Most Economic Projections Understate Potential Energy-Efficiency Benefits, Greenhouse Gas Cuts

A recent report from the American Council for an Energy-Efficient Economy (ACEEE), Washington, D.C., reveals U.S. energy consumption and greenhouse gas emissions could be cut almost in half by 2050 through increased energy efficiency, while achieving “a small but net positive gain” in the economy.

Titled “The Positive Economics of Climate Change Policies: What the Historical Evidence Can Tell Us,” the ACEEE report states, “Most economic policy models now suggest a significantly negative impact on the economy if U.S. policy makers choose to reduce greenhouse gas emissions to any significant extent. There are a number of reasons for these inappropriate outcomes. Primarily, they are an artifact of the models and not the data. By turning to the historical record in the United States we can examine recent data to inform policy makers and business leaders what the economic policy models should be saying about energy and climate change policies. We can also use this historical record to perform a diagnostic assessment of recent modeling exercises to improve our understanding of their missed opportunities. Based on the available record and the economic evidence to date, energy efficiency is a substantially larger and more cost-effective resource than most economic policy models now acknowledge.”

The ACEEE report concludes:

• Energy-efficiency investments can provide up to one-half of the needed greenhouses gas emissions reductions most scientists say are needed between now and the year 2050.
• Investments in more energy productive technologies can lead to substantial net energy bill savings for the consumer and for the nation’s businesses on order of approximately half or $2 trillion by 2050 (measured in constant 2007 dollars).
• Non-energy expenditures within the United States tend to be more labor-intensive and provide a greater rate of contribution to the nation’s Gross Domestic Product compared to expenditures on energy. Instead of taking jobs away from the economy, the diagnostic assessment here suggests “a small but net positive gain” in the economy. Thus, shifting away from the production and consumption of conventional energy resources in favor of more productive investments in energy-efficient technologies can lead to a more robust economy and to a greater level of overall employment opportunities with the United States.

Building on the available economic data and the larger historical record, ACEEE’s report outlines a diagnostic review to evaluate the recent assessments of proposed climate change legislation currently before the U.S. Congress. In particular, previous climate policy assessments focused on HR 2454, the American Clean Energy and Security Act of 2009. The aim of ACEEE’s diagnostic review is to highlight critical missing assumptions that most economic models are failing to take fully into account that would likely change many of the modeling results done to date.

Most economic models fail to take fully into account that the United States has expanded its economic output by more than three-fold since 1970. Per capita incomes are also twice as large today compared to incomes in 1970. Notably, however, the demand for energy and power resources grew by only 50% during the same period. This decoupling of economic growth and energy consumption is a function of increased energy productivity: in effect, the ability to generate greater economic output, but to do so with less energy. Having achieved these past gains with a haphazard and often counterproductive approach to energy efficiency and energy policy, there is compelling evidence to suggest that even greater energy productivity benefits can be achieved.

“The Positive Economics of Climate Change Policies: What the Historical Evidence Can Tell Us” is available for free download or a hard copy can be purchased for $25 plus $5 postage and handling from ACEEE Publications, 529 14th St, N.W., Suite 600, Washington, D.C. 20045, phone: 202-507-4000, fax: 202-429-2248, e-mail: aceee_publications@aceee.org.