Energy-Efficiency and Unintended Consequences

Electric vehicles are great for the environment, right? Usually, but not always. It depends on geography and when the cars are recharged.

Long ago Benjamin Franklin produced an economic analysis of Daylight Saving Time (DST). He showed how much tallow and candles would be saved if Americans arose earlier during long summer days to take greater advantage of natural sunlight. Similar energy-efficiency arguments are advanced today in support of the practice. The practice persists despite the lack of solid evidence that the troublesome time switch makes a difference.

Matthew J. Kotchen, a Yale economics professor, was able to take advantage of a “natural experiment” to find out. In 2006 Indiana switched to DST while simultaneously shifting some of its counties to a different time zone. The combination of policies allowed Kotchen and his colleague to compare differences in residential electricity consumption before and after. They found that the demand for heating and cooling differs across hours of the day and that the shift to DST increased both.

Environmentalists and public policy wonks have proposed all manner of ideas for encouraging energy-efficiency and conservation, says Kotchen, but it’s often difficult to know if they save energy or not. Some do work as advertised, but others, like Daylight Saving Time, do not.

Kotchen’s admonition should be borne in mind as Virginia plunges ahead under the Grid Transformation and Security Act and the Regional Greenhouse Gas Initiative to invest hundreds of millions of dollars in energy-efficiency and conservation. Not all energy-efficiency programs offer the same bang for the buck. Indeed, we cannot assume that all energy-efficiency programs even conserve energy!

The Yale economist found a natural experiment in Florida, which increased the stringency of its code in 2002. He compared the residential characteristics of electricity and natural gas consumption before and after the change. Initially, as expected, he found that stricter building codes reduced consumption of energy sources. But subsequent research based on California data raised questions whether the effect persisted over the long run. Kotchen revisited his Florida case study and found that electricity savings were no longer evident after five or six years, although natural gas savings did persist.

Another object of inquiry is electric vehicles (EVs). EVs run on electricity,thus reducing CO2 emissions from gasoline combustion. But charging EVs draws from the electric grid, and electricity is generated by a wide range of power sources, some green and some not. Kotchen’s research shows that the CO2 emissions attributable to EVs varies by geography — some regional transmission organizations have more renewable energy than others — and by time of day. If EVs are charged during daylight hours when solar output is at a peak, the CO2 emissions are lower than if the vehicles are charged at night when utilities rely more upon fossil fuels. In the Upper Midwest states, Kotchen found, EVs could generate more CO2 emissions than a car with an internal combustion engine.

(You can read Kotchen’s article, “Environment, Energy, and Unintended Consequences,” in the NBER Reporter.)

Human behavior is complex and often ill understood. Public policies often have unintended consequences — and energy conservation is no exception. As Dominion Energy proposes a raft of energy-saving measures in the years ahead and the State Corporation Reviews those proposals, they should adopt an attitude of humility regarding their efficacy. Virginia should not set up and run conservation programs on auto-pilot assuming that they will work as billed. Benchmarks should be established, resulted monitored, and programs periodically reassessed.

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10 responses to “Energy-Efficiency and Unintended Consequences”

  1. Steve Haner Avatar
    Steve Haner

    Jim, most of the programs don’t come anywhere close to matching up with their billing, but to get what it wanted Dominion this year happily fed the environmentalist fantasies with a promise to spend close to $1 billion (of our money) on them over several years. What works, IMHO, is giving people more information including real time info on consumption and cost, but apparently that real time user feedback is exactly what the metering system Dominion seeks to install will not provide. We like our air conditioning set low, we like our giant screen TVs, we didn’t like Jimmy Carter scolding us and I’ve always loved the story an APCO lobbyist once told about how they paid people to install new efficient fridges, only to have the customers put the old one’s in their garages and stuff them with beer. So again, that didn’t work…..

    I will carefully watch for signs of humility as the utility and the environmentalists announce the next round of these programs and the SCC will have to be more humble since the legislature foolishly took away its best tool for imposing rationality, the ratepayer impact test.

  2. Reed Fawell 3rd Avatar
    Reed Fawell 3rd

    Fine article (post) Jim, and fine comment, Steve. The stuff you two guys are putting out these days are superb. It’s an exceptionally good combination of fact based news combined with well informed and articulated skepticism. That combination, and its quality, so concisely and consistently stated, is hard to find these days. Your doing it tandem, magnifies the impact of the end result. The results becomes cumulative as one post builds upon others gone before.

  3. TooManyTaxes Avatar

    A friend of mine worked in US DOT during the Clinton administration. After leaving he did a study that showed a Metrorail train with few passengers, such as often occurs in the middle of the day or late at night had a higher carbon footprint than the number of autos needed to transport the same number of people. Don’t remember the details but it was eye opening.

    Of course, when heavily loaded, the opposite result is obtained.

  4. The reality is political choice wins. If it’s like ethanol in gasoline, which is my analogy, the eventual political choice will be to mandate EV to some percentage say 10%. We can argue til the cows come home if ethanol is really better (doubtful). Many see petroleum displacement as top priority, even if the fundamental eco-proposition for alternates is weak (and it is weak).

  5. LarrytheG Avatar

    The one thing that we know without a doubt is that the higher the price of electricity – the lower the consumption.

    The highest cost electricity is electricity that has to be generated at peak demand because less efficient units are brought online to meet peak demand.

    So why not charge a lot more for electricity especially at peak demand AND use the money collected at peak demand to provide generous credits for demand side technology?

    Let folks shop for price and efficiency that will maximize their credits and/or give more/higher credits for higher efficiency products.

    The time is going to come when conservation technology is going to meld with high efficiency solar and storage and when that happens Dominion is going to be in trouble, electric “connected” cars will accelerate and become ubiquitous and the gas tax will crater.

    gonna happen.

    so how will Dominion respond (they already are) and how will VDOT respond – stay tuned.

  6. LarrytheG Avatar

    The “Power for the People” Blog had some scathing thoughts about the offshore wind project by the way:

    1. No comment.

    2. Steve Haner Avatar
      Steve Haner

      No, Larry, read what Ivy wrote. She grudgingly admits the cost is insanely outrageous, but goes on to praise the stupid project. She (incorrectly) thinks it a necessary precursor to a more extensive project where some actual economy of scale would kick in. Had they proposed blades coated with gold leaf, she’d have found it justified. This is a religion, I keep telling you….and that’s a another cathedral the peasants will spend their lives building.

      And the time of use pricing you describe is an idea Dominion has used with industrial customers, and it ought to be able to begin with residential customers as well – IF it actually goes whole hog into the new technology. So far the indication is it will not.

      TomH is among the most articulate defenders of demand management and RGGI and I’m surprised he hasn’t chimed in.

  7. TooManyTaxes Avatar

    We need cheap energy to sustain and advance economic growth. Increasing the cost of inputs to commerce doesn’t produce more economic growth.

    This does NOT mean we need to stick with fossil fuels. This doesn’t mean we need to stick with devices that consume high amounts of energy. Indeed, one of my clients is working to develop sensors that can run for five years on a pair of off-the-shelf batteries.

    But is critical that renewable energy be cheap and reliable. It’s critical that we don’t allow for pricing of energy efficient devices to include market premiums. Why hasn’t government gone after manufacturers of LED bulbs?

  8. I have been dealing with a variety of energy related matters that needed rapid responses so I have lagged in my ability to stay current with BR’s articles. When I come late to the party it is difficult to fully engage in the discussion.

    I have mentioned several times that I have significant reservations about how the GA chose to address the energy efficiency issue. Dominion has demonstrated very poor performance with energy efficiency (51st out of 52 major utilities). I don’t know if they cannot do a good job or whether they have little incentive to do so because of loss of revenues from effective energy efficiency.

    With the GA encouraging them to spend a billion on efficiency projects, the $2 billion in profits those projects would generate has piqued their interest. Even with SCC oversight there is no guarantee that this would be a good use of ratepayers’ money, however.

    Small residential projects are usually not the best return on investment except for building a high-efficiency building to begin with.

    Commercial buildings and industrial applications usually have much greater bang for the buck. I prefer leaving the investment decision and the rewards up to the building owners. When you have some skin in the game the investment analyses are usually sharper.

    I have previously proposed that a state-wide energy efficiency and renewable project loan pool be established. This would not use tax payer’s money but rather attract private investment in return for a higher returns than typically offered by CDs and what is usually netted from run-of-the mill 401(k) investments after the fees are applied. This fund would provide lower than market loans that would be tied to the meter to reduce defaults. Utilities could earn a profit by collecting loan payments as part of utility bills (that are still lower including the loan payment because of the project benefits).

    Only those with good results would invest, otherwise it would cost them money. There would be no ratepayer or taxpayer subsidies. But unfortunately the utilities would not receive a windfall profit for mediocre results. We would still need to fix the utility regulatory scheme.

    Without regular rate reviews, Virginia utilities benefit from the high costs during peak usage. They get paid more for their generation and don’t have to return any overcharges. Until we reinstate fair returns in exchange for fair rates, the utilities have an incentive to go to the GA for poor energy policies that pad their profits.

    My position on the wind project was that it was very expensive with little benefit in return. We should bid the projects out on a fixed cost (PPA) as other states are doing. This makes the developer responsible for using reliable systems with a limit to customer’s cost exposure. Again, this avoids the windfall profits to utilities from putting the projects in the rate base and putting all of the risk on the ratepayers.

    I did not believe that the RGGI process would be effective for Virginia because we proposing not to follow the RGGI example. By their own admission, the RGGI standards are not what is making the difference. It is how the proceeds from the auction are spent that lower the carbon output and reduce electricity prices. Virginia’s plan to give the money back to the utilities, after the ratepayers have already paid for it, or to the GA for general expenses will lead to higher energy costs with little actual benefit to our energy system or GHG emissions.

    A simpler charge on GHG emissions (not just carbon) would actually limit what is causing the problems, with the money spent on designated programs that would lower emissions and reduce energy costs in Virginia would make much more sense. We seem to prefer the appearance of doing something more than actually doing something. Perhaps because effective GHG reduction could cut into utility profits until we create a better scheme to pay them.

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