19 June 2019

Editorial Viewpoint: Energy Efficiency

by Michael Edmund, Editor

"Efficiency is doing things right; effectiveness is doing the right things" - Peter Drucker


Energy Efficiency : Essential Component of Climate Policy or Dangerous Mirage?
The Answer's in the Eponym

On 8th April 1773, Yorkshire newspaper 'The Leeds Intelligencer' reported that two canal boats laden with coal had navigated the newly-constructed section of the Grand Canal from Bingley to Skipton. "The bells were set ringing at Skipton", readers were told, and the occasion was also marked by "bonfires, illuminations and other demonstrations of joy." Pulled by horses, the fuel consumption of the boats could no doubt be measured in grass, carrots and bales of hay, while their emissions clearly posed no threat to the Earth's climate. Though it was not known at the time, the same could not be said of the coal they carried; coal that was sold, 'The Intelligencer' notes, at half the price it had previously commanded. These events took place at the beginning of the Industrial Revolution, which began a transformation in the way humans lead their lives and which lies at the very heart of the climate debate today.

That debate took new turn with the recent press release from the Intergovernmental Panel on Climate Change [IPCC]. The IPCC does not mince its words. In noting that "Warming in the climate system is unequivocal", the panel solemnly intones that it is "extremely likely [my emphasis] that human influence has been the dominant cause of the observed warming since the mid-20th century." Its assessment of "many lines of evidence" is delivered like a series of punches in a boxing ring. The atmosphere and ocean have warmed. The amount of snow and ice has diminished. The global mean sea level has risen. Finally, we are told (as if we did not know it), the concentrations of greenhouse gases have increased. The panel also offers a glimpse into the future, and it is even less encouraging: "As the ocean warms, and glaciers and ice sheets reduce, global mean sea level will continue to rise, but at a faster rate than we have experienced over the past 40 years."

Europe's 20-20-20 response to the Kyoto Protocol, widely praised, sometimes misunderstood, has never been more relevant.

But is the Climate Package making any difference?
The answer is a pretty unequivocal "Yes." According to the most recent European Semester, Europe has cut its emissions by 18% since 1990, clearly well on track for 2020. Progress with the 20% reduction in primary energy consumption is a little less clear, but Europe exceeded that target in 2009 and in 2011. The share of energy generated from renewable sources stood at 13% in 2011, putting the magic 20% figure within reach

Encouraging progress, then, but world events may be conspiring to overtake the plan, and fault lines are becoming apparent. Europe's flagship Cap-And-Trade carbon trading system is struggling with prices that are too low to fund investment in low-carbon technologies, which was a primary objective of the scheme. Meanwhile, the shale gas revolution has reduced American emissions to levels not seen for twenty years. It has also made energy substantially cheaper than in Europe, threatening industrial competitiveness and angering consumers. Globally, reduced economic activity has brought down the price of pollution to the point where it is almost an economic imperative to burn "dirty" coal rather than "clean" gas, placing before Europe's debt-laden economies the invidious choice between failing their climate objectives and investing money they do not have in technologies they cannot afford.

Given the IPCC's sombre assessment, and uncertainty over growth in energy consumption as economic activity emerges from the crisis, it is perhaps unsurprising that Europe has looked to increased energy efficiency as a means of reining in demand. The Energy Efficiency Plan has two major themes: emphasis is placed upon on the building sector, calling for a doubling in the rate of building renovation, the creation of a market for energy services, for common standards, targeted incentives and obligations. The plan also calls for improvement in the energy performance of households and devices used by consumers - such as more efficient appliances and the rolling out of smart meters, appropriate standards and obligations upon energy suppliers to provide consumers with clear information and access to independent energy advice.

More efficient use of electricity makes each kilowatt-hour work harder, just as more efficient use of fuel makes each litre go further - literally. Furthermore, under the plan, consumers will have better understanding of their energy bills, homes and offices will cost less to heat and businesses will regain lost ground. And so the bitter taste of more expensive energy will be sweetened by the need to buy buy less of it.

This argument is intellectual, even seductive. But is it a cruel illusion? Back once more to coal. Nineteenth Century economist William Jevons observed that James Watt's invention of a more efficient steam engine made steam technology economically viable in many situations where it had not been so before. Many new engines were constructed, greatly increasing coal consumption overall, even though the amount of coal required by each new engine for a particular use was lower. Jevons' observations led him to propose, rather elegantly, that "It is wholly a confusion of ideas to suppose that the economical use of fuel is equivalent to a diminished consumption. The very contrary is the truth….Every improvement of the engine, when effected, does but accelerate anew the consumption of coal."

The apparently counterintuitive idea that technological developments that increase the efficiency with which a resource is used tend to increase rather than decrease the rate of consumption of that resource is named, appropriately enough, the Jevons Paradox. A little over a century later, its relevance to energy as a resource was examined by the economists Daniel Khazzoom and Leonard Brookes, who argued independently that increased energy efficiency tends to lead to increased energy consumption. Since the Oil Shock of the 1970s, higher and higher petroleum prices have driven the development of ever more fuel-efficient automobile engines, yet the global appetite for petroleum grows unabated. There are of course many other factors to consider, but further illustrations of the phenomenon include air transport, where more fuel-efficient aircraft have allowed cheaper air fares. The result has been a growth in air travel - and, of course, in the demand for aviation fuel. And so to the Jevons paradox can be added the Khazzoom-Brookes postulate. And there is a third, much older insight: the Le Chatelier Principle. Though from the science of Chemistry, this has a valid economic interpretation that may be translated as "Any change in status quo prompts an opposing reaction in the responding system."

Lying behind these three eponymous principles is a complex interaction between economics, price-elasticity of demand and the perceived price of a commodity; subjects beyond the remit of this article to explore in detail. However, prolific author and respected academic Horace Herring has done so, and he challenges the view that improving energy efficiency will reduce national energy consumption and national CO2 emissions. His contention is familiar: that improving energy efficiency lowers the implicit price of energy, so making it more affordable and stimulating greater use of it. This is the 'rebound' or 'takeback' effect and it explains the earlier observations here about the impact of energy efficiency upon demand for aviation fuel and petroleum. Energy efficiency, Herring asserts, is not as environmentally friendly as it may seem.

Is This Really Still Relevant Today?
LED televisions use a technology that is much more energy-efficient than its Cathode Ray predecessor; and it is cheaper to operate as a result. But the resultant energy savings have been somewhat offset by consumer-driven demand for larger and larger TV screens. Elsewhere, rapid development of LED lighting technology has opened up enormous new lighting opportunities. Limited now only by their imagination and not by the technology, designers can incorporate LEDs into the structure of everything from buildings to furniture to fashion. Clearly, where LEDs replace existing lighting, there are substantial energy savings to be made; but where new uses are found for it, or when lighting is incorporated where it was not before, remarkable parallels with emerge with when Watt’s new steam engines were developed two hundred and fifty years ago. Indeed, environmental campaigner Jonathon Porritt has already issued a familiar-sounding warning. "However good your energy efficiency gain," he says, "there is a danger people will then take that gain and use it on additional services that they didn't have available to them before." Put simply, high energy prices exert downward pressure on demand; make energy feel cheaper and demand will rise, as surely as night follows day. Case closed then: we should reject the latest moves on energy efficiency because they promise a false dawn.

Not so. Herring also makes a profoundly important observation that "energy efficiency is not an end in itself, but a means." This is where the politicians and the legislators should direct their energies. For here is the crux of the whole matter, where the economics, climate and environment come together with consumer aspirations; and transgress national and European boundaries. Energy efficiency is important, but history suggests that it should come with a 'health warning' not to squander its benefits. Unconventional gas reserves are important, too, and for a similar reason: in their different ways, both buy Mankind a little breathing space (I use the term in all its meanings); precious time to develop sustainable energy alternatives. For if we do not transform our energy systems, we invite a future in which transport is horse-drawn once more. Or worse: the oil will run out one day, but perhaps not before the IPCC's predictions become reality and our climate is irretrievably degraded.

When making his observation about effectiveness and efficiency, Peter Drucker might well have had in mind the chorus of the 1930s calypso "T’'ain't What You Do (It's the Way That You Do It). Because, as "Sy" Oliver and "Trummy" Young put it, "That's What Gets Results."

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