“If it sounds too good to be true, it probably is.” This adage applies to the something-for-nothing claim of government energy planners who concoct costly solutions to imagined problems. Their solution to alleged “market failure” does not account for the elephant in the room, government failure.
Energy efficiency is a particularly fertile ground for public-policy coercionists and intellectual illusionists who reject self-interested (market-driven) conservation in favor of government-engineered conservationism. The latter is championed by Stephen Chu, Secretary of the U.S. Department of Energy, who went public earlier this summer with the conclusion of a forthcoming energy-efficiency study he coauthored. “You really can have your cake and eat it, too,” Chu said, adding:
You get higher performance. You get lower cost. And you’re saving tons of money. And by tons of money, I mean the cost of ownership going down threefold, fourfold. [It's] really dramatic.
But are energy savings this easy and transparent? If so, why haven’t self-interested businesses and individuals grabbed the hundred dollar bills floating down around them? Is it really a case of market failure—or another instance of the smartest guys in the political room substituting their nostrums on the (dumb) rest of us?
And remember: increased energy efficiency does not translate into less energy usage overall, as explained by Robert Michaels in his new study, Energy Efficiency and Climate Policy: The Rebound Dilemma, summarized here.
Chu’s Guru: Amory Lovins
Lovins burst on the scene in 1976 (the era of government-created energy shortages) with a Foreign Affairs essay, “Energy Strategy: The Road Not Taken?” The then 29-year-old the term soft energy paths to differentiate energy conservation and decentralized renewable technology from the “hard” path of central-station power plants fueled by oil, gas, coal, or uranium.
Lovins’s case was romantic with something-for-everyone packaging. As the new darling of the Carter Administration testified before a U.S. congressional subcommittee:
A final feature of the soft energy path … is that it helps to avoid conflict between constituencies by offering advantages to all of them; jobs for the unemployed, capital for businesspeople, environmental protection for conservationists, increased national security for the military, opportunities for small business to innovate and for big business to recycle itself, savings for consumers, world order and equity for globalists, energy independence for isolationists, exciting technologies for the secular, a rebirth of spiritual values for the religious, radical reforms for the young, traditional virtues for the old, civil rights for liberals and states’ rights for conservatives.
Lovins’s messaging would veer to intemperate statements such as “we could advantageously be running this country with no central power stations at all,” and “we could eliminate oil imports if we would stop living in sieves and stop driving petrol pigs.” But simplistic, romantic hypotheses were the norm. Lovins is fond of stating, for example, how “saving the climate for fun and profit” would naturally result since “saving fuel costs less than buying fuel.”
Energy Reality: Market Conservation
Economists have long recognized industrial efficiency as market-driven, not government-engineered. Resource economist Erich Zimmermann noted back in 1933:
Today the conservation movement is led by sober business men and is based on the cold calculations of the engineers. Conservation, no longer viewed as a political issue, has become a business proposition…. The old school looked on conservation as a governmental function; the new school believes in entrusting it to the hands of business men and engineers.
Resource economist Pierre Desrochers has recently emphasized how “the interplay of voluntary exchange, private property rights, and self-interest has generally resulted in the so-called triple bottom line (economic, social, and environmental) through more efficient use of materials and the continual creation of higher quality resources.”
The theory and history of improving efficiency in capitalist business under profit/loss needs little defense. The statistics of getting more from less speak for themselves.
Taxpayers and consumers should be wary of energy coercionists promising easy answers to hypothetical problems. Natural incentives in a free market encourage getting more from less. And “less” in this case means more energy usage overall, which puts the whole conservationist crusade in doubt.
As David Owen explained in the New York Times, the Lovins-Chu view is simplistic and wrong because society uses the wealth of energy savings to consume more energy. The so-called rebound effect, first presented by W. S. Jevons in 1865, explains why increasing energy efficiency has been accompanied by more overall usage.
Chu, like Lovins, is “selling a dream without presenting the bill” when it comes to systemic free-lunch efficiency that is above-and-beyond the free market. Even assuming their smarts are creating free lunches, energy demand can be expected to increase in the aggregate.
When it comes to energy demand, less is really more.
 Lovins, quoted in Robert Bradley, Jr. Capitalism at Work: Business, Government, and Energy (Salem: M&M Scrivener Press, 2009), p. 251.
 Desrochers. “The Environmental Responsibility of Business is to Increase Its Profits (by creating value within the bounds of private property rights).” Industrial and Corporate Change, vol. 19, no 1 (February 2010), p. 161.
 The free-lunch energy-efficiency model of Enron Energy Services, which was praised at the time by energy conservationism proponents, was both flawed and fraudulent.