By Greg Ip

Energy efficiency has long appealed to political leaders trying to combat climate change without hurting their economies. It holds out the promise of policies that both reduce fossil-fuel consumption and save consumers money.

The rationale is that consumers are shortsighted in failing to insulate their homes or buy a more efficient appliance, and should be “nudged” in that direction.

But a new study challenges that premise. The study of households who received federal subsidies to “weatherize” their homes found the efficiency investments cost far more than they save. So consumers may not be irrational when they pass up such investments: the programs simply aren’t as beneficial as their promoters think.

The paper has important implications for current efforts to reduce planet-warming emissions of carbon dioxide. Energy efficiency programs are politically popular but may be far more expensive than mechanisms that rely on price signals. These include carbon taxes (admittedly, a political non-starter) or tradable emissions allowances, one of the options available to states for meeting proposed new federal limits on greenhouse-gas emissions…

…Still, Mr. Greenstone says the paper’s implications could go well beyond WAP, because much of what economists know about similar programs is based on engineering models rather than field evidence.

That such programs are expensive “in no way removes the threat that climate change poses to our well being,” says Mr. Greenstone. But, he says, climate-change policies shouldn’t be exempt from “standard analytical tools. We need to develop a playbook of different approaches, and rank them based on cost per ton.”…

Continue reading at the Wall Street Journal…

Read More

Areas of Focus: Energy Markets
Definition
Energy Markets
Well-functioning markets are essential for providing access to reliable, affordable energy. EPIC research is uncovering the policies, prices and information needed to help energy markets work efficiently.
Energy Efficiency
Definition
Energy Efficiency
Improving energy efficiency is lauded as a promising way reduce emissions and lower energy costs. Yet, a robust body of research demonstrates that not all efficiency investments deliver. EPIC faculty...
Climate Economics
Definition
Climate Economics
Climate change will affect every sector of the economy, both locally and globally. EPIC research is quantifying these effects to help guide policymakers, businesses, and individuals working to mitigate and...
Making Energy Efficiency Work
Definition
Making Energy Efficiency Work
Funding should be allocated to the energy efficiency programs that are most cost-effective based on independent and rigorous real-world evaluations.