Energy Efficiency Just Leads to More Consumption, Say Economists

Written by Posted On Monday, 10 December 2007 16:00

Back around 1980, about the time that Canada's R-2000 standard for super energy efficient homes was being introduced in response to the "energy crisis" of the 1970s, two economists issued papers that became known as the Khazzoom-Brookes Postulate. Daniel Khazzoom and Leonard Brookes argued that improvements in energy efficiency worked to increase, rather than decrease, energy consumption.

Now, "green" home building and saving energy is once again taking centre stage, with many new housing projects being planned to the latest efficiency standards. A new survey says that home builders are ready to pay more for energy efficient homes, both for the resale value of the homes and because it's the right thing to do. But a new report by CIBC World Markets economists Jeff Rubin and Benjamin Tal says the Khazzoom-Brookes Postulate is proving to be accurate.

"While seemingly perverse, improvements in energy efficiency result in more of the good being consumed -- not less," says Rubin. "The problem is that energy efficiency is not the final objective -- reducing energy consumption must be the final objective to both the challenges of conventional oil depletion and to greenhouse gas emissions. Despite the huge gains in energy efficiency, that is simply not happening. Instead, energy consumption is growing by ever-increasing amounts."

The CIBC report says this problem was noted as long ago as in the 1800s, when after the advent of James Watt's steam engine, coal consumption initially dropped but then rose tenfold between 1830 and 1860.

The report notes that in the transportation sector, fuel efficiency gains have resulted in people driving more often, and have encouraged consumers to drive larger vehicles. It says that in the U.S., the number of light trucks, which includes SUVs, vans and pick-ups, rose by 45 per cent between 1995 and 2005 -- seven times faster than passenger cars.

In the housing sector, the report says the energy efficiency of air conditioning systems has improved by 17 per cent since 1990, but the number of air conditioning units in the U.S. is up by 36 per cent.

"The key reason why usage has grown so much faster than efficiency is the never-ending trend toward larger and larger American homes, and hence larger and larger heating and cooling requirements," say Tal and Rubin in the report. "Since 1950, the average American home has grown from 1,000 square feet to almost 2,500 square feet … . Add to that the ever-increasing number of power-consuming appliances like computers found in today's standard American home and the trend toward rising, not falling energy usage per households, is very clear."

Although most appliances now must meet minimum energy efficiency standards, it hasn't helped cut overall consumption, say the authors. "Take refrigerators for example. Over the last 15 years, the energy efficiency of refrigerators has improved by just under 10 per cent, but the number of refrigerators is up 20 per cent, due largely to the increased frequency of a second refrigerator in the home. The net result is that usage has risen twice as fast as efficiency."

The main reason why more energy efficient homes have not been built in Canada during the last 25 years has been cost. More insulation and better windows, heating equipment and appliances all cost extra money, and builders have said that consumers just won't pay for energy efficiency. But ironically, that seems to be changing.

A survey by Ipsos Reid for TD Canada Trust says that 73 per cent of Canadians thinking of buying a home would be willing to pay a premium for "environmentally friendly" features. Eighty-five per cent of those who plan to buy within the next two years say they will pay the premium. When asked how much extra they would be willing to spend for the "green" features, the average response was 10 per cent.

Energy cost savings and increasing the resale value of their home were the main reasons why those surveyed would pay more. Just under half (49 per cent) said that reducing their home's impact on the environment is very important to them, while another 43 per cent said it's somewhat important.

"Canadians clearly see the long-term cost savings in green buildings," says Joan Dal Bianco, a vice-president at TD Canada Trust. "But increasingly, they are moving beyond economics and going green for the sake of the environment. With those two factors as motivators, they are more likely to make green decisions."

A whopping 95 per cent of potential home buyers said that environmentally friendly changes should be included in building codes. However, the majority did not support charging a carbon tax or extra costs for building materials that are not considered friendly to the environment.

In his report, Rubin cites the saying that the road to hell is paved with good intentions. Although great strides in energy efficiency have been made, are we kidding ourselves that it will make any difference to the environment? Rubin says that "in order for efficiency to actually curb energy usage, as opposed to energy intensity, consumers must be kept from reaping the benefits of those initiatives in ever-greater energy consumption. Otherwise, energy usage will be the beneficiary of our best efforts towards greater energy efficiency."

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Jim Adair

Jim Adair has been writing about Canadian real estate, home building and renovation issues for more than 40 years. He is the former editor of Canada’s leading trade magazine for real estate professionals, as well as several home building, décor and renovation titles. You can contact him at [email protected]

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