Greening Demand: Energy Consumption and U.S. Climate Policy

Article excerpt

ABSTRACT

The search for greener, less polluting energy supplies has dominated discussions of U.S. climate change strategy, but we often overlook cheaper and faster greenhouse gas emissions reductions achievable through energy efficiency and conservation. In this article, I outline a decade-long "greening demand" agenda to reduce the amount of energy consumed in the United States. The federal government should aim to reduce U.S. energy consumption by fifteen percent by 2016 and twenty percent by 2020 to achieve needed reductions in greenhouse gas emissions.

While the United States has achieved notable efficiency gains since the 1970s, several market failures and other barriers continue to serve as obstacles to energy savings. These include principal-agent divergence, high implicit discount rates used in decision making on efficiency upgrades, and outmoded forms of utility regulation. I demonstrate how a greening demand agenda, centered on price signals, performance standards, informational tools, and changes in utility regulation can be used to overcome these barriers. Many of the challenges are technical and scientific, but law will play a central role in structuring incentives and shaping national markets for efficiency innovations. I conclude with some thoughts on the technical and political feasibility of greening demand.

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In the heat of the presidential campaign in the summer of 2008, when gasoline sold for over $4.00 a gallon, Americans changed their driving and car buying habits. SUV sales plummeted. (1) Amtrak ridership was up. (2) For a brief time, we had a glimpse of the transformation in consumer behavior that could occur in response to higher energy prices. By the time President Obama was inaugurated in January 2009, however, gasoline was selling below $1.70 a gallon-a remarkable, unexpected decline in retail gas prices of more than fifty percent in just six months.

Price volatility is just one of many barriers to achieving long-term reductions in energy use in the United States (3)--reductions that are now essential for addressing climate change and improving energy security. Except for moments of public attention to energy consumption, as in the late 1970s and the summer of 2008, the United States has focused primarily on finding (or militarily defending) sources of energy supply. From the synfuel research program of the Carter Administration to today's interest in new offshore drilling and ethanol subsidies," we are constantly looking for new cats to chase the speedy mouse of American energy demand.

We can no longer afford, however, to view rising energy demand as an exogenous variable--an unquestioned "given" of American life that drives policy decisions on supply. With urgent concerns about climate change and energy security, greening demand now needs to become the cornerstone of U.S. energy and environmental policy. By "greening demand," I mean reducing total annual U.S. energy consumption, particularly from fossil fuels. (5) To green demand, government and the private sector need to promote both energy-efficient technologies, which can produce the same work with fewer energy inputs, and conservation, which means consumers and firms must use energy less intensively. (6)

The objective of a greening demand agenda under the Obama Administration should be a fifteen percent reduction in total U.S. energy consumption by 2016 and a twenty percent reduction by 2020. These objectives are consistent with needed forty percent reductions in U.S. greenhouse gas emissions by 2030, (7) and with President Obama's campaign pledge to reduce U.S. greenhouse gas emissions to 1990 levels by 2020. (8) Achieving any substantial reduction in greenhouse gas emissions in the near-term depends critically on greening demand. Emissions reductions of fifteen percent or more within ten years are unlikely to occur solely through greening supply, such as changing the mix of energy sources in the United States. …

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