FREE LUNCH?
What the optimists are hoping for is that ultimately there will be a free lunch. Firms and people will save money by adopting the cleaner technologies because research will have made them so much cheaper.
Adopting clean technologies would be a win for individuals and a win for the planet. The prospect of a free lunch is always enticing. In fact, it is so enticing that it tends to dominate the climate change conversation. Detailed engineering estimates routinely predict investments that enhance energy efficiency, and pay for themselves in the form of a smaller energy bill. A 2009 McKinsey report, “Unlocking Energy Efficiency in the U.S. Economy,” attracted a lot of attention.19 The report estimated that a “holistic approach” of investment in energy efficiency would “yield gross energy savings worth more than $1.2 trillion, well above the $520 billion needed through 2020 for upfront investment in efficiency measures.” In 2013, the International Energy Administration calculated that energy efficiency measures alone could give us 49 percent of the reduction in CO2e emissions we need, without any other change.20If that is the case, then perhaps we have a relatively easy problem to solve; all we need to do is to bridge this “energy efficiency gap.” We need to identify the barriers preventing consumers (and corporations) from undertaking these investments. Perhaps they don’t know, perhaps they cannot get a loan to finance the upfront costs, perhaps they are myopic, or perhaps they suffer from inertia.
Unfortunately, when one looks at the on-the-ground performance of those supposedly low hanging fruits rather than predictions of engineering models, there is less good news. The federal Weatherization Assistance Program (WAP) is the largest energy-efficiency program for home users in the United States; it has covered 7 million households in the US since its inception in 1976.
Michael Greenstone and a team of economists got a chance to allocate an offer to participate in the program to about seventy-five hundred households, randomly chosen out of thirty thousand in Michigan.21 The winners were offered over $5,000 in weatherization investments (insulation, window replacements, etc.) at no out-of-pocket cost. The researchers then collected data on winners and losers. The RCT produced three main findings. First, the demand for the program was really low. Despite an aggressive and costly encouragement campaign, only 6 percent of households in the treatment group eventually took up the offer. Second, the energy-use gains were real (the energy bill went down by 10–20 percent for those who took the program up), but were only a third of what was predicted by the engineering estimates, and much lower than the upfront costs. Third, this is not because households reacted to the prospect of a lower energy bill by heating their houses more (the so-called rebound effect); they found no increase in home temperatures. The engineering estimates apparently did not fully apply to real houses in real places; they were much too optimistic.The gap between the rosy engineering estimates and the truth does not just apply to households. A researcher teamed up with the department of climate change in the government of Gujarat (one of the most industrialized and most polluted states in India) to provide small and medium firms with high-quality energy-efficiency consulting.22 A random sample of firms received a free energy audit, which gave each firm a list of approved energy-efficiency-enhancing investments the state could heavily subsidize (under a preexisting program). Then a random subset of the firms that got the audits received regular visits from energy consultants to facilitate the adoption. The audits on their own had a limited impact on the adoption of the new technologies. The consulting led to more adoption, but it also changed what firms were doing: they started producing more, which increased their energy demand. Overall, there was no effect on energy consumption, this time because of the rebound effect. Again, the engineers who calculated the potential emission gains from technologies that saved energy were too optimistic in their predictions.
Our sense is that there may not be that many free lunches. Mitigation through better technologies may not do the trick; people’s consumption will need to fall. We may have to be content not only with cleaner cars but also with smaller cars, or no cars at all.