Chip Taylor

Higher energy prices drive efficiency innovation

In the New York Times, Anna Bernasek writes about energy efficiency:

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The preferred term these days, however, is energy efficiency - something that economics and even chief executives can relate to. The phrase implies getting more out of what we have - and that's not gloomy at all. Technology can deliver increased benefits with less energy, in effect replacing some of that electricity and oil with brain power. And efficiency holds the promise of greater satisfaction, not self-sacrifice.

There are reasons for optimism. One is that market forces can help provide solutions: higher prices, on their own, can make people cut back. Just how responsive consumers are to price changes - what economists call the elasticity of demand - has been the focus of much research. Today, economists believe that they have developed a pretty good rule of thumb for energy use. In the case of electricity, which is relatively easy to measure, they have found that when the price rises 10 percent, electricity use falls roughly 3 percent. At the gas pump, a 10 percent increase in price leads to a decline of around 2 percent in demand.

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Perhaps the most important reason for optimism is technology's role in promoting energy savings. From 1979 to 1985, in the aftermath of energy shortages, Americans reduced their oil consumption by 15 percent. The single biggest factor was a shift in car-buying habits. Americans found that driving fuel-efficient cars, instead of gas guzzlers, didn't stop them from going where they wanted to go. The shift also had a big macroeconomic effect, sending world oil prices tumbling and setting the stage for two decades of low energy costs.

During those decades, energy conservation would gradually fade from public view. But higher prices are again capturing the public's attention. Big companies are finding ways to conserve energy to improve the bottom line. Last month, Wal-Mart announced a plan to cut energy use in its stores, to double the fuel efficiency of its trucks and to minimize the use of packaging. Consumers are changing their habits, too. Sales of S.U.V.'s, for example, have fallen and automakers that bet heavily on cheap energy are suffering declining fortunes.

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How much more energy-efficient can we become? Amory B. Lovins, chief executive of the Rocky Mountain Institute, a nonprofit energy research group in Snowmass, Colo., says that a barrel of oil today already does twice as much work as it did in 1975. Mr. Lovins calculates that by moving to vehicles that consume less fuel, the nation could double that efficiency again.

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Posted by Chip on November 14, 2005 at 06:53 AM