A Well-Publicized and Misguided Energy Efficiency Critique

A recent study out of the University of Chicago questioning the cost-effectiveness of home energy efficiency programs captured the imagination of the press last week.

Much of the coverage, unfortunately, was only marginally informed.

The study itself was narrow but the accompanying policy brief and press statements generalized to a much broader conclusion, saying that its core finding misses the larger energy efficiency story. The review, which analyzed the performance of the federally funded low-income Weatherization Assistance Program in Michigan, concluded that the program overstates the savings it produces.

What the study failed to mention is that the federal Weatherization Assistance Program has wider effects than the authors acknowledge and that the program is a drop in the bucket when it comes to the variety and scale of energy efficiency programs across the country. The American Council for an Energy Efficient Economy estimates, for instance, that natural gas and electric utilities spent more than $7.7 billion on energy efficiency programs in 2013 alone. By comparison, the Weatherization Assistance Program’s 2013 budget was $132 million, less than 2 percent of that larger amount. What the University of Chicago researchers looked at was but a tiny sliver of the national energy efficiency picture.

And while the Chicago study states that the scope and scale of the program it examined were “dramatically increased” by money from the American Recovery and Reinvestment Act of 2009, it fails to note that budget support for the program immediately and precipitously fell off as soon as funding from that law ran out.

Utilities and state government programs throughout the U.S. have been offering a wide range of energy efficiency programs that include mark-downs on the price of energy efficient products, rebates for more efficient industrial motors and processing equipment, home energy audits and much more.

And as any utility or consumer advocate will attest, energy efficiency programs targeting low-income customers are typically among the least cost-effective—but have the greatest positive impact on poor households. As the Chicago study notes, weatherization on houses occupied by low-income families often has to be spent on structural fixes before actual energy efficiency upgrades can be made, and the Weatherization Assistance Program includes safety improvements like smoke-detector installation and gas-leak repairs.

THE POLICY BRIEF ACCOMPANYING THE CHICAGO STUDY ONLY MAGNIFIES THE IMPRESSION THE RESEARCHERS CONVEY IN THEIR PAPER, suggesting that energy efficiency programs be judged solely on their rate of return per dollar invested. A Wall Street Journal article on the Chicago research goes so far as to compare the rate of return of the Weatherization Assistance Program to those that can be made in the stock market or real estate.

In the real world of energy efficiency, the more valuable question to explore is not about absolute returns on efficiency investments, but how those returns they stack up against investments in power generation. This is the very question that utilities, regulators and advocates are pressing more and more these days. Is it cheaper to invest in programs that save energy than to build new power plants?

The answer is almost always “yes,” and if you factor in the cost of carbon-dioxide emissions from coal- and natural-gas-fired power plants, the case for energy efficiency is beyond dispute.

Cathy Kunkel is an IEEFA fellow.