October 26, 1997

Wasted Energy: The Price Is Right for Fuel Efficiency to Fall

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Graphic

Greenhouse Gas Gauge

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By JOHN H. CUSHMAN Jr.

ASHINGTON -- When people are rich and fuel is cheap, when the weather is cold and the economy is hot, the United States can hardly resist indulging its appetite for energy.

That was the situation in 1996, when Americans tanked up even more extravagantly than usual. Total energy use grew 3.2 percent, according to the Energy Department, outpacing the nation's economic growth rate of 2.4 percent.

Last year was the first tick upward in five years, a deviation from a long downward trend in energy consumed per dollar of economic production. But while the Energy Department expects improvement in energy efficiency to resume and to prevail for 15 more years or so, the rate of improvement seems to be flattening -- just as nations concerned about global climate changes are pressuring the United States to reduce emissions of carbon dioxide, the greenhouse gas produced by burning fossil fuels.

Last week President Clinton proposed a new plan for reducing emissions by offering American businesses incentives to cut them, siding with technological optimists who say Yankee ingenuity can meet the challenge -- perhaps with a subsidy.

But others say that to keep the growing U.S. economy from pumping out more carbon dioxide, different incentives are needed. Economic behaviorists say a painful one may be required: higher energy prices. Economic regulators want tighter standards for manufacturers to produce more efficient cars and appliances.

The optimists say there are few technical barriers to further gains in efficiency. "The trends are historical, and they don't reflect what the real possibilities are," said Stephen J. DeCanio, an economics professor at the University of California at Santa Barbara who was senior staff economist at the Council of Economic Advisers under President Ronald Reagan. But, he noted, when he and his wife shopped for new lamps, they couldn't find attractive models that took energy-efficient fluorescent bulbs.

"Today, two-thirds of the energy used to provide electricity is squandered in waste heat," Clinton said as he proposed to reduce emissions to the 1990 level over the next 10 to 15 years. "We can do much, much better."

Clinton's plan relies heavily on narrowly targeted incentives and subsidies for efficiency, and environmentalists and other nations' negotiators in talks on a new greenhouse-gas treaty said it did too little too late.

Indeed, the United States, which has 5 percent of the world's population but emits nearly a quarter of its carbon dioxide, is turning in an embarrassing performance as it falls short of earlier goals to cut emissions to 1990 levels by the year 2000.

But was 1996's increase a blip on a graph, or a warning of a big problem ahead? Why did the economy suddenly become less efficient in its use of energy?

The most obvious factor was the extremely cold winter weather, a statistical oddity that made people burn more fuel to heat homes and offices.

Another way to burn more fuel these days is by driving big gas-guzzling vans, trucks and sport utility vehicles, some of which get half the gas mileage of the average sedan. The nation's fleet of vehicles is getting less efficient, and transportation is projected to overtake industry as the main consumer of energy, but the changes would not be expected to show up as sudden spikes in one year.

Another trend is the decline in efforts by electric utilities to persuade their customers to use less power. That practice spread for a while because power companies, whose earnings were regulated, were allowed to make money by spending on conservation instead of building new power plants. But with deregulation on the horizon, that strategy makes less sense to them these days.

For most people, saving energy still makes financial sense, whether or not they are concerned about the problem of global warming over the next century or two. Clinton gave the example of a sixth-grade class in Iowa that took out a $14,000 bank loan and installed conservation measures that lopped 70 percent off its school's energy bills.

"The savings were so impressive that the bank decided to upgrade its own energy efficiency," he said.

The next day, before a different audience, Clinton wondered aloud, "Why doesn't everybody do it? Why don't we even have a critical mass of companies doing it?"

Most experts say the answer is the price of fuel. "Gasoline is the cheapest liquid you can get next to water, and it's much cheaper than bottled water," said Llewellyn King, who has been publisher of The Energy Daily since the glory days of the oil cartel in the 1970s, when prices rocketed and Americans went on a conservation spree.

Lindsay Audin, who founded a consulting firm, Energywiz Inc., after retiring as Columbia University's energy-efficiency manager last year, said, "Consumers do not have the financial ability to pay the upfront costs, or the financial understanding that investments in efficiency make money. Companies do not understand that energy efficiency is not a cost center, it is a profit center."

Only when energy prices go up is that sure to change, he said.

"Price matters," said Dan Becker, climate policy director for the Sierra Club, which has long called for stricter fuel-efficiency standards for vehicles.

"But Americans don't do great with amortization of costs. So it has got to be something that we know works. And the only thing we can think of that we know works is requiring that energy-saving technology be put on the things we drive, the things we use to heat our homes, the things we use to cool our food. We know that works."