The U.S. economy squanders too much energy. And the government can help wring out all that waste. That was one of President Obama's big ideas in his State of the Union last night.
"I’m also issuing a new goal for America: Let’s cut in half the energy wasted by our homes and businesses over the next 20 years," Obama said. The White House's fact sheet went even further, laying out a proposal to double the energy efficiency of the entire U.S. economy over that time frame.
So how, exactly, would this plan work? One clue is to look at the Alliance to Save Energy's big report (pdf) on how to double U.S. energy productivity by 2030. The report notes that the U.S. economy is far less energy-efficient than many other industrialized nations, including Japan, France and Germany. Boosting efficiency could save money and curtail the carbon emissions that are warming the planet.
But that raises an obvious question: If efficiency is so wonderful, why don't consumers and businesses already do more of it? Why does the government need to step in? The report lists a whole slew of barriers getting in the way of efficiency, from poor information about its benefits to actual structural hurdles (such as the fact that landlords often have little incentive to buy efficient appliances for tenants).
To that end, the report recommends a slew of steps policymakers could take. The Obama administration can do some of this on its own. For instance, the Department of Energy already has the authority to tighten efficiency standards for household appliances. And the White House can ask states to improve their energy productivity as a condition of federal grants — sort of like how "Race to the Top" for education works.
Yet many of the other recommendations would require Congress. For example, the report calls for lawmakers to revamp the tax code to reward efficient technologies and to boost R&D spending. The report envisions governments at all levels spending $9 billion per year. Given that Congress is deadlocked right now, that might be tough.
In theory, doubling the energy productivity of the U.S. economy by 2030 would be a massive shift. The Rhodium Group estimates that doing so could cut U.S. carbon-dioxide emissions by one-third — getting the country a major step of the way toward its climate goals. Oil imports would dwindle to 7 percent. Energy use and economic growth would no longer move in lockstep:
Of course, that's the optimistic view. Some economists are more skeptical that there's a massive free lunch just sitting around. In a recent NBER paper, Hunt Allcott and Michael Greenstone tried to calculate the size of the "energy efficiency gap" — the amount of waste in the economy that would be economically efficient for the government to tackle. Their estimates found that the gap might be smaller than many experts think.
There's also a question about whether more efficiency would really cut greenhouse-gas emissions 33 percent. After all, if we can heat our homes and power our appliances more cheaply, won't we just use more energy? This is known as the "rebound effect" and it's a subject to much debate. (See David Roberts for a terrific primer.) The Rhodium Group report assumes the rebound effect is small — about 5 to 10 percent. If the effect is bigger, the climate benefits will be smaller.
That said, energy efficiency is an aspect of energy policy that often gets ignored. And if policymakers are trying to find novel ways to tackle climate change, this is one area to explore further.