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Creating Jobs in Homebuilding: What It Will Take

2012-02-07T17:44:28Z

David Goldstein, Energy Program Co-Director, San Francisco

Paul Krugman wrote on February 6th that January’s favorable jobs report may be a harbinger of economic recovery. But he lists a precondition: that housing must recover.

“The main thing standing in the way of a housing bounce-back is a sharp fall in household formation — econospeak for lots of young adults living with their parents because they can’t afford to move out.”

Why can’t they afford to move out? There are two related answers that are key to making the economy grow and generate jobs. The first answer is that the kind of housing that we have been constructing in America before the housing bubble burst truly is and will remain unaffordable. Most new housing was built in suburban sprawl: locations where driving to and from the house over the life of the mortgage will cost $350,000—more than twice the cost of the house itself. Many young adults truly cannot afford this.

And the second answer is that the new generation by and large doesn’t want this kind of housing anyway. Where the market is underbuilt—where most of these young people want to live—is in more compact and transit-served neighborhoods. These areas generally cost a little more, but the difference is more than paid back by the reductions in transportation costs, often reductions of 50% and more.

The problem is that lenders do not recognize this increased affordability. So they subject borrowers to the same income limits and credit score limits when their transportation obligations are small as when they are large. In other words, if you (truly) can’t afford to make your mortgage payments after paying over $11,000 a year on your cars, then the lender assumes you also can’t make the payments even if you are spending only $5,000 a year on transportation. Even if you really can afford this choice!

Thus recovery is being held back by these obscure but important regulations on lending. These regulations force choices on consumers that they don’t want to make as well as compromising the quality of the mortgage loan. They could be changed next week if anyone wanted them to be. It is very simple: lenders simply subtract the monthly savings in transportation costs from the monthly mortgage payment when determining if the borrower has enough income to qualify for the mortgage.

Fannie Mae ran a pilot project that did this over a decade ago, calling it the Location Efficient™ Mortgage program. It was a great success in retrospect: none of the Location Efficient™ Mortgages went into default.

But now it seems no one cares. Or at least that no one in the lending industry is willing to do the homework of evaluating how transportation (and energy) costs affect the risk of default. And no one in the Administration wants to require them to. So we keep being stuck with a lending system that does not allow the nation to build housing where the market wants it.

Perhaps as a result, even Krugman’s optimistic case does not have employment returning to normal till 2019.

Should we be willing to settle for that?

Why Conservatives should SUPPORT Smart Growth

2012-01-27T18:45:20Z

David Goldstein, Energy Program Co-Director, San Francisco

I have come across a number of blogs from conservatives that attack Smart Growth – land use planning to revitalize older communities, protect sensitive areas, and enable more walkable neighborhoods – based on fundamental misunderstandings of what Smart Growth means for government control of our choices as well as for improving the quality and property values of our neighborhoods. I wanted to reply to these arguments and show how Smart Growth policies actually are resonant with true conservative values.

The key values that I want to highlight are economic freedom, limited government, and responsibility.

Economic freedom, in the context of Smart Growth, means that people are free to choose where to live and how to build their homes and run their businesses on their own property. Today, these freedoms are restricted by government, and by informal regulations in the lending industry. Smart Growth policies seek to relax these restrictions.

Let’s start with an emotionally troublesome example. Suppose you own a home in suburbia and are becoming concerned about your mother’s ability to live independently. You want to construct a small house on your property, connected to yours, but with a separate entrance.

In most suburbs, local land use plans will not let you do that. You would find that your land is zoned for one unit per lot and the second unit is illegal.

Suppose you just wanted to make some money, and you decide to replace your 80 year old house, which is falling into disrepair, with a six-unit condo development. You would move into the top floor unit. This idea would be illegal almost everywhere! And let’s not get into what would happen if you wanted to replace your house with a mixed use development that would include office, retail, and entertainment space as well as housing units.

Businesses also face similar limits on their economic freedom. If I as a developer want to build a store or an apartment building, the town usually requires that I provide a fixed amount of parking, even if it is very costly, whether my tenants or customers need it or not.

These are not merely local initiatives. You can see this because they look so much alike from the North to the South and from the coasts to the center of the country. That’s because model zoning ordinances created by the federal government in the 1920s are still the basis of much local zoning.

The “Standard Zoning Enabling Act” was enacted as the legislative response to Herbert Hoover’s attempt to address “the moral and social issues that can only be solved by a new conception of city building.” In other words, sprawl-inducing zoning was an attempt by the federal government to make local land use decisions more restrictive to the property owners in the interests of what conservatives now call “social engineering.” Mr. Hoover, who was Secretary of Commerce in the early 1920s and then went on to be President, convened an advisory committee to implement this act in 1921, and the first model ordinance was published in 1924.

Informal regulations are equally effective at taking away my freedom. When I was trying to buy an apartment in the most location efficient neighborhood west of the Hudson River—the one where transportation costs would be the lowest-- I was told by the lenders that I couldn’t afford the asking price, and would be forced to choose a house where I didn’t want to live that would actually cost me more, because of the amount of driving I would have to do, than the home that I wanted. Many of my friends succumbed to these regulatory pressures and moved to outer locations against their preferences. I was fortunate enough to find one bank that would qualify me based on income that looked dubious to me but was able to satisfy their underwriters.

Similar biases in lending criteria apply to developers who want to build smarter developments compared to those doing sprawl-style business-as-usual.

Conservatives support limited government, and Smart Growth policies relax government interventions into the real estate market. They also reduce the government role in transportation. How can advocates of limited government encourage a system in which governments spend over $100 billion a year on roads, which are then offered to users for free? Yes, there is the fiction of a gasoline tax paying for road construction, but taxes are not the same as user fees. The sales tax on my camera does not go to support free downloads of photo software or repairs I may need over time, and the taxes on my bottle of wine do not support viticulture research or even the costs of alcohol abuse. Smart Growth infrastructure, which includes a better balance of sidewalks, roads, buses, trains, and bicycle infrastructure, costs the government less and allows user-fee recovery of a portion of the costs, at least for transit modes.

What about financial responsibility? A dumb growth pattern imposes costs on others without enforcing responsibility for paying them. Sprawl leads to much higher rates of traffic accidents causing death, injury, and property damage, often to innocent bystanders. It leads to greater air pollution and its corresponding health impacts. And it leads us to spend hundreds of billions of dollars annually on importing foreign oil.

Smart Growth looks at these issues in a holistic way. It does not advocate eliminating land use planning, nor letting anyone borrow money regardless of their ability to repay. But in many ways it does reduce the heavy hand of government and other big bureaucracies to tell you what to do.

The market prefers smarter growth. The government, more than anything else, needs to stop barring the way.

Thinking Big: Energy Efficiency as the First Priority

2012-01-17T17:07:37Z

David Goldstein, Energy Program Co-Director, San Francisco

How big is the potential for energy efficiency? At first, the only serious answers were provided by environmental advocates and national laboratories, and for credibility we had to be “conservative”—that is, to provide a low-ball estimate. More recent studies by the National Academy of Sciences, the American Physical Society, and McKinsey & Company followed the same pattern. For each of the sectors they analyzed, additional savings potentials weren’t counted due to technology questions, or because they were uncomfortable with the topic (for example, the savings from Smart Growth neighborhoods).

Notwithstanding this timidity, they showed that efficiency could cut energy use in the United States by 30% compared to trends, and by about 15% in absolute terms (to about 85 quads per year – as a nation, we now consume about 100 quads and this is often projected to grow to about 115) in a period of 20 years. This is a big number, far bigger than any new source of energy supply, and comparable to the sum of all new potential sources of energy supply.

But they still didn’t answer the question: “How big is the potential for energy efficiency?” Instead they tried to answer the question “What is a reasonable lower bound for efficiency savings that everyone ought to agree on?”

Three years ago I felt the need to answer the question directly: “how much energy could we save through cost-effective efficiency if we really tried hard?” The results, published in Invisible Energy, were that the answer depended critically on one key assumption: what rate of annual improvement in technology could we count on? Because for energy efficiency, as for any other technology field (smart phones, digital cameras, data storage, etc.), the market success of one generation of technology leads to competition for who can best design the next generation.

I found, using an extremely simple model, that the U.S. could reduce its energy use to the range of 30-65 quads per year in 2050, depending on how fast we can expect efficiency technology to improve. Recall that this compares to about 100 quads now.

If we are pessimistic and just project extending the rate of improvement we have already achieved over 30+ years for energy uses where we were trying to be efficient (at least some of the time), the model projects 65 quads per year (even using the low end of estimates for what we have already accomplished). If instead we assume we can double this rate by more consistent effort—in other words, having good efficiency policies for 40 of the next 40 years instead of 20 out of 40--the model projects 30 quads per year.

I assumed that if one could construct a much more detailed model that with similar assumptions it would lead to the same conclusions. So I was happy to see the recently released study by the American Council for an Energy-Efficient Economy (ACEEE), “The Long Term Efficiency Potential: What the Evidence Suggests”, which did precisely that. ACEEE constructed a detailed energy and economic model, and explored what the consequences would be of adopting technologies that we can already describe in detail and estimate costs for.

ACEEE’s more ambitious scenario produced an energy demand of 50 quads per year for 2050, about halfway between my two estimates. The fact that it is higher than my more ambitious estimate is exactly what one would expect, because it did not try to quantify upstream industrial energy savings or the transportation savings from serious implementation of smart growth principles, as California is already committed to doing as a result of the Sustainable Communities and Climate Protection Act of 2007. Nor did it explicitly address continual improvement.

One thing the ACEEE study did that plows entirely new ground is to estimate the economic benefit of advanced efficiency goals. It found that the 50 quad scenario would generate almost 2 million new jobs. And it increased overall national GDP by $200 billion annually while saving consumers and businesses $16 trillion (cumulatively till 2050). Sixteen trillion dollars! That’s more than the whole country produces in a year.

This scenario ends up with efficiency producing more energy than all sources of supply combined, and accumulated over time. And it does so with big improvements to the economy. As I noted in my previous blog, achieving these goals requires strong action by governments at all levels and by the private sector. Big steps forward that are not even controversial could be taken by Congress, which can pass a handful of bipartisan bills, and by the Administration, which can reform home mortgage underwriting rules to enable new housing construction in the smarter growth neighborhoods that the market now prefers and that make housing more affordable. Three significant bipartisan bills are the:

Sensible Accounting to Value Energy (SAVE) Act of 2011 sponsored by Michael Bennet (D-Colorado) and Johnny Isakson (R-Georgia); it would require all federal lenders to consider projected energy efficiency when underwriting mortgages.
Cut Energy Bills at Home Act introduced by Senators Olympia Snowe (R-ME), Jeff Bingaman (D-NM) and Dianne Feinstein (D-CA); it will provide a tax credit for home energy efficiency retrofits.
Energy Savings and Industrial Competitiveness Act introduced by Rob Portman (R-OH) and Jeanne Shaheen (D-NH), which adopts a number of important efficiency policies, including a set of appliance efficiency standards that the industry also supports.

There are also a number of other legislative actions that have bipartisan support, such as extending and reforming tax incentives for efficient appliances, new homes, and commercial buildings, as well as for renewable energy sources.

ACEEE’s bold (yet careful) study underlines the need for thinking big and taking bold action now. How long do we want to wait for those 2 million new jobs?

Economic Recovery: A Choice, Not a Hope

2011-12-27T23:49:15Z

David Goldstein, Energy Program Co-Director, San Francisco

Recent economic news is not encouraging. The New York Times reports that when it comes to recovery, “experts see a false dawn.” One particularly troubling area is housing, where a new report shows home sales were 4 percent lower this November than last year, even if November was slightly better than October. Median price was down below $165,000. In a May 24 editorial, the Times stated that “Until the [housing] market recovers, the entire recovery is imperiled.” The data, which at best show a few percent gains from previous months, and at worst still show declines, do not point to a recovery of any magnitude.

What are we doing about this as a nation? Essentially nothing. Congress passed American Recovery and Reinvestment Act in 2009, and the effects of this stimulus are almost over: all of the money will soon be spent. Congress is now debating about whether to cut the payroll tax again for the final ten months of 2012, and most economists think this would produce several hundred thousand jobs. But it comes at the cost of increasing the deficit.

This is the problem with all conventional-wisdom solutions. Economists of all political persuasions agree on seven causes of the recession, and virtually no proposed solution improves all seven factors.

Well, I propose one - energy efficiency improvements can solve all seven causes.

There is over a trillion dollars of cost-effective efficiency investment waiting to be made, and some modest and non-controversial actions can unleash this torrent of business and consumer spending.

Three pieces of legislation could make a big difference. All three have bipartisan support. First is the Sensible Accounting to Value Energy (SAVE) Act of 2011 sponsored by Michael Bennet (D-Colorado) and Johnny Isakson (R-Georgia); it would require all federal lenders to consider projected energy efficiency when underwriting mortgages.

Second is the Cut Energy Bills at Home Act introduced by Senators Olympia Snowe (R-ME), Jeff Bingaman (D-NM) and Dianne Feinstein (D-CA). This bill would provide a $2,000 to $5000 tax credit for home energy efficiency retrofits for a 20 percent or larger reduction in home energy use, with incentives increasing as the certified energy savings from efficiency measures get larger.

Third is the Energy Savings and Industrial Competitiveness Act introduced by Rob Portman (R-OH) and Jeanne Shaheen (D-NH), which adopts a number of important efficiency policies, including a set of appliance efficiency standards that the industry also supports and that will save over $40 billion, producing about 100,000 jobs. There are also a number of other actions, such as extending and reforming tax incentives for efficient appliances, new homes, and commercial buildings, as well as for renewable energy sources.

While Congress has been sitting and waiting for things to get better (or, cynically, waiting for this NOT to happen so that they can blame the other party), the Obama administration has taken several proposed actions that will promote a sustainable recovery, including these two giants steps forward:

1.) The new fuel economy standards proposed for automobiles will encourage technology innovation by car companies, helping make American companies more competitive and will produce new jobs.

2.) The new mercury emissions standards will cause utilities to invest billions of dollars in cost-justified investments that will save 11,000 lives annually and help promote investment in both cleaner generation that can take advantage of an unexpectedly large supply of natural gas and in the immense efficiency investment opportunity.

At the core of both actions is *efficiency* that will result in innovation and jobs.

Unfortunately, the Administration failed to take the key step to allowing more housing construction to occur: incorporating energy and transportation costs into mortgage underwriting. The SAVE Act is one way to make this happen.

The year 2011 will be remembered as a year that Congress watched and waited to see the shoots of economic recovery start to grow. Watching and waiting does nothing. You need to actually do something – water and fertilize those shoots – in order to foster growth.

Congress needs to start off the New Year on a more pro-active footing and get to work on the issues that will truly benefit our nation as a whole.

Does anyone really want the economy to recover? How we can revive housing

2011-12-14T19:47:57Z

David Goldstein, Energy Program Co-Director, San Francisco

Recovery from the recession of 2007 seems to have been predicted for the very next quarter ever since 2009, even as the problems of joblessness continue without improvement. Housing construction, down by 75% since the crash, is a focus of the concern: The New York Times editorialized on 25 May 2011[1] that “Until the [housing] market recovers, the entire recovery is imperiled.”

But recent data show housing construction continues at its lowest level since data began being collected.

What would it take to allow housing to recover? As I will show, it won’t happen on its own. But a few simple and powerful policy changes—changes that increase consumer choice and create jobs—can solve the problem.

The problem with housing is that it was built in the wrong places. As soon as the default crisis began, it became apparent that defaults were occurring in areas of urban sprawl—in developments with large lots and no transit service. This first impression was soon confirmed by statistical analysis: it found that a typical house with poor location efficiency is over 35% more likely to default (for the same borrower characteristics) as a house with moderate location efficiency.

This should not have come as a surprise. Even at the peak of the housing bubble, the median cost of a house was $225,000. So if the borrower was able to borrow the whole $225,000, he or she was “qualified” by the lender considering their ability to pay this amount alone, ignoring the fact that the costs of transportation to a house in sprawl were over $300,000 (and over $350,000 at today’s gas prices). It was these houses where traveling to the house cost more than owning it that made up the bulk of the default problem, and it is these sprawl neighborhoods where the distressed, foreclosed-upon, or underwater houses are now concentrated.

It is clear that it will take years to work off this inventory. But it is now also clear that even a few years won’t be enough: it will take several decades! A recent study from the Urban Land Institute shows that shifting housing preferences based on well-established demographic and economic trends mean that California has already overbuilt the large-lot suburban market compared to likely demand in 2035. Similar demographics also apply to America as a whole.

We simply have more housing in sprawl than current or future markets will demand. Where the growth in demand will be, even without a change in preferences away from sprawl, is in more compact suburbs and urban properties. But these homes cost more to buy, and as I will show, will continue to cost more, than their sprawl alternatives. And under current mortgage underwriting rules, this means that the target market for the new housing will be unable to “afford” to live there. Add to this overly burdensome parking requirements, a more challenging underwriting process for infill, and the reality of NIMBY attitudes towards infill development, and it’s no surprise more Greenfield sprawl gets built. And this is tragic—a true lose-lose outcome. Because a more expensive house that can save even half of the projected $350,000 in transportation costs is actually MORE affordable than its sprawl alternative.

The current underwriting rules that determine who is “qualified” for a loan are failing the nation and failing the investors in the mortgage itself. They are failing the nation by making it impossible to build and sell new homes in the places that people want them. They are failing consumers by forcing them to buy sprawl housing that they really wouldn’t prefer and then to pay the extortionate costs of transportation that such options impose on them. And they are failing investors because no matter how conservative the loan qualification rules appear to be, if they ignore a family’s ability to pay over $350,000—over twice the amount of a median new home loan—they are still prone to default.

The problem is easy to fix. The main players in the secondary mortgage markets—and there are only a handful of them-- could decide tomorrow to consider transportation costs (and utility costs as well—another $75,000) on an equal basis to loan payments in loan qualification. This simple change would make an efficient house in moderately smart growth affordable to a buyer of a given income even if it cost another $200,000, which is far, far more than the difference in costs today.

This change, along with loosening local regulation of density and parking in new housing developments, and updating lending rules that make it harder to finance the more affordable developments that provide less parking than is now typical, would enable housing where people actually want it to be financed and built. And as we start constructing new housing in places where it is in demand, we will cut the cost, as current high costs of compact housing developments are high because of the imbalance of supply (now pretty much fixed) and demand (growing).

One simple package of policy changes can help to ignite real economic growth and job creation, while also reducing oil dependency and climate pollution. What are we waiting for?

[1] NY Times Lead Editorial “As Housing Goes, So Goes the Economy,

How We Can Improve Government Policies to Drive Innovation and Investment

2011-09-20T22:32:29Z

David Goldstein, Energy Program Co-Director, San Francisco

The anti-clean-energy echo chamber has been publicizing the bankruptcy of Solyndra, a manufacturer of solar energy panels, arguing that the President’s clean energy job creation program is ineffective. But most of this criticism is just political posturing and not really trying to learn from these failures, which importantly have not prevented solar energy from growing dramatically while reducing costs.

One direct source of the problem is that China has succeeded in reducing the cost of manufacturing first-generation solar panels to such an extent that many companies around the world cannot compete. Notwithstanding this success, most American solar companies remain ahead of their overseas competition, as I illustrate below.

The issue of American industry remaining competitive with China is, of course, not unique to clean energy: many American producers are challenged to keep up with Chinese competition. But with solar, the Chinese government has been particularly effective in developing an industrial policy that provides Chinese manufacturers with a number of advantages in the global solar industry, including access to lower cost capital, subsidized electricity rates, free access to land, cheaper labor, domestic manufacturing requirements, and a much shortened permitting process for factories.

America, in contrast, has generally avoided industrial policy. Opponents of industrial policy argue that the market can pick winners better than government can, and I believe that this principle is generally correct, but I also think that innovation needs government support. The lesson from China is not to tremble and retreat in the face of its challenges. We are a great country of innovators and we need to support that.

While we at NRDC would not support the Chinese approach to industrial policy, nor would its approach work in America, there are certain smart policy approaches we can use that leverage America’s strengths in private sector innovation, investment, and job growth. We would do well to focus on the success stories in our domestic solar industry, which include American companies like: First Solar, which are producing next- generation solar panels cheaper than their Chinese competitors; SolarCity, which is using an innovative business model to bring hundreds of megawatts of solar to military bases; and Amonix, which is developing innovative high concentration solar photovoltaic (HCPV) technologies. These are only a few of many examples of success in the made-in-America solar industry.

Such vigorous competitive forces are good for the consumer. They bring prices of solar—and other clean energy and energy efficiency investments—down over time while product quality improves.

However, when developing policies to support emerging industries, the details are critical. So some closer examination of the issue of government support for clean energy can be helpful. One existing challenge with energy incentives for maturing technologies occurs when they don’t reward production, but rather focus on cost.

Cost-based incentives are employed by lots of governments around the world, probably because they are so simple to administer. This can make some sense for very early stage energy technology companies, which pose a real risk of not performing and thus are much more likely to receive financing when incentives are tied to cost instead of production. But solar energy has been in existence for decades, and no longer falls into this category: the challenge for solar is to ramp up production and cut costs through greater deployment. As technologies mature, we should promote best-in-class products, and incentivize improved performance.

An example of how not to do it is the 1978 federal tax incentives for both efficiency and renewable energy, which were found to have cost billions of dollars but had minimal effect in improving efficiency beyond what was already occurring. This failure is not surprising: if the incentive encourages people to spend money on solar (or efficiency), they may spend more but they may not produce more power (or savings). Incidentally, the last sentence is a paraphrase of the remarks that Congressman Phil Crane, one of the most conservative Republican members of the House, made to me when he decided to co-sponsor a bill on which NRDC had worked that provided performance-based incentives for solar and efficiency.

But unfortunately, when Congress adopted solar incentives in 2005, they chose (over the recommendations of the industry as well as NRDC) to create cost-based incentives. These could well have been a major contributor to the imperfect results of the incentives. So if there is political blame, those responsible are both Republicans and Democrats.

When I say that the results are imperfect, this is because on one hand, some big companies did not succeed, but on the other, since 2005, total solar capacity has grown over 45% every single year. Last year the amount of solar installed in America doubled from the previous year, and growth hasn't slowed even in a tough economy. Meanwhile, the cost for solar power continues to fall at an incredible pace. According to the Lawrence Berkeley National Laboratory, the price of solar installation dropped 17% from 2009 to 2010, and another 11% in the first half of 2011. Perhaps this generally favorable outcome is due to the fact that some large states structured additional non-federal incentives into their solar programs and effectively overrode the cost basis of the incentives for installations in their states.

The failure of a few solar companies has to be placed in the context of the explosive overall growth of this sector of the clean energy industry. The right response to these few failures and to general fiscal concerns is not retreat from innovation and healthy competition with China; the right response is to make sure we’re using the right policies for the right stages of technology development and generally have a much greater emphasis on performance-based policies.

NRDC believes that government support for emerging technologies in clean energy plays a critical role in advancing innovation and bringing the costs of these innovations down (that ultimately benefit consumers), and that the long-term effects repay the Treasury hundreds of dollars for each dollar spent on incentives. But the structure of incentives must be compatible with market forces: incentives for commercialized technologies—including most of the solar market—must be based on performance, not cost. And it is important to track what works, and recreate or expand successes while avoiding a repeat of failures.

If you don't like the facts, make up your own

2011-09-06T18:29:10Z

David Goldstein, Energy Program Co-Director, San Francisco

That seems to be the principle that motivates Joseph Bottum’s article, “It’s green and blue, but not bright”, recently published in the Weekly Standard. Because from beginning to end, Mr. Bottum makes up religious narratives, historical narratives, legal analyses, and facts, out of whole cloth, and gets virtually all of them confused, or outright wrong, I’m compelled to post this response addressing the most radical claims and shed light on the facts about the new lighting standard and CFLs. I will deal with his article in more depth in another blog.

Let’s begin with the most important error: Mr. Bottum claims that the Energy Independence and Security Act of 2007, “outlaws the production of incandescent bulbs”. That’s absolutely incorrect. The law actually makes incandescent bulbs more energy efficient. The first phase of the energy efficiency standard for light bulbs takes effect January 1, 2012, and requires new bulbs to use 25 to 30 percent less energy starting with the conventional 100-watt bulb. The second phase will go into effect in 2020 and requires new bulbs to be at least three times more efficient than today’s incandescent bulbs, which means they will save 65 percent energy.

This standard will lead the way to a new generation of energy-efficient light bulbs and save consumers more than $10 billion annually, avoid the need for 30 new power plants, and decrease CO2 emissions by 100 million tons per year. To put the national savings numbers in perspective, the standard will save each household about $200 every year in energy bills. And most importantly, the lighting standard does NOT require CFLs. I will discuss next why CFLs are a really good choice for most uses of light bulbs, but under the standards consumers have a wide array of energy saving lighting choices. More choices, in fact, than they had before the law was passed. Read my colleague Noah Horowitz’s blogs for more on this.

Mr. Bottum also asserts that “the science of the light-bulb ban is dubious”. This statement, which is not supported by any scientific reference, is simply wrong. The science of light bulb efficiency is unquestioned. Several studies, including the National Academy of Sciences’ “America’s Energy Future,” the American Physical Society report “Think Efficiency,” and the McKinsey Corporation’s analysis of energy efficiency, in addition to comprehensive analyses by national laboratories, the US Department of Energy, and the California Energy Commission all conclude that beyond a doubt, more efficient light bulbs of several different varieties each are more economical and save substantial amounts of energy compared to the old-fashioned incandescents.

Mr. Bottum continues in the article as if the standards require CFLs, and goes on to claim that CFLs “produce constant ultraviolet and blue light, which can aggravate skin rashes . . . they’ve been known to catch fire when hung upside down in recessed lighting, they make the rest of your appliances stutter when they draw their first burst of power, and they automatically switch on anything that uses an infrared remote control or sensor. Like your TV channel changer and your cell phone. Oh, they also make polarized window film shimmer with funny little rainbows till your eyes water, and they cause the dyes in expensive fabrics and paintings to decay . . .” and many other claims that lack substantiation. All of Bottum’s claims are either misleading or downright incorrect and below I address some of them where he spins the facts radically:

Turning CFLs off and on too often can cause electronic ballast to decay

Bottum asserts that “if you turn your CFLs off and on too often, you cause their electronic ballast to decay.” In fact, when CFLs are turned on and off frequently, they have a life that is shorter than their normal life Normal CFL life is already 6 to 12 times longer than that of an incandescent so a lamp that burns out at a fourth of its normal life still saves money for the consumer. But how many applications in a home or business require lights to be turned off very frequently? CFLs average lifetimes are based on a typical three hour period during which the lamps burn without being turned off and no evidence suggest that this is atypical. Obviously, if you have a lamp that is required to turn on and off every 20 seconds such as traffic signals or Christmas tree lights, CFLs aren’t the best choice. In that case LEDs are the best choice, and they save about 90 percent of energy use compared to incandescents.

Dimmers kill CFLs quickly

Some compact fluorescent lamps are dimmable, and it says so right on the label; however, most CFLs currently sold are not designed to work with dimmers at all, and say so on the package. Dimmable CFLs work decently well to very well, depending on which product you choose. It is possible to buy dimmable CFLs that last a very long time. I have one in my home that has been operating 3-4 hours per day for 12 years.

Outside temperature ranges makes CFLS burn out

CFLs are designed for normal room temperatures. Placing a CFL outside in your porch light in Minnesota with -30 degree weather is an inappropriate choice. The same goes for coupling CFLs with sensors and timers that cause them to turn off and on frequently. There is an array of energy saving light bulbs that consumers can chose from for various lighting applications. See our light bulb buying guide for more information about the many energy savings bulbs available in the market today.

The expense and energy required for disposal has been ignored

Bottum says that CFLs’ “potential savings don't include the expense and energy required for disposal”. This is simply false. Many retailers already provide recycling programs for their customers to bring used or broken bulbs in for free, safe disposal. In fact, The Home Depot, in 2008 launched a national in-store, consumer CFL recycling program at all 1,973 store locations. Other retailers – large and small -- are also following on the footsteps of the Home Depot.

And what about the mercury if I break a CFL?

Before falling victim to fear-mongering, one should note that in order to operate, CFLs contain extremely low levels of mercury, typically 3 milligrams (mg) per bulb – an amount smaller than the size of the period at the end of this sentence. The worst-case health risk from exposure to mercury from a broken CFL is about equivalent to eating a small bite of tuna fish once in your lifetime. This is not to say that you should be careless about CFL disposal. Mercury emissions to the air cause the most serious pollution concerns, and the biggest source of airborne mercury in the U.S. is coal-burning power plants. Modeling performed by NRDC shows that national mercury emissions caused by common household lighting will be reduced by 60% once the lighting standard is in full effect, with national mercury levels going down from 2.7 tons per year to 1.1 tons per year. See our mercury fact sheet for more on this.

CFLs produce constant ultraviolet and blue light, which can aggravate skin rashes

Compared to CFLs, incandescents produce the same or more ultraviolet light. Natural sunlight is 5 percent ultraviolet. Consulting the Illuminating Engineering Society’s “The Lighting Handbook”, there is no mention of any adverse effects from ultraviolet emissions from fluorescent lamps. In other words, the level of UV produced is too small to be even mentioned as a concern. While there are some oddball internet sites that complain about UV exposure from CFLs, the only authoritative reference, the FDA site, does not find any cause for concern. In particular, none of the authoritative references even suggest that CFLs might emit more UV than incandescents.

Also, I have never seen claims that CFLs aggravate skin rashes being substantiated; at any rate, since their light is largely indistinguishable from the light of linear fluorescent lamps to which billions of people have been exposed, typically for 8 hours a day in their work environments, and there are no reports of aggravation of skin rashes, this seems pretty doubtful.

Do they catch on fire?

I’ve never seen a claim for fire caused by a CFL hung upside down in recessed lighting, although if the CFL is not designed for high temperature use, it may simply burn out. What I have seen, however, are documented reports of incandescent torchiere lamps that have caused fires, many of them fatal. CFLs in the torchiere would have prevented such tragic outcomes.

Appliances that stutter because of CFLs, really?

Mr. Bottum’s claim that CFLs make the rest of your electrical appliances stutter when they draw their first burst of power could only be true if the “inrush current” of a CFL is large. But this claim is wrong: if you replace an incandescent with a CFL, the latter’s inrush current is about the same of the continued current of the incandescent bulb it replaces. And incandescent lamps also have inrush currents that are higher than their continued current. So not only could this problem not possibly occur, CFLs actually help reduce stuttering of other electricity uses. And the assertion that CFLs automatically switch on by anything that uses remote control or sensors was only valid for a small subset of CFLs production that was sold more than 10 years ago. It is simply no longer a problem.

CFLs make polarized window film shimmer in funny little rainbows

Mr. Bottum is the first person I’ve ever heard assert that they make polarized window film shimmer in funny little rainbows. What is the evidence that this is real? What is the mechanism? Why has no one else reported this supposed effect?

There is similarly no support for the assertion that CFLs cause dyes in fabrics in paintings to decay compared to other light sources such as incandescents or daylight. Fabric degradation is a result of UV exposure, and CFLs emit the same or lower amounts of UV as the incandescents they replace.

People dislike CFLs and soft light makes us happier, really?

Assertions like “soft light makes us happier, and it makes us prettier,” is not an objective assertion, but a fairytale. How would you even imagine proving it, much less be convinced you already had done so? Also saying that we expect lamps to become redder as they dim because the sun does so (actually, when the sun is dimmed by clouds, it does the reverse) is again, simply made up out of whole cloth.

In closing, the true facts

Critics falsely claim that the 2012 standards will ban the incandescent light bulb, but the facts show that consumers will have a wide range of bulbs to choose from—including new and improved incandescent bulbs—and save considerably on their energy bills each year. Consumers will also have the choice of buying CFLs and LEDs that are far more efficient than required by the 2012 standard.

Several manufacturers—GE, Philips Lighting, and Osram Sylvania—already sell new energy efficient incandescent bulbs that use advanced technology. These bulbs meet the 2012 standards and are already available for sale. They look and perform just like conventional incandescent bulbs, but don’t use the same old technology, which has changed very little over the past 75 years.

The entire lighting industry along with consumer advocates, environmental groups, utilities and industry trade associations support the standards. Even Thomas Edison’s great grandson supports the standards. Thwarting these standards would create uncertainty for many of these lighting manufacturers that have already shifted significant investments and resources—including retooling factories—to research, develop, and produce more efficient bulbs.

The light bulb efficiency standards will help bring light bulb technology from the days of the horse and buggy to the 21st Century, which will save consumers money, create jobs, and reduce pollution. What’s not to like?

The Low-Hanging Fruit ... That Keeps Growing Back

2011-08-26T17:37:13Z

David Goldstein, Energy Program Co-Director, San Francisco

Today the Department of Energy announced a new set of efficiency standards for refrigerators, the seventh set of state and federal standards for refrigerators over the past 35 years. DOE estimates that the 30-year savings from this new requirement will be almost 5 Quads, equivalent to the entire energy consumption of all the homes in the nation for two months.

This should sound surprising – how can further energy savings be possible after the gains we have already made in refrigerator energy efficiency? The first efficiency standards for refrigerators were established in 1976. They eliminated the least efficient half of the market, and by 1987, after the second tier of state standards, the first round of federal standards, and a round of utility-sponsored incentives, the least efficient refrigerator used less electricity than the best model of 1975. But further savings were found after this, and realized by the complementary action of Energy Star recognition, financial incentives, and new standards. But despite the great leaps and bounds in refrigerator efficiency over the past 4 decades, continued innovation and improvement has led to further potential cost-effective savings – and refrigerators remain one of the top ten efficiency resources among appliance and equipment.

Efficiency standards have driven this innovation: this fact is apparent from Figures 1 and 2. Figure 1 shows how energy efficiency was actually declining every year until the mid-1970s when standards were introduced by California. Until the first standards, there was no market for efficiency, and the failure-ridden market rewarded the worst kind of “innovation”: changes in refrigerator design that actually made energy consumption grow from year to year for 25 years, saving consumers a few dozen dollars up front while costing them a few hundred over the life of product. But standards, and accompanying incentives, ranging from rebates offered by utilities, marketing assistance from the EnergyStar program, federal tax credits for efficiency, and the Golden Carrot program (sponsored by utilities and states), solved this problem by aligning the interests of the consumer and the environment with the profit motive of the manufacturers.

As a result of this suite of policies, refrigerators got better year after year after year. Figure 2 illustrates the results. Not only that, but in the process manufacturers improved the features and quality of the product. My own refrigerator is quieter than its predecessor, and keeps food fresher for longer; the predecessor (vintage 1981) was similarly better than what came before.

This figure also demonstrates the scope of the improvement: it shows how the size of the product kept increasing while the price, including both feature and size growth but also shows price decreases in the face of better features and more efficiency. For a fuller discussion of the history of refrigerator efficiency and the role of smart energy policy, see Invisible Energy.

Figure 2 demonstrates the power of continual improvement. American manufacturers can make better products every year when there is a market reason to do so. Standards and financial or marketing incentives create those market reasons where they are otherwise lacking. This suite of policies not only benefits consumers and the environment, but helps manufacturers to maintain or create American jobs and to increase their profits; that is why the refrigerator manufacturers negotiated and then urged DOE to adopt the new standards (which included joint lobbying for new efficiency tax incentives and EnergyStar upgrades).

Efficiency has often been called the low hanging fruit, since it is cheaper and faster, as well as greener, than any other resource. But the tree that grows this fruit is special as well: when you pick the fruit, as we have almost a dozen times with refrigerators, it grows back.

Efficiency standards not only increase product quality, they also increase consumer choice. In 1972, before there were refrigerator efficiency standards, consumers had little choice with regard to efficiency. Even though it was possible to make products almost 40% lower in energy use at a price increase that paid itself back more than 6 times over the life of the product, no manufacturer offered one. Now the consumer can buy products that minimally meet the energy standards, or the 20% better Energy Star labeled products, or even those that beat EnergyStar by another 10%. Not to mention the fact that new refrigerators offer more configurations and more frequently offer options such as through-the-door ice dispensers.

These standards provide evidence that environmental regulation produces jobs and makes the economy grow. Manufacturers as well as environmentalists recognized long ago that innovations that were profitable to the producer and saved money for the consumer, as well as reducing pollution, were thwarted by market failures. A suite of policy interventions, including tax credits, utility-sponsored incentives, Energy Star labeling, and standards could overcome these failures and produce a win/win solution.

Standards have been an essential part of making markets work for energy efficiency since they were initiated in 1976. While a naïve reading of economic theory suggests that unregulated market forces produce the best outcome, more careful look at economic data and theory shows how standards are an essential part of a policy package that overcomes failures of the market. Both manufacturers and consumers now recognize that they can produce and buy more innovative products that deliver better consumer value and greater manufacturer profit with standards, market recognition programs such as Energy Star, and performance-based incentives. All three policies are part of the package that environmental organizations, consumer organizations, and manufacturers joined together to support.

Bottom line: efficiency standards boost innovation and competition, and help make industry more profitable and more job-producing. They are part of a suite of policies that produce continual improvement, making the environment cleaner every year and making the economy grow and produce jobs.

Record Heat Fails to Produce Record Power Demands and Blackouts: Credit the Department of Energy's Efficiency Standards

2011-07-22T22:01:15Z

David Goldstein, Energy Program Co-Director, San Francisco

As the major cities of the East Coast joined in on the suffering from the heat wave that has lingered over the central parts of the country, and both Washington DC and New York set heat and humidity records, here is one thing that didn’t happen. The lights didn’t go off.

New York reported a peak power demand that was only trivially higher than it was four years ago, and stories of blackout elsewhere are isolated and uncommon. Why is this?

In large part, it is due to the success of efficiency standards for air conditioners. Air conditioners are responsible for peak loads occurring on hot summer afternoons: previously they occurred in the winter. The Department of Energy’s recent (2006) standard for new central air conditioners is already saving over 1000 Megawatts of power compared to the previous standard: that compares to Consolidated Edison’s record peak of 12,000 MW. If we add in all of the other savings from air conditioner standards dating back to the 1980s the result is over 6000 MW. The savings will grow even larger when new standards, based on an agreement between efficiency advocates such as NRDC and manufacturers, go into effect.

Other appliance efficiency standards also reduced peak power demands, and taken together the savings exceed 60,000 MW.

Con Ed’s experience is typical of this success: despite growth in population and the amount of space air conditioned, peak loads haven’t grown much, and utility systems by and large have been able to keep up.

The benefits from reducing blackouts extend to everyone: they protect sensitive populations from heat-related illness, they cut costs for low income consumers, they protect business from loss of power and from higher electric bills.

Helping prevent blackouts: that’s an impressive achievement for efficiency regulations!

Missing the Point on the Economy

2011-07-22T18:04:48Z

David Goldstein, Energy Program Co-Director, San Francisco

As Congress and the Administration debate how to spark an economic recovery—a goal that seems to be receding every month—none of the discussion addresses the one policy that could actually get adopted with bipartisan support and make a difference: expanded reliance on energy efficiency. This is a critical mistake.

Paul Krugman warns in his New York Times column that policymakers in Washington and Brussels are making critical errors in their handling of the current economic slump, which he calls the Lesser Depression. On the same day, Matt Miller chastises S&P for its single-issue focus on the federal deficit as a threat to the security of U.S. debt obligations. Both writers are concerned that too much attention is focused on government deficits; both agree that reducing the deficits both at home and in Europe is important, but cite other problems with the economy that they assert are equally important.

Lest we forget about them in the midst of the partisan posturing on deficits, the other problems are ones that economists from all points on the political spectrum would agree with (as well as accepting the proposition that deficits are a problem, even while disagreeing on how to solve it).

The other causes are:

The mortgage meltdown
The risk of inflation
The large trade deficit
The low savings rate
Weak consumer/business spending
Too few jobs

As long as we do not address all of these causes of economic decline, we are unlikely to emerge from economic stagnation.

“Prosperity is just around the corner”

Economists seem to think that the economy will recover naturally, as water flows naturally downhill, without providing any objective reason things should get better. As the months go by, they are surprised that the recovery, such as it is, is weaker than their models predict, and readjust the models so that they predict that things will get better in six months. “Prosperity is just around the corner,” say the models.

(For those of you who do not recognize the quote, it is from President Hoover in 1932. Prosperity turned out to be over a decade away, even with vast economic recovery efforts by his successor. And balancing the federal budget was a major goal of economic policy though 1932, supported at the time by both parties.)

The Importance of Energy Efficiency

These seven elements are widely accepted as important by economists on the left, the right, and the center. And what do they have in common? The answer, which most policy makers are unaware of, is that all of them are the consequences of weak policies on energy efficiency.

The reasons are explained in detail in Invisible Energy, and more simply in my previous blogs:

The mortgage meltdown was caused by many factors, most of which are well understood but one of which is ignored or forgotten: the fact that lenders considering whether a family could afford to pay back a $200,000, 30-year loan ignored the effect that transportation expenses (more than $300,000 over the same 30 years for a house in urban sprawl) and energy ($75,000) would have on their ability to make their payments. As a result, defaults are roughly 1/3 higher in sprawl than in more compact suburbs, controlling for all other factors.

And this hasn’t changed since we first realized that America was facing a mortgage default problem. The banks have tightened traditional lending criteria, making it harder for most families to buy a house and depressing the construction market, but by ignoring transportation and location expenses, they may not be doing much to solve the default problem. In fact, with gas approaching $4 a gallon, the cost of transportation is now likely to exceed $350,000.

The problem of low consumer demand could perhaps be solved by pumping up the economy, but this would increase the deficit and hurt savings, and could eventually lead to inflation. Similarly, the problem of too few jobs could be helped by a public works program like WPA, but this would exacerbate the deficit problem. The fed could print money, which would depress the dollar and raise inflation, but this might increase spending and help the trade deficit. Note that the trade deficit is dominated by energy imports and the high oil prices that are the consequence of excessive demand.

Tackling All Seven Problems at Once

Thus we see that by trying to solve one of these seven problems in isolation, we can make the others worse. That is the risk of an obsessive focus on federal deficits. If we cut federal spending, we will worsen the job situation and exacerbate the weaknesses of consumer and business spending.

The only policy option that can address all seven problems at once is a greatly expanded program for energy efficiency. If we encouraged demand for energy- efficiency investments -- and there are hundreds of billions of dollars a year that could be spent -- the returns on investment from energy we would no longer need to buy are so large that the borrowing would all be paid back in 3 years or so. The jobs produced would be almost entirely local, rather than abroad. Less demand for energy would undermine the main basis for inflation.

This may not be enough all of itself to make the economy recover next year, but it relies on policies that are compatible with both conservative and progressive ideologies, and thus could actually be agreed to and enacted. Some amount of recovery that wouldn’t have happened anyway is a lot better than none.

While efficiency policy alone may not be enough to restore prosperity quickly, then again it may. We should at least try it and find out.

How Bad Ideas Keep Rebounding Into Public Discourse: The Rebound Effect and Its Refutation

2011-05-09T21:21:36Z

David Goldstein, Energy Program Co-Director, San Francisco

Every few years, a new report emerges that tries to resurrect an old hypothesis: that energy efficiency policy somehow results in consumers using more energy instead of less. This hypothesis was introduced in the 19th Century by economist William Stanley Jevons, who argued that increases in the energy efficiency throughout a nation would lead to increases in coal consumption, rather than decreases.

Recent articles have attempted to revive these claims, also known as “rebound effect” —restating that energy efficiency tends to encourage more energy use, not less, and that if a consumer’s immediate goal is to tackle climate change, then it seems risky to count on reaching it by improving efficiency. Assuming rebound effects eat up most of the energy savings, such claims then argue that efficiency cannot be a good policy to reduce energy consumption or combat climate change.

However, in a new report published today in the online journal, www.ElectricityPolicy.com, my colleagues at the Natural Resources Defense Council dispel these claims, finding that:

1) Rebound effects are small, at high end, and at the low end, very well might have the opposite effect – efficiency might cause people to save more than was already expected.

2) Rebound effects do not jeopardize our ability to reduce greenhouse gas emissions or to lower our energy consumption because they do not change energy efficiency savings significantly. Indeed, to the extent they do, the effects appear to be positive.

3) There are two different types of rebound theory, both of which have been discredited. The first, known as the end-use rebound theory, hypothesizes that people who own efficient appliances would use them more and thereby consume more energy. This is contradicted by comprehensive studies showing end-use rebounds to be small and decreasing over time, as well as the aggregate consumption metrics. For example, when environmentally conscious consumers switch to energy efficient light bulbs, they don’t necessarily leave the lights on longer. The second, the economy-wide theory, hypothesizes that any energy savings from efficiency would be offset by money savings respent on activities that demand additional energy consumption. This is refuted by the fact that only a small portion (maximum of 6-8%) of those expenditures ever goes to energy. For instance, consumers who save money on their electric bill, may use those savings for any number of things – food, movie tickets, or a child’s college fund.

Our analysis – “Are There Rebound Effects from Energy Efficiency? – An Analysis of Empirical Data, Internal Consistency, and Solutions” – takes a detailed look at what rebound theory really says, how or whether this theory has been tested in the real world, or even how it could be tested, and what policy recommendations and results would flow from it if it were correct.

The first thing we found in our research is that rebound enthusiasts rarely define what they actually are predicting. This is an important failing, because the science of economics demands that theories be tested in such a way that the evidence either disproves or supports the hypothesis. Most rebound effect hypotheses are so casual that proponents of rebound can use any real world situation they choose to use and claim that it validates their ideas. Our study was able to find only two ways of stating rebound theory that are rigorous and capable of being tested. Both are firmly refuted by the evidence. The first version of a rebound theory that is scientific enough to be tested asserts that energy use grows in fixed proportion to the economy (to GDP). As my colleague Sierra Martinez elaborates in his blog, the history of the last 40 years in the United States and virtually all other developed economies, shows this to be false. After implementing energy efficiency policies, many economies have indeed broken the lockstep increase in energy consumption with production of wealth.

The second version asserts that the savings to a state through efficiency policies will be much less than the sum of the expected savings from the policies and technologies one by one. However, California showed actual reductions in electricity use per capita over the last 40 years (compared to the rest of the nation) that not only equal the sum of the predicted savings but are actually four times as big. Other states showed similar, if smaller, results. Nowhere were there serious predictions of savings accompanied by disappointing results.

Of course, there are small rebounds in a limited number of end uses. For example, if you weatherize a drafty home, the occupants may be able to afford to keep it heated more comfortably, and there are indirect effects of efficiency on energy price and thus overall usage. But these effects have been incorporated into most energy models since the 1970s, and are found to be very small and decreasing over time.

Rebound proponents often want to rely solely on supply-side solutions. But if rebound suggests that efficiency may not save much energy, similar theories on the supply side would show that new clean energy sources may not reduce the usage of older dirty ones as much as expected either.

As you’ll read in the article, our analysis found that energy efficiency policies are not only the fastest way to reduce energy use but continue to be most the effective solution to combat climate change. The objections raised by rebound enthusiasts about efficiency policy and its effectiveness are inconsistent and so vague that they cannot be proven (or disproven). The data that is available about rebound theory indeed shows that its predictions are refuted. What we know is certain: energy efficiency continues to offer us a strategy that allows people to enjoy a higher standard of living, with increased energy services, while decreasing energy consumption and combating climate change.

A self-extinguishing recovery?

2011-04-22T17:46:27Z

David Goldstein, Energy Program Co-Director, San Francisco

The economic news continues to yo-yo from optimism to pessimism—back and forth. Corporate profits are up but wages are down, mortgage defaults are decreasing in some areas and increasing in others, oil prices are above $100 a barrel, causing losses at airline companies; and analysts seem to feel that the economy is on a track to recovery, if a slow one.

But there are dangers that the recovery will short-circuit, for the same reasons that the economy tanked in 2008. Most of these problems have moderated due to the recession; but as soon as the economy starts to grow seriously, they will pop back up and send the nation back into a slump. I discuss these reasons – everything from concerns about inflation (driven primarily by rising energy prices) to low consumer spending and high debt to mortgage defaults – in Invisible Energy.

And I am concerned that these dangers have been largely brushed aside.

The only one discussed seriously in recent weeks is the deficit: Standard and Poor’s announced that it downgraded its outlook on the U.S. government’s debt from stable to negative.

But how would one fix the deficit? Current proposals by the Republicans would reduce government spending rapidly. The Administration responded with proposals that also make cuts, although in much different ways. And with the stimulus money coming to an end, spending will drop in any event.

But lower spending means slower (or no) growth and fewer jobs. Spending cuts help solve one problem—deficits—at the same time that they worsen others—low consumer spending and jobs.

Shortsightedness: One particularly troublesome tradeoff that is being made is cutting high speed rail, as pointed out in the New York Times. I noted in my last blog, spending on high speed rail increases employment now and saves government spending on highways, parking, and airports in the long term. It addresses both problems—deficit reduction and job creation—in a good way. It also reduces oil use -- cutting oil prices and reducing the nation’s trade deficit. It also reduces the amount of money sent to adversaries of the United States such as Iran.

Short Memories: I am seeing similar problems in other areas. An ad on the radio this week talked about how listeners could qualify for a larger mortgage than they might expect. It seems that the lending industry thinks that it has gotten the problems of the last decade behind them, and is beginning to loosen up again.

But mortgage underwriting doesn’t figure in the costs of energy and transportation, and that’s where consumers get burned. These costs are typically almost $400,000 for a typical home in suburban sprawl. $400,000 is an obligation that is about 2 ½ times the amount the consumer pays for a loan on a median priced home! A burned consumer—one who can’t afford to pay his mortgage after paying for gas and car repairs and insurance and utilities—leads to a burned investor who bought the mortgage, in addition. This is what triggered the recession.

Gas prices are rising again to levels we haven’t seen in 3 years. At that time, we worried about gas prices, but after the recession reduced gas prices we never took the actions needed to save gas, and therefore reduce its price in the short- to mid- term. Expanding support for mass transit and other non-auto modes will offer consumers alternatives to $4-a gallon gas. This can be done by stopping transit service cuts in the short term and expanding transit, walking, and biking alternative in the medium term. But we are three years behind where we could be on this solution.

Downward Spiral of Oil Addiction: No one seems to address the issue of how the economy can continue to revive without sending oil prices through the roof. The scenario I worry about is consumers no longer being able to afford gas or heating oil or travel in general, causing us to go right back into recession. High oil prices can hurt more than just consumer spending. They also hurt us by igniting inflation, which is already running over 2.5 percent for the past year.

And as oil prices cause inflation, the Federal Reserve will have no choice but to raise interest rates, and this will also send the economy back into decline. It will also exacerbate the government deficit.

Oil prices also increase our trade deficit, which weakens the dollar and drives up the cost of imports. The dollar is now worth less than 69 Euro cents, a level that is approaching its all time low of a few years ago.

The economy can’t really recover without oil prices staying in check. But the economy also can’t really recover without CAUSING oil prices to rise. This is what I mean by a self-extinguishing recovery.

A Better Way: The only plan I can see for addressing the root causes of the recession and allowing a robust and sustained recovery is to push aggressively forward on energy efficiency policies: notably and importantly in mortgage lending reform. Lending reform would empower new home construction in Smart Growth locations where the market is now demanding it, and will also allow consumers to finance energy makeovers of their homes and businesses that can reduce utility bills by 30 to 50 percent and more. (Over a million and half barrels of oil a day are used in buildings.) Energy improvements in existing homes and businesses could also be incentivized through temporary tax credits or grants programs based on how much energy they save.

Better energy policies would also cut costs to consumers and businesses through raising minimum standards for product and building efficiency. They will offer consumers alternatives to $4-a gallon gas by stopping transit service cuts in the short term and expanding transit, walking, and biking alternative in the medium term. They will encourage better fuel economy in cars through financial incentives, and encourage utilities to help their customers to lower their bills by allowing the utilities to earn more to the extent that they succeed in reducing customer bills.

All of these proposals have enjoyed bipartisan support and there is no reason to not move forward with them now, other than the lack of attention and thought devoted to solving the root problems of the economy. But without this attention, we may be stuck with abortive recoveries.

Energy Efficiency and Economic Recovery: Connecting the Dots

2011-04-15T21:32:59Z

David Goldstein, Energy Program Co-Director, San Francisco

In Wednesday’s Washington Post, you can find four articles on energy efficiency policies and economic recovery. But the authors apparently don’t see the big picture, and are missing an opportunity to warn their readers about how our nation’s economic proposals or policies are undercutting our already weak recovery.

The first article is entitled “$4 a gallon gas fuels fears of strained recovery.” The headline tells it all: Economists worry about how excessive costs of gas are reducing consumer spending and sapping economic growth (and going to oil exporters). But the article fails to mention how we could cut these costs—how greater focus on oil savings in transportation and buildings could reduce oil demand and keep prices down.

The next article in the Metro section describes proposed service cuts for the Washington, DC, Metro system. It points out how riders may be inconvenienced by less service, but fails to note that some riders may decide to drive instead of waiting the extra time for their bus or train, and that this will increase gas demand and price just when we need to reduce it. Since these service cuts are happening across the country, the cumulative effect is not small. Too bad the headline couldn’t say “Transit service cuts to strain recovery.”

The third article talks about the need to reduce federal deficits, not so much in the short term but over 10 and 20 years. While this issue entails some political controversy, most economists believe that big cuts in the short term could hold back the recovery but that significant reductions are needed in the long term.

The fourth article talks about how the budget deal reached last week in Congress cuts, among other things, federal investment in high-speed rail and low-income weatherization. But it fails to note that spending money on these services today will reduce the need to spend even more federal dollars in the long term -- exactly what we need to do to solve the problems of encouraging recovery and reducing government spending.

As I describe in Invisible Energy, a dollar invested in high-speed rail in California (where there is a complete business plan all ready) averts the need to spend almost $2.50 in highways in airports in the future, so it cuts the deficit when economists agree that we need it the most. And in the case of weatherization, the government already subsidizes the utility costs of low-income citizens, so a dollar spent this year on reducing utility bills is more than a dollar saved in these future expenditures, not to mention the improved comfort and safety for the occupants of the homes.

The bottom line is we need to connect the dots. These examples show how the nation is not taking advantage of present and future savings opportunities and moving in the wrong direction for the economy, the environment, and for national security. But what is worse is that the decisionmakers, in each of these cases, seem entirely unaware of the damage they are doing.

Energy Efficiency and the "Rebound Effect"

2011-02-17T19:46:23Z

David Goldstein, Energy Program Co-Director, San Francisco

I'm co-authoring this blog post with my colleague Ralph Cavanagh, senior attorney and co-director of NRDC's energy program.

Throughout almost four decades of societal progress in getting more work out of less energy, those who deny the promise of energy efficiency have persisted in a bizarre claim: any energy savings from efficiency are offset by activities that demand additional energy consumption.

While implausible concerns about “rebound effect” have been around since the mid-nineteenth century, they have not impeded recent progress in improving the efficiency of energy use and reducing its environmental impacts.

The most obvious rebuttal to “rebound effect” claims is the performance of the US economy since the early 1970’s: between 1973 and 2009, US economic production more than tripled even as total US energy use increased by less than a third. If “rebound effect” advocates were right, that record would have been flatly impossible, since savings in energy use would be offset by activities that demand energy, keeping energy use trends in lockstep with economic growth (just as they were for the first three decades after World War II).

That was indeed the confident prediction of some economists when we began our careers in the mid-1970s, and such forecasts lie today on the ash heap of history -- along with hundreds of unmourned power plants that never had to be built and mines that never had to be dug.

Yet the same discredited thesis has resurfaced recently in reports by The New Yorker writer David Owen and the iconoclastic Breakthrough Institute, which today released a report subtitled, “A Review of the Literature” [translation: “don’t expect anything new”]. In the report, the Institute acknowledges that, “truly cost-effective energy efficiency measures should be vigorously pursued as they will lead to an improvement in the general welfare.” Since we agree entirely with that conclusion, it is tempting to end the discussion there, but the authors of the study also insist that the “rebound effect” will deny the global environment any benefits following that “improvement in the general welfare,” so an additional word is in order.

We reject the Institute’s implication that there is some kind of emerging academic consensus around the “rebound effect.” To the contrary, the most respected academic energy efficiency think tanks such as the UC Davis Center on Energy Efficiency and Stanford’s Precourt Institute on Energy Efficiency share the view that energy efficiency delivers big economic and environmental benefits. The reality is that energy efficiency is a huge success story and a key tool to reducing global warming, increasing electric reliability, slashing energy bills for those consumers who can least afford them, and avoids the need to build new costly power plants.

The Breakthrough Institute blames a host of evils on efficiency, but fails to back up their accusations with facts. It acknowledges that serious energy analysis of rebound effects shows them to be “comparatively trivial.” People who insulate their houses don’t absorb all the savings by sweltering through the winter, and buyers of efficient refrigerators don’t start leaving the doors open gratuitously. But after admitting that studies show rebound effects to be small and getting smaller over time, it tries to create a counter-narrative by inserting warnings that “the available evidence to date remains too limited to draw precise conclusions.”

Efficiency does not mean restraining energy services growth. It means using less for the same amount of service. The skeptics are confusing this trend with the sometimes-on, sometimes-off trend towards more efficiency, and claiming that more efficiency induces more demand for energy services.

The problem is that neither Owen nor the Breakthrough Institute has presented any evidence that this is happening in the real world: all of their examples are devoid of any mention of how efficiency leads to demand for activities that demand more energy, as opposed to other economic factors. Instead, they rely on naïve interpretations of economic theory—the same interpretations that show that cost effective energy efficiency is impossible.

Given the weaknesses of this form of economic theory for the purposes of efficiency analysis, it is even more important than usual to rely on data. The clearest data-focused test of the “rebound” hypothesis is whether an economy that embarks seriously on efficiency policy really can cut its overall energy use. Because without question, if the thesis has any plausibility at all, the answer has to be “no”; or at least “not nearly as much as predicted.”

Fortunately for the cause of economic truth, we have such experiments. California, for one, embarked on a broad set of policy reforms to encourage efficiency and promote renewable energy in 1974.

The influence of energy efficiency policies are helping the whole California economy (California would be the 8th largest national economy in the world if it were a nation) to save much more than one would expect. California is not the only example of a state or country promoting efficiency through policy and then showing divergent usage trends from its neighbors and thus demonstrating that energy really is saved. Perhaps this is why serious studies have found that the economy-wide rebound effect is trivially small.

In my blog, I show how California’s projected savings from energy efficiency programs, derived year by year in real time by the California Energy Commission, have resulted in 15 percent reductions; and these programs have resulted in 40 percent reductions compared to the rest of the country.

California is just one example. Other states and several countries that have pursued efficiency policies also demonstrate lower energy usage and growth than those that did not so implement such policies.

Energy efficiency saves energy, increases electric reliability, avoids the need to build new power plants, and saves Americans money. It’s really that simple.

Innovation as the Basis for American Jobs and a Cleaner Environment

2011-01-21T22:58:12Z

David Goldstein, Energy Program Co-Director, San Francisco

As one of the business representatives on new President's Council on Jobs and Competitiveness, General Electric CEO Jeffrey Immelt challenged the nation to re-establish itself as “a technology-based, export-oriented economic powerhouse”. He listed innovation as one of the two pillars of such an economy.

Environmentalists can agree with this general goal, but we have to be realistic about how an economy can promote innovation. While increasing federal support for research and development is certainly one component of an innovation-led, technology-based economy, research alone isn’t enough in the real world. There are deep-seated barriers to innovation, both in terms of entrenched habits and in terms of outright failures of the market.

In the case of green technology, and it would seem in broader cases than this as well, we have plenty of job-creating new technology production opportunities that are going begging because of market failures. Correcting these failures, which we can do with environmental standards, is essential to promote innovation in the market.

How do we get innovation into the marketplace? There is surprisingly little known about this. But it doesn’t happen just because we want it to. We do know one way to create innovation, and that is to require it—or to enable it—through environmental regulations or incentives. A performance-based standard or incentive sends a message to industry that just doing the same thing next year as they did last year won’t suffice. As industry looks at how to upgrade their technologies to meet environmental goals, they are encouraged to look more comprehensively at their production processes, and suppliers have the market to offer new cleaner technologies in competition with each other. This competition, and the need to produce more cleanly, provides the market for making innovation profitable.

We need to be doing more of this, because greener technology, a key part of overall technology innovation, is held back by the forces of habit and stagnation. I discuss this in detail in my book Saving Energy Growing Jobs, but in part green technologies are languishing because of a vicious circle in the economy: consumers have a hard time identifying products that truly are better for the environment, and find it difficult or unnecessarily expensive to buy them even if they can find what they want. This leads to frustration, and the frustration leads to the mirror image of the problem among manufacturers and retailers: if consumers are not expressing their desire for green purchases in the market (even if it is because they can’t find or identify them), then it makes no sense to produce or stock them.

How many of you can find a selection of fresh organic food without driving all over town? How can you identify the new TVs that use less than half the energy of apparently identical models? How can you find a compact fluorescent lamp in the size you want with the right brightness that gives you dimming ability and the color of light you prefer? How can you find a contractor who is reliable and affordable and who can remodel your house so that it cuts your utility bills in half? These questions are only the tip of the iceberg of problems that are preventing innovation from being profitable, and that are holding back job creation.

Environmental protection policies provide answers to these questions. California regulations increasing the efficiency of televisions required manufacturers to learn how to develop and deploy new technology at scale, and the Energy Star program and incentive programs operated by leading utilities helped consumers to get off to a faster start. In some regions where utilities have had active programs, it is easy to find a good selection of efficient light bulbs.

For home remodels, imagine how competitive home energy retrofit contracting would become if there were financial incentives for the first homes to make savings? (Such incentives passed the House of Representatives with bipartisan support in the form of the Retrofit Energy Efficiency Program (REEP) which was part of the Waxman-Markey climate protection bill last session.) How much easier would it be to retrofit your home for energy savings if your bank allowed you to borrow the money for the retrofit at the same interest rate as your existing mortgage, and to do it even if your loan is underwater?

Performance-based incentives and standards provide the economic motivation for innovation in many areas where it is blocked in the real-world economy. Places that have relied more heavily on environmental protection have seen greater job creation and more economic growth than those that have not.

This is a true win/win: a cleaner environment and the only known way to encourage innovation and growth on a national scale. Business leaders such as Mr. Immelt should be working more closely with NRDC to support performance-based standards and incentives for environmental protection.