Jeff Rubin, Why your world is about to get a whole lot smaller
Random House
New York 2009
ISBN978-1-4000-6850-0

Pages 88-97

Energy consumption is up over 40 percent despite cutting the energy input per unit of GDP in half. That's why energy intensity targets, commonplace in most countries' energy strategies, have patently failed to restrain energy consumption and the carbon trail that follows from it.

Following the OPEC oil shocks, a few renegade economists, like Daniel Khazzoom. in North America and Leonard Brookes in the UK, argued that improvements in energy efficiency would lead to an unexpected and unwelcome result -? increased energy consumption. Their warnings seemed to fly in the face of all those government policies to encourage greater energy efficiency.

Needless to say, their analysis was not well received by either policymakers or environmentalists at the time. Khazzoom's life was actually threatened when he testified at an environmental hearing that the Province of Quebec held before proceeding with its massive James Bay power Project.

The "rebound effect," as it has come to be known, poses a disturbing assault on both intuition and conventional wisdom. Yet its paradoxical conclusion is based on economists' standard theory of demand.

As improvements in energy efficiency lower the price of consuming energy, more energy will be consumed, as predicted by the economists' standard theory of a downward?sloping demand curve. That is, while efficiency reduces demand for energy, reduced demand in turn reduces the price of energy. The effect is that you end up getting more energy for the same price. So you naturally end up using more.

And using more energy means more economic activity -? more driving and building and manufacturing and, inevitably, shopping. So if an efficient economy can consume more energy for the same price, it also gets more economic growth for the same price ?and that means still more stimulus to energy demand from a stronger, growing economy. In other words, cheap energy makes the economy grow, and a growing economy is greedy for more energy. When economic growth outstrips the rate of improvement in efficiency, the result is a very powerful rebound effect.

The concept was described over a century ago by the British economist William Stanley Jevons. Jevons observed that after the huge efficiency gains following the advent of James Watt's steam engine, coal consumption initially dropped, then rose tenfold between 1830 and 1860.

The same phenomenon occurred with efficiencies in steel production in that era. The Bessemer process for producing steel was one of the greatest fuel?saving innovations in the history of metallurgy, but its ultimate effect was to increase, not reduce, the industry's demand for fuel due to the subsequent surge in steel production.

While each ton of Bessemer steel or increase in horsepower of James Watt's steam engine might require less fuel than before, skyrocketing increases in the demand for steel and power overwhelmed the efficiency gains, leading to significantly greater fuel consumption.

And that is exactly what has happened to your car.

When high prices sent the automotive engineers to their drawing boards to come up with more efficient vehicles, the results were nearly immediate. From lighter materials to fuel injection and turbocharging and multiple?valve cylinders, the automakers responded quickly to the OPEC crisis by coming out with technologies that would give drivers more power for less fuel. These new engines improved mileage considerably. Since 1980, the average mileage per gallon of gasoline in the United States has improved by an impressive 30 percent. Technology compensated for the rising cost of fuel, just as economic textbooks would have predicted. In fact, the transport sector has become the economists' poster?boy example of how prices influence technological change.

But roll the clock forward to a few years after the second oil shock. The advent of new fuel?saving technology didn't follow through where it mattered the most, which is ultimately not how much fuel it takes to drive a mile but how much fuel your car actually uses over the course of a year. On that score, absolutely nothing has changed. Your average vehicle on the road in America consumes just as much gasoline today as it did three decades ago when its engine was 30 percent less efficient than the engine in your car today.

What all the new automotive technology allowed carmakers to do was to squeeze more power out of the same amount of fuel. That meant that all things being equal, a driver could move his or her car down the road at the same speed and use less fuel to do it. But all things are not equal. Instead of propelling that car down the road at the same speed, carmakers realized that the new technology would allow them to move a bigger car for the same amount of fuel, and they could make it move faster, too. The temptation to turn that extra power into more speed and size was irresistible. Instead of using the lighter new materials to develop less energy?intensive vehicles, the car companies often chose instead to use these advances to simply put bigger, faster models in their showrooms.

The efficiency paradox has allowed that four?cylinder Corolla to somehow morph into a huge honking sport utility vehicle. The number of light trucks (a category that includes SUVs vans and pickup trucks) rose by 45 percent between 1995 and 2005, seven times faster than passenger cars. In a blatant exercise in energy obesity, light trucks account for 80 percent of the growth of the number of vehicles on the road in the US since 1985, becoming without doubt the vehicle of choice for the average American family.

My dad's Buick LeSabre was no Toyota Corolla, but it was modest compared to the legions of Yukon Denalis and other oversized SUVs cruising out there today. All the technology tinder the hood gives them better fuel economy than similarly sized trucks from the 1970s, but all the advances of the last four decades don't change the fact that when oil spiked into triple?digit territory, it cost well over $100 to fill one of those monsters' tanks. There is the rebound effect in spades. Your engine is more efficient, but you are burning more fuel.

And even if you aren't driving an SUV, chances are you are driving a vehicle with a whole host of energy?consuming features that were once costly options. Power windows, power sliding sunroof, power side mirrors and, most of all, air?conditioning are now pretty well standard on most vehicles in the developed world. And every day vehicles come out with new power?sucking features, such as onboard computers and entertainment systems. All of these energy?using features are just further examples of how the falling cost of consuming energy has led us to consume ever more of it.

Add it all up, and the vehicle idling beside you on a North American street is probably less efficient than a 1908 Ford Model T.

So much for the great benefits that energy?saving technology has bestowed. From a conservation point of view, the bad news doesn't end there. America's gasoline consumption is not just about average fuel mileage per vehicle. It's also about how many vehicles are on the road. Here, too, we hear the loud echo of the rebound effect.

Improvements in fuel efficiency have allowed more people to drive by lowering the cost of operating a car. Today, there are some 130 million more drivers on the road in the United States than there were in 1970. Over the past decade, the number of vehicles on American roads has grown twice as fast as the pace of household formation. Whereas in the 1970s most American families expected to own a single motor vehicle, today most households have a second car and some even a third.

And not only are there more cars on the roads, we are driving them more. In 1970 0, the average American car was driven only 9,500 miles per year. By the time of the new millennium, it was driven over 12,000 miles.

More cars, bigger cars, driven more. That's what all the improve? in fuel technology have got us. The result is that we are as gasoline dependent today as we were in the midst of the past two oil shocks.

We could have been developing increasingly efficient vehicles all this time. But when oil prices came crashing down in the 1980s, so did the enthusiasm for efficiency. By 1985, the date by which the automakers were meant to reach the 27?miles?per?gallon target mandated ten years earlier by the CAFE legislation, only Chrysler had hit the mark. The others complained that the CAFE standards were too stringent and expensive to comply with. They managed to get the target rolled back to 26 miles per gallon ?not a huge slip, but one that proved hard to recover from. In 1990, the US Senate rejected a bill that would have updated the CAFE standard, raising it by 40 percent. In 2003, the government again failed to tighten the standards. And in any case, the mighty SUV, so essential to the bottom lines in Detroit, was exempt from CAFE.

The result has been a huge rebound not only in miles driven but in the size and power of the vehicles that we drive. Decades after the work of increasing efficiency began in earnest, the American vehicle fleet still consumes about 12 million barrels of oil a day.

FREQUENT FLIERS

What happened on the roads also happened in the skies.

Aircraft engineers managed to squeeze even more efficiency out' of design improvements than their peers in the automobile industry when the price of jet fuel took off in the 1970s. Again, this is what an economist would predict, particularly since the cost of air travel is so fuel?price sensitive. Technology responding to price signals: textbook economics.

Fuel consumption per mile flown has improved by more than 40 percent since 1975. Not only did aircraft manufacturers change engine technology in response to higher fuel prices, but they also modified aircraft design to make it more fuel efficient. In direct response to the OPEC oil shocks, airplane manufacturers started to widen their planes in an effort to reduce the number of flights necessary and hence to cut down on soaring fuel costs. Efficiency measures were out in full force in the airline business. But as we saw with autos, the best?laid plans of corporate planners and engineers were once again stymied by the powerful rebound effect.

What wasn't foreseen was that wider aircraft lowered costs per passenger and in turn led to lower airline prices, which consequently induced an increase in air travel by the public. Instead of lowering fuel consumption by reducing the number of flights, wider aircraft -? through lower operating costs and ticket prices -- led to an increase in the number of flights. The result, Of Course, was an increase in the consumption of aviation fuel.

As in the case of motor vehicles, increases in energy usage quickly outstripped gains in energy efficiency by a ratio of four to one. As technology allowed the cost of flying to fall despite higher fuel costs, more people started to fly. More travelers means more planes in the air; more planes means more jet fuel burned.

Overall fuel consumption in aviation has risen by 150 percent in the United States.

The engineers did their jobs. And their innovations accomplished what they were meant to?namely, allowing us to use energy more efficiently. But in neither case did that efficiency lead to the conservation of any energy. Like James Watt's steam engine or Bressemer's energy?saving steel process for coal use, improvements in the energy efficiency of vehicles and airlines have simply meant more people on the roads and more people in the skies.

THE REBOUND EFFECT AT HOME

The same perverse patterns between improved fuel efficiency and increased fuel usage found throughout the transportation sector can also be found in the average home, where roughly another 20 percent of energy usage in the economy occurs. Improvements in thermal insulation and in the energy efficiency of major household appliances, especially energy?sucking furnaces and air?conditioners, have all helped to make major gains in energy efficiency in the home.

Today, almost every major household appliance in the developed world must meet some minimum energy?efficiency standard. None of those standards existed in the 1970s. Moreover, heating and cooling systems are as much as 30 percent more efficient in their energy usage than comparable systems three decades ago. But have all these efficiency gains actually reduced energy usage in your average American house?

Not even close.

In fact, the opposite is true. As in the case of vehicles, visage has grown much faster than efficiency. Whereas the average air conditioner is 17 percent more efficient than it was in 1990, the number of air?conditioners in American homes is tip 36 percent, as what once was considered a luxury item has become a standard feature across North America. Putting in an efficient air conditioner may mean you use less electricity than you would if you had gone with an energy?sucker but even the most modern unit is still going to use more power than if you had none at all.

Most importantly, look at what's happened to the average size of a North American home. Since 1950, the average American home has grown from 1,000 square feet to almost 2,500 square feet today. That's two and a half times bigger. We are certainly not two and a half times more efficient. Again we can hear the echo of the rebound effect. The average Australian home is about the same size, and homes in Canada and New Zealand are just slightly smaller. (The average home in the UK or Germany is about one?third as big.)

Hence, while efficiency improvements have allowed us to heat, cool and light space much more cheaply than ever before, we now have much more space to heat, cool and light. By supersizing our homes we have consumed all those energy?efficiency gains in the form of ever bigger heating and power requirements. Moreover, we have filled these bigger houses with things that need to be plugged in. Telephones, for example, used to require only the low?voltage current that came out of the phone lack. Now they need to be plugged into a receptacle, along with all the other things that have those little black transformers that proliferate in power bars across the continent. Our cellphone chargers and halogen lighting and a million other little things keep the electricity meter turning even when they are not performing any task. And those are just the small things.

The big things add up even faster. Plasma televisions use as much as four times as much electricity as the old?fashioned models they usually replace. When people in the UK started rushing out to buv new flat?screen TVs in anticipation of the last World Cup of soccer, authorities quickly realized that these sports fans could pose a real problem for the grid: turning on all those plasma screens at the same time would draw 2.5 gigawatts, or the equivalent of the output of two nuclear power stations. Though
Britain did not godark, when a soccer game strains the grid to capacity it's pretty clear that our TVs are not a trivial drain on our power supply. Add in all the Blu?ray plavers, Xboxes, wireless routers, alarm systems and so on, and it is not difficult to see why the' rebound effect is felt so strongly at home.

In, Canada, some people actually install electric driveway heaters to relieve them of the chore of shoveling snow in the winter ?clearly there is a lot of low?hanging fruit when it comes to scaling back our energy use. But we are deceiving ourselves we think that tweaking our lifestyles a little will make them sustainable.

HOW TO BE EFFICIENT WITHOUT CONSUMING MORE ENERGY

In the past the efficiency paradox has been used as an argument against both energy efficiency and conservation. That is certainly not my intention here.

On the contrary, as we face the greatest energy challenge of our times, the need for energy efficiency has never been greater. But at the same time, we must learn from our past experience with the paradox.

If efficiency is to lead to actual conservation, consumers must ultimately be kept from reaping the benefits of those initiatives ill the form of ever greater energy consumption. In short, energy prices can't be allowed to fall, or else history has shown that we will just end up consuming more energy.

We must become more energy efficient without the reward of lower energy prices. Then and only then can efficiency lead to real conservation.

But If I'm not going to be rewarded with cheaper energy prices, why should I bother becoming more energy efficient?

The answer is simple. Energy prices, and in particular oil prices, will go tip that much more and that much faster if we are not efficient. At the end of the day, efficiency can't allow us to consume any more oil than an already flagging world supply curve can offer. The challenge of oil depletion is to consume less energy, plain and simple. But that's an unpalatable option to most of us. Our lives are too dependent on the huge levels of energy that we consume. Instead we resort to rnyths that allow us to pretend that we can circumvent the resource constraint and continue to consume ever greater amounts of energy in our lives.

Energy efficiency is one such head fake. It leads us to believe that improvements in energy use are tantamount to resource conservation. But that is only so in an imaginary world where there is no economic growth. And that's not a world that either you or I would want to live in.

But neither would we want to live in a world where the laws of thermodynamics no longer apply. As you may recall from high school physics class, energy cannot be created or lost. When anyone talks about creating energy, what they really mean is that they have found some new way to use energy. Otherwise they are just plain wrong. A good example of developing a new way to harness energy would be a wind turbine or a solar panel.

A good example of being just plain wrong is corn?based ethanol.