Every two years, the energy efficiency community gathers on the beaches of Pacific Grove, CA to attend the American Council for an Energy Efficient Economy Summer Study. This community ranges from engineers concerned with the most narrow technical details of hot water heating, to data scientists that seek to tease out new savings opportunities from enormous smart meter datasets. Despite a diversity of methodological approaches, attendees of the Summer Study almost uniformly agree that energy efficiency is a cost-effective strategy to achieve goals like reduced greenhouse gas emissions. However, the size of the methodological big tent at the Summer Study was tested this past August when the organizers invited an economist into the room.
The energy efficiency industry is driven by policy. Tools like building energy codes, appliance standards and financial incentives are viewed as key mechanisms to overcome barriers to adoption of energy saving technologies. In this frame, policy is needed to redress market failures that prevent private actors from making both privately and socially beneficial investments. Market failures identified by energy efficiency advocates include: a lack of information on the part of consumers, the full cost of pollution not being priced into the cost of energy (i.e. externalities), and a lack of access to credit and split incentives between tenants and landlords. In sum, the combined effect of these market failures can be described as an ‘energy efficiency gap.’
Enter economists. Beginning in 2012, a multi-university team of economists have released papers under the banner of the E2e Project. These papers examine market failures that cause an energy efficiency gap through the lenses of both empirical and theoretical economics. Some papers evaluate the potential for a ‘rebound effect‘, while others examine whether some efficiency programs are as cost-effective as engineering models assume. These papers question many of the assumptions held and espoused by energy efficiency advocates, and friction between these two groups has followed.
Among the most prolific authors in the E2e effort is Hunt Alcott, an Associate Professor at New York University. Professor Alcott was given keynote speaking slot at Summer Study in front of a skeptical energy efficiency community. In his talk, Alcott asked the crowd to consider how well targeted current energy efficiency policies are given the market failures described above. For instance, if access to credit is major barrier to energy efficiency, why then do most incentives accrue to wealthier households? Similarly, if addressing carbon pollution is a driving motivation, why are billions of dollars being spent on subsidies in states with relatively clean electricity systems (e.g. CA or MA), while virtually no resources are being spent in the more polluting Southeast?
The talk ended with polite applause and a queue of combative attendees at the Q&A microphone. Conference attendees questioned Alcott’s work from a variety of angles. Some prodded that the story and data presented by Alcott did not provide robust support for his conclusions. Others addressed the issue from a moral angle, stating that anything and everything must be done to reduce energy waste and carbon emissions, regardless of the cost. Following this exchange, it struck me that while there has been much progress bridging the gap between economists and the energy efficiency industry, substantial disagreements remain.
Energy efficiency is a major piece in the climate change mitigation puzzle. A number of widely cited analyses of decarbonization pathways point to energy efficiency as among the most important strategies to reduce carbon pollution. It is to ACEEE’s credit that a plenary session at the Summer Study was dedicated to critically examining how well targeted existing energy efficiency policies are. I am hopeful that continued exchanges between economists and the energy efficiency industry can ensure that the potential of energy efficiency as a cost-effective greenhouse gas mitigation measure is fully realized.