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Rethinking Energy-Efficiency Policies

Advocates of energy-efficiency policies suggest that there is a significant “energy-efficiency gap”: governments and businesses have overlooked and forgone investments that could significantly reduce energy consumption at low cost. In fact, there is little evidence of people behaving so irrationally, or of any significant gap.

KRAKOW – Improving energy efficiency is a fashionable policy that governments worldwide promote. On paper, it seems a no-brainer: improving energy efficiency is sold as cost-reducing, job-creating, and planet-saving. Win, win, win – and the media often help close the deal, focusing entirely on all the supposed upsides. But there is another side – a downside – to the story.

After spending £240 million ($316 million), the United Kingdom ended government funding for its flagship energy-efficiency-loan program last year, after a scathing report from the National Audit Office showed the program was neither attracting people to sign up, nor delivering cost-effective energy-saving measures for those who did. The policy “did not persuade householders that energy efficiency measures are worth paying for,” according to the auditors, and “failed to deliver any meaningful benefit.”

And a much-touted California energy-efficiency policy looked a lot less impressive when environmental economist Arik Levinson – a former senior economist for environmental issues with the Council of Economic Advisers under President Barack Obama – took a closer look. When the efficiency standards were launched, the California Energy Commission projected that homes built under them would use 80% less energy – a phenomenal achievement.

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