Government programs targeting energy efficiency do little more than put so-called experts in charge of decisions that should be left in the hands of millions of consumers and producers. A John Locke Foundation economist reaches that conclusion in a new Spotlight report.
“Energy efficiency is rooted in the idea that some people, who have been labeled experts, believe that other people — American citizens, North Carolinians, residents of a particular town or city — are using ‘too much’ energy,” said report author Dr. Roy Cordato, JLF Vice President for Research and Resident Scholar.
“It is an empirically and even conceptually unsupportable assertion,” added Cordato, a Ph.D. economist. “The reality is that energy efficiency requirements and programs are about substituting so-called experts’ preferences for the preferences of people who actually purchase resources and do the consuming and producing.”
As a concept, “energy efficiency” has no relation to real economic efficiency, Cordato said.
“Whichever definition you use, ‘energy efficiency’ focuses strictly on saving energy even if it means sacrificing overall economic efficiency,” he explained. “Pursuing energy efficiency leads to the strong possibility that use of other inputs might increase. In other words, it might take more labor, plastic, steel, copper, glass, or other inputs to make up for the reduced energy use.”
Real economic efficiency looks at more than just the impact of one input, Cordato said. “Economic efficiency relates total costs to the value of the output that those costs generate,” he said. “Total costs include money spent, but they also include subjective factors such as sacrifices in time and convenience.”
Because different people value these subjective factors differently, outside observers have no proper role in determining which decisions are most efficient for other people, Cordato said.
“If we observe people making decisions we consider to be inefficient, the proper conclusion to draw is that we — not they — are misperceiving their costs and benefits,” he explained. “Economists generally argue that energy efficiency experts, politicians, and bureaucrats cannot decide what is an efficiency-enhancing decision for others. To believe otherwise is to engage in paternalism and social engineering.”
Government mandates and special incentives programs reveal the meddlesome nature of energy efficiency measures, Cordato said. “If energy efficiency led to real economic efficiency, the people implementing the energy efficiency measures would have to be better off from their own perspectives — not the experts’ perspectives,” he said. “Mandates and special incentives would be unnecessary.”
Elected leaders and bureaucrats who ignore this fact believe that experts know more than individual consumers and producers about their best interests, Cordato said.
“This is a great example of the problem known as ‘the pretense of knowledge,'” he said. “Economist Friedrich Hayek warned about this problem when he collected his Nobel Prize in economics in 1974. He warned so-called experts against pretending to have information that they could not possibly obtain. He also warned against using that ‘knowledge’ in designing public policy. Proponents of energy efficiency measures offer a textbook case of ‘the pretense of knowledge.'”
These experts contend that energy saved through mandates is more valuable to society than whatever goods and services could have been produced without devoting resources to reducing energy use, Cordato said. “Beyond ‘the pretense of knowledge,’ it is the height of presumptuousness,” he said. “If these experts really had enough information to make that call, they could adopt central planning for the entire economy.”
Energy efficiency advocates appear to understand this criticism, Cordato said. “They never make a statement regarding the ‘right amount’ of energy efficiency, as if they were able to pinpoint a number in their central plan,” he said. “Instead they always advocate for more energy conservation. A movement that avoids specifics and argues at all times that more is better than less gives you a clue that energy efficiency is governed by ideology, not economic science.”
People should not let the word “efficiency” fool them, Cordato said. “Justifications for energy efficiency programs hide behind a veneer of cost-benefit or cost effectiveness calculations, but this is a sham,” he said. “These programs are not based on the kind of information necessary for a real determination of economic efficiency. Stripped of this façade, energy efficiency programs are nothing more than an exercise in behavior modification.”