How Efficient Is Energy Efficiency? A New Freakonomics Radio Podcast

Listen now:
(photo: Stefano Paltera/U.S. Department of Energy Solar Decathlon)

(photo: Stefano Paltera/U.S. Department of Energy Solar Decathlon)

Arik Levinson is an environmental economist at Georgetown who spent some time as a senior economist for environmental issues with the Council of Economic Advisors (C.E.A.) under President Obama.

“One of my jobs,” he says, “was helping the White House evaluate the environmental policies coming out of the Department of Transportation, the Department of Energy, and the Environmental Protection Agency. And I quickly realized that most of the policies that I was seeing involved energy efficiency.”

So Levinson wanted to know: how efficient is all this energy efficiency? That’s the topic of our latest podcast. (You can subscribe to the podcast at iTunes or elsewhere, get the RSS feed, or listen via the media player above. You can also read the transcript, which includes credits for the music you’ll hear in the episode.)

We discuss Levinson’s new working paper “How Much Energy Do Building Energy Codes Really Save? Evidence From California” (and a related Journal of Economic Behavior & Organization paper, called “California Energy Efficiency: Lessons for the Rest of the World, or Not?).

The evidence from California may surprise you: “There is no evidence,” Levinson writes, “that homes constructed since California instituted its building energy codes use less electricity today than homes built before the codes came into effect.”

Along the way, you’ll hear Levinson talk about …

+ Why energy-efficiency mandates “have become the centerpiece of U.S. climate policy.” (It has a lot to do with the Energy Independence and Security Act of 2007.)

+ Why that’s a bummer: “We’re enacting a bunch of policies, patting ourselves on the back for achieving our climate goals, while the Earth continues to warm and carbon emission continue to increase.”

+ Why economists generally don’t think efficiency regulations work so well. (It has a lot to do with the Rebound Effect.)

+ What hardcore environmentalists and climate-change deniers have in common. (“Head-in-the-sand denialism,” Levinson calls it.)

+ How to think about tricky environmental issues like landfill use, paper towels vs. electric hand dryers, and the like.

But the core of the podcast is the story Levinson tells about his analysis of the California data. The trigger event was the Warren-Alquist Act, which established the California Energy Commission and gave it the authority to “prescribe, by regulation, lighting, insulation, climate control systems, and other building design and construction standards which increase the efficient use of energy.”

As Levinson notes, “the California Energy Commission projected at the time that  homes built after the standards were enacted …  would use 80% less energy.” That of course would be a major victory for just about everyone. And it’s a victory that has indeed been claimed by many, including Tom Friedman, writing recently in the N.Y. Times:  “New houses in California now use one-fourth of the energy they used 25 years ago.”

But Levinson’s analysis argues otherwise.

Some people are distressed by his conclusion — Hal Harvey, for instance, the CEO of a clean-energy firm called Energy Innovation. In the podcast, you’ll hear a statement Harvey gave us, critiquing Levinson’s methodology and analysis. For what it’s worth, Harvey also suggested to us that “You do not want Freakonomics publishing or promoting this sort of work: It is not sound scholarship, and that could hurt your reputation.”

If my reputation can be hurt by interviewing a prominent environmental economist at Georgetown who worked for the C.E.A., then I guess it’s not worth worrying about.

 


Rick Langel

Mr Levinson made a curious comment. He stated that government needs to tax electricity and other energy sources in order to show people the real cost of those energy sources. How does it show real cost to artificially tax it in order to increase the cost?

James

Because the real cost includes all the side effects, from air & water pollution to allowing foreign policy to be dictated by oil-rich countries, that are now either paid for from general tax funds, or by individuals out of their own pocket.

Roland

I loved this episode. I'm in California, where our supposedly energy efficient building codes, rules, and laws produce Starbucks stores and strip malls with one HUGE air conditioner, which tends to keep the customer at 62 degrees just to keep the associates at 72 back by the ovens and espresso machines. I can practically feel the wasted money and air pollution blasting down through those freezing columns of air while I sip my coffee and wish for a sweater.

I find it hard to believe that this setup is more energy efficient than the old, warm and cozy restaurants in older construction.

Elliot

Some frustrating comments in this episode. The interviewee states that the interviewer can't do anything to stop carbon emissions. All he can do is advocate for better policy. That's frustrating. The point of the policy is to adjust people's behavior. So, if you're concerned about this topic (which you would be if you're considering advocating for better policy) then you could just change your own behavior. Walk or bike everywhere. Don't buy coffee, chocolate, and mangos. Put on a sweater. Easy. Done. People use to size of the problem to avoid changing their own behavior. It's a tragedy-of-the-commons situation. It's selfish laziness.

The same kind of annoyance occurs a few other times. Specifically, I wish they offered the first and most obvious solution to curious listeners: reduce. As it applies to the coffee mug versus disposable cup discussion at the end, the most ecologically innocuous choice would be not to drink coffee. Get more sleep. Take a cold rinse in the morning to jolt you awake (this works incredibly well to wake you up, avoids burning fossil fuels to heat the water, and generally uses less water since you probably won't spend as much time in the shower).

Read more...

Alex

I am in the business of saving 80% or more on residential buildings, so I laughed that California thought it's code update would achieve this figure. If you want to calculate energy saving at that level you are going to need more than a few inputs on your spreadsheet, and if you want to build a house that saves 80% you are going to have to look up the Passive House energy standard (PassivHaus). The really interesting question for me is at what level does extreme energy saving construction make economic sense on the timeline of a 30 or 15 year mortgage. These arguments start with expected savings of 75% or more of the utility bill compared to the additional cost of construction (10% +/-), and the arguments get to the 'too confusing point' around expected rise in energy prices and mortgage policy.

Dave

Alex's question about cost effectiveness is best answered with the history of Title 24, the program that mandated energy efficiency in California buildings. The heart of the program is to always recommend/mandate the most cost efficient measures. The California Energy commission works with builders and academics to figure out realistic improvements to typical building that are justified by energy savings over the life cycle of the building. In the 1970s that meant insulated windows in most climate zones. It has meant progressively greater levels of insulation in attics and walls. It has meant using fluorescent lighting in bathrooms and kitchens. These are all small steps, but cumulatively they have created housing stock that is significantly superior to other states. It's an easily reproduced system, but the benefits take years to accumulate at the state level.

People who object to mandates don't like any government intervention into what they can build, but the Title 24 approach never asked builders to do more than could be economically justified at the moment. By requiring every builder to use the same standard approach, they eliminated the "race to the bottom" that is typical of any business trying to make a buck. It created a level playing field and everyone who has purchased a California home or non-residential building created since Title 24 went into effect is saving money on their utility bills.

In direct response to Alex, it's a tiny subset of the population that cares about PassivHaus levels of efficiency. I'd say 99% of the readers of this blog don't even know what it refers to. On the other hand, California's energy efficiency efforts in Title 24 are aimed at the vast majority of consumers who want a modern house with realistic and cost effective construction. That said, the future standard for Title 24 is going to be a "net zero energy" house in a few years. Progress doesn't stop and what was a pipe dream ten years ago (photovoltaics on every roof) might be tomorrow's reality.

I was appalled at this program's sloppy distortion of reality. Ashamed for Stephen actually, that he was suckered into presenting Arik Levinson who has crafted a career of trying to debunk energy efficiency.

Here's Devra Wang refuting these same arguments a year and a half ago. http://switchboard.nrdc.org/blogs/dwang/californias_energy_efficiency.html

Read more...

Brian

I have appreciated the apolitical and scientific approach this website has used in the past, but Levinson obviously is operating with an agenda. Having guests who generalize and cherry pick data undermines the credibility of this website.

COBBLEHILLITE

I am a building manager in NYC and have been studying NYC energy efficiency codes (a new one is Local Law 87) where residential buildings over 50,000 square feet have to undergo energy audits and retrofits. Failure to do so leads to fines and violations. I have three major problems with this law. 1. all buildings are to undergo this even affordable housing which often cannot afford the audits and required work. Market buildings raise rents to pay for retrofits, while rent stabilized properties undergo retrofits and charge the tenants through a state approved rent-increase process. 2. the code was written by the energy audit community who are getting rich off the backs of property owners. This is similar to the defense industry that writes laws regarding missile systems creating jobs and profits on the back of tax payers. 3. there is no mandate or penalty to auditors when buildings don't meet the projected energy efficiency targets indicated in their modeling even if owner follows through on all recommendations (remember the energy auditors wrote the law)

Read more...

Peter Einstein

I think the argument that we use more air condition/more electricity, fuel etc. if it becomes cheaper is a weak argument based on the flawed assumption of the homo economicus. Just because my car uses less fuel doesn't mean I drive around stupidly without purpose. Just because my air condition is more energy efficient doesn't mean I will cool my house absurdly. I can simply be happy that I spend less money for the same service while doing something good for the environment. This behavioral response is much more reasonable than following a theoretical argument stating that I start cooling my house like a fridge and driving around like crazy just because my fuel is cheap... Only because an argument is possible doesn't mean it is reasonable for the majority of cases.

Ken Olshansky

The CEO of the commenting environmental solutions firm providing criticism of Levinson's work offered no substantiation whatsoever of his own proclamations. In itself, that makes his criticism suspect.

Cameron

Is it just me, or was it odd that the assertion that economists are definitionally pro-market went unchallenged and then formed the basis of the following discussion? Or is this just the problem with economists/economics?

John McLaughlin

Investing in Energy Efficiency Pays Off (NYTimes 2-6-15)

"Retrofitting buildings for energy conservation in the United States could save $1 trillion over a decade, reduce American greenhouse gas emissions by 10 percent, and spur employment across the country."

http://opinionator.blogs.nytimes.com/2015/02/06/investing-in-energy-efficiency-pays-off/?action=click&pgtype=Homepage&version=Moth-Visible&module=inside-nyt-region&region=inside-nyt-region&WT.nav=inside-nyt-region

Jon

Reading through Levinson's paper, I am concerned that he doesn't appear to be isolating the impact of remodeling and updates to existing houses. A straight comparison of pre-regulation built houses and post-regulation built houses makes the assumption that the houses built prior to 1978 have remained unchanged for nearly 40 years.

Considering that any remodels, upgrades or repairs to a pre-regulation house would be using post-regulation materials and would need to pass updated inspections (windows and insulation codes for example), a failure to isolate these updates would potentially hide any delta between the old and the new building.

One thought for Prof. Levinson would be to utilize the building permit records for older houses to either determine how much a house is 'up to code' or eliminate remodeled houses completely. Unfortunately, with estimates of up-to 60-70% of remodels not getting permits in California this may prove difficult.

Read more...

James

A very good point there! I've certainly done a lot of energy efficiency improvements to my house (built in mid-'60s) in the 15 years I've owned it - added wall & attic insulation, double-paned windows, new water heater & other appliances, CFL & now LED lighting, and more. While I didn't keep detailed records, my electricity use has gone from about 18-20 kWh/day to 11 kWh/day, and heating is about 10% of what it originally was.

It should be noted that none of these improvements required any sort of permit, and so wouldn't show up in records anywhere (except perhaps my Home Depot credit card), other than declining power and heating oil bills. Apropos of which, this WSJ article says that utility companies are now afraid that people aren't using enough electricity: http://www.msn.com/en-us/money/companies/energy-pinching-americans-pose-threat-to-power-grid/ar-AA8UuxL?srcref=rss

Read more...

Peter Pollard

Electric consumption per capita in California has been flat since the mid-70s. Meanwhile, for the US overall per capita use has near doubled -- the famous Rosenfeld curve. Still looks like results to me.

Douglas

California screwed up their implementation of the energy code. The people who actually make a living building homes that are *measurably* energy efficient and remodeling code homes know this and have for years. The problem isn't necessarily the goal, it is how it was done. The legislators, bureaucrats and inspectors don't know how to build energy efficient homes and don't talk to people who do. The Building Performance Podcast covered this embarrassing fact of the new code having near zero measurable effect on new homes vs. old when talking to people who really do understand building science and California's climate/code hurdles.

http://buildingperformancepodcast.com/west-side-baby-a-bunch-of-californian-rockstars-show-us-what-s-behind-the-curtain

Paul

There are a couple of major issues with Levinson's conclusions.

1) Saying the energy-efficient homes don't save energy is misleading. The homes themselves may actually be far more efficient. What he really finds is that households are using the same amount of energy regardless of the actual efficiency of their homes. This is a major distinction. If both types of households are using the same amount of energy, the household with the energy-efficient home is getting more utility per unit of energy used (lower AC temperature, more robust appliances, etc). The energy-efficient house might not ensure the household uses less energy, but it does allow the household to buy more utility for a lower cost, which is an different, but still very important kind of efficiency.

2) If you do raise energy taxes at some point, the energy efficient home can more easily cut back. If your home has poor insulation, bad windows, etc, and you're already running your AC at a relatively high temperature, it's very costly to compensate for raising energy costs. But if the owner of an energy-efficient home is already enjoying low AC temperatures, he has more headroom to raise his AC temp and immediately start saving more money/energy.

Taxing energy seems like a pretty good way to reduce usage. I agree with Levinson on this. But if taxes incentivize consumers to consume less, the folks who already own an energy efficient home are in a much better position to start that process.

Read more...

Hans Berg

Did he control statistically for the size of homes? This seems obvious, but it was not clearly stated, while intuitively much more irrelevant variables like level of education were mentioned.

Obviously homes are much larger now than in the 70's. I would be shocked if the energy codes did not significantly improve BTU's per square foot.

But, maybe not, as it is very true that energy efficiency leads to cooler indoor temperature settings in the summer.

James

While my energy efficiency improvements have led to cooler indoor temperatures in summer, they haven't increased energy use. Quite the opposite, as I can now open windows in the cool evening, close them in the morning, and the house will stay comfortable all day. Haven't used the A/C in more than a decade...

Lauren

I disagree with the idea of taxing energy use. That is certainly not pro-market! That punishes both the reducers and the exploiters. Following Levinson's reasoning to avoid the Rebound Effect, perhaps institute a tax "penalty" at a certain threshold to avoid overuse.