplus of \$7,000 homes on the market, now would not be the ideal time to sell, but I’m not sure that you haven’t bottomed out already.

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45. endependence says:

I found it interesting that three of the four states whose Republican governors are considering “refusing” stimulus funds from the federal government (at least as of February 20, 2009) are ranked as follows:

Louisiana = Governor Bobby Jindal Ranks #34
South Carolina = Governor Mark Sanford Ranks #47
Mississippi = Governor Haley Barbour Ranks #50

A large part of the American Recovery and Reinvestment Act is for “energy” expenditures (\$65 billion in tax incentives and expenditures).

Maybe these governors dislike saving energy as much as they dislike taking money that will help their citizens.

http://endependence.info

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46. Fourcultures says:

Mike @10 – I agree there’s a problem with energy efficiency in itself. People just spend the gains on more of the same, unless there is some other reason not to. The Jevons Paradox spelt this out in the Nineteenth Century. See also Energy efficiency – running to stand still?

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