When President Bush gave the commencement address at Yale a few weeks ago, a group of protesters carried posters blaring, "Conservation, Not Consumption." That view appears to represent the sum and substance of the opposition to the administration’s recently announced energy plan
In a commencement address of his own, Kofi Annan, the United Nations General Secretary, for example, stated, "It is said that conservation, while admirable, has only limited potential. But economists now broadly agree that improved energy efficiency and other 'no regrets' strategies could bring great benefits at little or no cost."
Conservation and efficiency are good ideas, no doubt about it. But there are different ways to achieve such ends: 1) the government can ration energy, deciding who can use it and when, an approach currently in effect in California; 2) taxes can be imposed to raise the price of energy and discourage consumption; or 3) the market can work its will, with consumers deciding on their own whether to use energy, based on the price signals they get.
You wouldn’t know it from the press coverage, but by using the third approach, the United States has been highly successful at conservation over the past three decades. According to the Energy Information Administration (a branch of the Energy Department), the United States set a new record in the most recent year of statistics for energy productivity--or using less energy to get the same economic output, a good definition of conservation. In 1999, Americans used 10,920 BTUs per real (1996) dollar of gross domestic product. That’s down from 18,960 BTUs in 1970, a reduction of 42 percent. It may also come as a surprise that in 1999, energy consumption per capita--at 354 million BTUs--was actually lower than in 1973.
The market does an excellent job allocating resources. Scarcity causes prices to rise; consumers reduce their demand; entrepreneurs look for ways to increase supply at lower cost through energy alternatives and commercial conservation. Problems occur when government gets in the way with regulations that subsidize one kind of energy use over another or that restrict supply. The way to get more energy efficiency is by freeing up the market.
On the other hand, Bush’s opponents--whom I call "calamatologists"--prefer the first two approaches to conservation (top-down controls and higher taxes), in part because they want to enhance the power of the state and in part because they don’t trust people and businesses to find their own way.
In fact, environmental activists and European Union and United Nations officials see the tightening of energy supplies as an opportunity to expand the authority of international institutions. Last November at the U.N.’s COP-6 climate change conference at The Hague, French President Jacques Chirac could barely contain himself, terming the Kyoto Protocol, an agreement that would set limits on CO2 emissions at a cost to the U.S. economy of $400 billion annually, as "the first component of an authentic global governance."
More recently, in response to Bush’s decision to scuttle Kyoto, Margot Wallstrom, the E.U. commissioner for the environment, was quoted in the London Independent: "This is not a simple environmental issue where you can say it is an issue where the scientists are not unanimous. This is about international relations, this is about economy, about trying to create a level playing field for big businesses throughout the world. You have to understand what is at stake, and that is why it is serious."
What is at stake is telling the United States what kind of economy it ought to have and to remove the advantage of the American market system, thus creating "a level playing field." Actually, just such a playing field is now in the works, as more and more Europeans come to understand that centralized bureaucracies lead to poor economic results, including higher unemployment and lower living standards.
Meanwhile, in Kofi Annan’s blissful world, we don’t need new supplies of fossil fuels. People don’t need to worry about the cost to the economics of emissions cuts. Simply increasing energy efficiency will solve most of our energy and environmental problems "at little or no cost."
At best, that is wishful thinking; at worst, it’s an outright lie. In either case the misconception is a dangerous one. More than any other state, California has skewed its energy policy toward conservation and reliance upon exotic energy sources by the imposition of regulations and subsidies. And today California must import 20 percent of its electricity needs; its electricity rates have jumped more than 40 percent; homes and businesses face rolling blackouts; and gasoline prices are the highest in the country.
It isn’t that energy efficiency is bad. It can, when it proceeds from market-driven improvements in technology, improve people’s standard of living. But promoters of the idea that energy efficiency and alternative energy will eliminate the need for new energy supplies are spouting economic nonsense.
Annan might have taken the time while at Tufts to learn what economists really say about conservation. He should have talked with Gilbert E. Metcalf, a Tufts economist, who, with Kevin Hassett (my colleague at the American Enterprise Institute and columnist for TechCentralStation.com) conducted a comprehensive study in 1998 for the U.S. Department of Energy on energy savings from home improvement investments. They found that claims by engineers of returns on such investments of 50 percent or higher were overblown by a factor of five. The conservation predicted by proponents of the improvements just didn’t take place.
Such findings are common. A study by the National Academy of Sciences in 1992, for example, found that as government increased the average fuel economy it required from vehicles, it encouraged people to drive more. In the end, more fuel was consumed, not less. Similarly, economists Herbert Inhaber and Harry Saunders in a 1994 study, Road to Nowhere--Energy Conservation Often Backfires, found that after the Danish government imposed severe efficiency standards on electrical appliances in the cause of "conservation," consumption of electrical energy rose.
Why does this happen? As Metcalf and Hassett discovered in their study, people responded to the installation of insulation by "simply turning up their thermostats." Or down if the efficiency of air conditioning is improved. Or they may simply buy other electronic devices, such as radios, televisions, VCRs, computers. Energy efficiency helps make such products more affordable and available for use by more people. Most new homes today are built with central air conditioning, for example, compared to about one-third of new homes built in 1970, and thus energy use increases.
No wonder the calamatologists want to use government prohibitions and taxes as a means to stop Americans from making their own choices. The freedom to cool, heat, drive and listen to music disturbs them. So, lately, they have decided to boost the volume on the scare stories--with frightening prognostications such as those Annan raised at his Tufts address--that global warming might flood Cape Cod, lead to more severe weather and make the spread of diseases such as malaria easier. As Richard Lindzen, Alfred P. Sloan professor of meteorology at MIT, told me, such prognostications are "like a parlor game. . . . People with imagination can think of a lot of things, but the media run with it." They sure do.
James K. Glassman is a resident fellow at AEI.