How Efficient Is Energy Efficiency? (Ep. 195)

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(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.


Oliver H

The problem with the rebound effect suggestion is that it is pure handwaving. If, for example, I have LED lights using 1/10th of the energy of a traditional lightbulb, in order to compensate even half of that, I'd have to have all the lights running five times as long as before. That's hardly a realistic assumption.

In the paper on whether California is representative for other states, Levinson writes:
"If air conditioning costs less because the walls are insulated, homeowners
might leave their systems on while they go to work."

That this carries the implicit assumptions that regular AC owners indeed switch the system off while they go to work - who cares, right? The entire line of argumentation is built up on implicit, unspecified assumptions which he fails to verify. In this case, it would be necessary to test what percentage of AC owners actually bothers to switch off their AC when they go out. Without those data, any talk about a rebound effect is pure handwaved wishful thinking because what must not be cannot be.

Alas, such unscientific fitting the data to the hypothesis is rampant among environmental economists.


Tom Barrett

I've been in the energy conservation and efficiency since 1977 and have been dedicated to making everything energy efficient ever since. I'm almost in agreement with this report based on my experience. For example:

The California ESA Program (Energy Saving Assistance - aka Low-Income Weatherization) spends an average of $1,100 per household to make low-income homes energy efficient, yet saves an average of $48/household/year. The CPUC spends $1 billion in three year cycles to do this. Not real impressive and probably something anyone would actually see and say "Wow I'm $48 richer after weatherization". Yes some folks actually might see a savings but most won't. The $1 billion/year CARE Program (which reduces low-income households' utility bills by 20 - 25%, reduces bills but doesn't encourage conservation!

I received a grant from a California utility company to retrofit a pre-Title home with the latest energy conservation and efficient technologies. We spent $160,000 upgrading one home with the latest (at that time five years ago) 19.5 SEER/98% AFUE heating and air conditioning system; replaced all lighting with LEDs and CFLs; replaced all the single-pane windows with Low-E, argon-filled, high efficient windows; super insulated where we could; replaced ALL appliances with the latest off-the-shelf energy efficient appliances; replaced the 2 HP pool pump with a variable speed pool pump and advanced filtration system; whole-house fan; etc. We monitored the savings and the household saved 7% after all of that! On paper it should have saved almost 50%, in reality 7%! We then added a 3.5 kW PV solar system and an evacuated-tube solar hot water system and their "bills" (not energy consumption) dropped over 70% and they never exceeded the first tier electric rates (previously they hit the highest tiered rates five or six months a year).

Was the house more efficient? We made it extremely efficient. Since we were only looking at the effects of technical fixes we stayed away from the household making any kind of behavioral changes. It is all about how you use it.

The last round of California's Energy Efficiency Standards (Title-24/Title 20) upgrades has had a negative affect on utility energy efficiency programs because now to upgrade a businesses lighting system the State of California requires a permit and the project has to be in compliance with the latest Title 24 standards (we try to exceed the standards). I developed a third-party, non-residential energy efficiency upgrade program that has been very successful and we've retrofitted the lighting in over 20,000 businesses since 2002. We get paid on estimated kWh savings. The estimates are based on the latest Title 24/20 base-lines. Every three years Title-24 raises the bar so that the base-line efficiency gets higher, which makes the difference in savings lower and lower between a base-case and the latest technology. For example a baseline energy consumption for a standard fluorescent fixture is now based on T-8 lamps and electronic ballasts that consume about 42 watts. We try to retrofit the thousands and thousands of old T-12 lamps with magnetic ballasts (96 watts) to the latest code-based fluorescent fixture that uses about 36 watts. The difference in savings between what we find in the field (T-12s) at 96 watts is 60 watts but we get paid from the Title-12 baseline of 42 watts, a difference of 6 watts, which makes the retrofit uneconomical. The net result of upscaling Title-24 efficiency and requiring building permits to do it is that no one can afford to replace their old systems because the utility payer based incentive programs are no longer cost-effective because the CPUC and utilities do not recognize the actual savings.

BTW - reducing a business's lighting system's energy consumption by making it more efficient actually reduces bills and consumption as these systems are typically used on a fixed schedule is not up to the behavior of individuals. However, energy creep comes in here too. After installing thousands of energy efficient lighting systems in state buildings back in the 80's and seeing 25 - 30% reductions in energy consumption, we were called back a few years later when their utility consumption rose above where it was when we upgraded the lighting systems. A new energy audit of these state buildings found out that, whereas no one had a personal computer when we initially retrofitted the lighting systems, now every desk had at least one personal computer and the electric consumption went above what it had been. No one considered the avoided costs until we recalculated their energy use based on the avoided costs of the lighting retrofits and savings was still there.


Tom Heywood

I enjoyed your broadcast on energy efficiency. Although it is clear that promoting energy efficiency did not reduce per capita electricity use that does not mean it did not have a salutory effect. California ranks number 49th in per capita use of electricity and since 1970 the per capita use of electricity in California has remained relatively flat compared to a steady increase for the rest of the US. Please see graph from Rocky Mountain Institute

Dr A. Cannara

" the media player above" no worky.

Alex Hoy

Arik Levinson ... another interviewee who finds it difficult to answer a question without starting with the word "so".


I cannot agree more on the fact that people tend to overestimate the fact that governmental policies will change the entire way people and industry will pollute. It always goes back to people behaviour, following the logic of "If I consume less, then I can get more for the same price I use to pay before".

It is really true in car efficiency: with low-consumption car, the pedal seems less impacting when pushed a little harder from time-to-time to pass this guy ahead. And hey, I still pay less than before! But the behavioural change offset what my savings would have been; this is why you get a 20% savings instead of 50% compared to your old pre-2000's car.


I won't have a chance to listen/read through this til later, but I'm wondered if the California homes are more efficient, but the gains are undone by the massive increase in electrical devices,and the increase in home sizes?


The topic of energy efficiency is a comprehensive one. Are we looking at all energy efficiency or it's various sectors, e.g. Residential, Commericial, Industrial, Agricultural? What benefits do we count, energy savings only or some combination of energy savings and their externalities, such as water efficiency, GHG reductions, improved comfort, increased building durability, a property's increased resale value? Do we only review deemed savings, modeled savings, evaluated savings or a combination?

And how do we normalize for changes in our lifestyle? An engineering friend of mine notes recently constructed new residential buildings are bigger than those built before Title 24, thus new homes use more energy on a per home basis than their pre-Title 24 counterparts...but consume less on a per square foot basis. Add to this the advent of ubiquitous set top boxes (cable box, Tivo, gaming consoles), personal computers, cell phones, tablets (iPads, etc.) and EV's, that are primarily charged at home, and a home's energy intensity could be intensfying.

So now what?

Energy efficiency when priced as an energy resource on a per kWh or per therm basis is cheaper than creating new generation (building a new power plant). Being a fiscally conservative independent, I believe increased participation in energy efficiency is the cheapest way to meet our increasingly diverse energy needs and has the added benefit of limiting the release of GHG and other related compounds into our environment, which makes for tastier salmon on the grill.


blind Pete

At first sight the rebound effect makes everything seem futile, but there are a couple of reasons why this is not so.

First, the increase in usage is discretionary, and presumably results in an increased quality of life.

Second, it makes for greater resilience. If things are preadapted to high efficiency then in the unfortunate event of a price shock you will only be faced with having to abandon a luxury, rather than struggling to manage necessities with what has become obsolete hopelessly inefficient hardware.

Because housing stock lasts for decades it is very difficult to predict what energy costs are likely to be over the lifetime of a building, so we are forced to gamble. If prices don't go up, you get quality of life. If prices go up, you are insulated. You win either way. :-)

Incidently, there were several mentions of possible energy taxes; carbon tax would be more appropriate.


Howard Brazee

I can see political advantages in having people believe we are good citizens when we sort our garbage into two piles.

Sindre Rikheim

Throw away cup or coffee mug? You posed the question at the very end of the podcast. It turns out, someone has researched on this too.
For the longest time I've belived it to be so, and lived by it, but it's nice to find a "researchable truth".

Thanks again for a great podcast!