Energy efficiency regulations have little impact on saving energy, helping the environment or reducing dependency on foreign oil, finds a new CIBC World Markets report

Efficiency paradox: Americans pour cost-savings into more and bigger


Nov 27, 2007, 00:00 ET from CIBC World Markets

    NEW YORK, Nov. 27 /PRNewswire-FirstCall/ - CIBC (CM: TSX; NYSE) -
 Energy-efficiency initiatives and regulations do little to cut energy use
 and often end up increasing consumption, finds a new report from CIBC World
     "While seemingly perverse, improvements in energy efficiency result in
 more of the good being consumed - not less," says Jeff Rubin, the Chief
 Economist and Chief Strategist at CIBC World Markets. He finds an
 efficiency paradox where consumers have taken the cost-savings gained
 through greater efficiency and turned around and spent those savings on
 more and bigger energy-guzzling products.
     Mr. Rubin notes that with the depletion of conventional oil supply
 becoming more and more evident and concerns growing over greenhouse gas
 emissions, energy-efficiency regulations have been widely viewed as the
 answer. Efficiency gains play a prominent role in most government plans to
 manage energy consumption, including the latest U.S. Energy Act. But his
 work finds that these programs are compounding rather than solving the
     "The problem is that energy efficiency is not the final objective
 -reducing energy consumption must be the final objective to both the
 challenges of conventional oil depletion and to greenhouse gas emissions,"
 he adds. "Despite the huge gains in energy efficiency, that is simply not
 happening. Instead, energy consumption is growing by ever increasing
     The report finds that while energy use per unit of U.S. GDP has fallen
 by almost 50 per cent since 1975, total energy usage in the U.S. economy
 has risen by more than 40 per cent in the same period. Most government
 efforts to promote greater energy efficiency have been targeted at the
 transportation and residential sectors which together account for half of
 total energy consumption in the American economy.
     "While these initiatives have largely been successful at promoting
 large increases in energy efficiency - almost double the pace in the rest
 of the economy - overall energy usage in the transportation and residential
 sectors has risen faster than in the rest of the economy," says Mr. Rubin.
 "In short, energy usage has risen fastest where energy efficiency gains
 have been the greatest."
     The situation is the same for carbon emissions where emissions from the
 transportation and residential sectors have risen by 40 per cent, double
 the pace of emission growth in the rest of the economy over the last
     The report notes that the transportation sector is one of the best
 examples of the efficiency paradox. The sector accounts for almost 30 per
 cent of end-use energy consumption and accounts for 70 per cent of oil
 consumption in the form of gasoline, diesel and jet fuel. The sector has
 seen steady and substantial improvements in energy efficiency since the
 OPEC oil shocks.
     Since 1980, average mileage per gallon has improved by nearly 30 per
 cent but these gains have not translated into actual savings in the amount
 of oil consumed. American drivers consumed all of the gains in fuel
 efficiency by driving more and by driving larger vehicles. In 1970, the
 average American car was driven 9,500 miles a year, today it is driven over
 12,000 miles a year.
     "While initially the pursuit of fuel economy in North American led to
 the replacement of gas-guzzling eight cylinder full size cars with four
 cylinder sub-compacts, over time steady improvements in fuel economy
 encouraged Americans to drive larger and larger vehicles," notes Mr. Rubin.
     "The number of light trucks, which include SUVs, vans and pick-ups, has
 risen 45 per cent between 1995-2005 - nine times faster than passenger
 cars. In fact, light trucks accounted for more than 80 percent of total new
 vehicle registrations since the early 1980s, making itself without
 question, the vehicle of choice for your standard American family. On
 average, light trucks have 25 percent worse fuel economy than the standard
     But Mr. Rubin found the story does not end there. Improvements in fuel
 economy have allowed more people to drive cars. Today there are 130 million
 more vehicles on the road in America than there was in 1970. Over the past
 decade, the number of cars on American roads grew at twice the pace of
 household formation. Improved fuel efficiency that has brought down the
 operating cost of running a vehicle has encouraged more and more American
 households to own more than one.
     The same patterns between improved efficiency and growing usage found
 in the transportation sector are also amply in evidence in the residential
 sector, which accounts for roughly 20 per cent of all energy usage in the
 American economy. Improvements in thermal insulation and in the energy
 efficiency of major appliances including furnaces and air conditioners have
 all contributed to major gains in energy efficiency over the last three
 decades. Virtually every major household appliance in the U.S. must now
 meet some minimum energy efficiency standard.
     But these efficiency gains have also been swallowed up by large
 increases in usage - most noticeably by air conditioning and heating
 systems. The energy efficiency of air conditioning systems has risen 17
 percent since 1990 but during the same time the number of air conditioning
 units has risen by 36 percent. The key reason why usage has grown so much
 faster than efficiency is the never ending trend toward larger and larger
 American homes with larger and larger heating and cooling requirements.
 Since 1950, the average American home has grown from 1000 square feet to
 almost 2500 square feet. And the trend to ever larger houses continues.
 Today, almost one third of all new homes in the U.S. are over 2500 square
     Over the last 15 years the energy efficiency of refrigerators has
 improved by just under 10 percent but the number of refrigerators is up 20
 percent, due largely to the increased frequency of a second refrigerator in
 the home. Add to that, the ever increasing number of power consuming
 appliances like computers found in today's standard American home and the
 trend toward rising, not falling, energy usage per household is very clear.
     Mr. Rubin believes that a world facing the twin challenges of oil
 depletion and global climate change has never had a greater need for energy
 efficiency but feels that the scope of current initiatives will not see
 this achieved.
     "In order for efficiency to actually curb energy usage, as opposed to
 energy intensity, consumers must be kept from reaping the benefits of those
 initiatives in ever-greater energy consumption. Otherwise, energy usage
 will be the beneficiary of our best efforts towards greater energy
     The complete CIBC World Markets report is available at:
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 markets in North America and around the world. We provide innovative
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SOURCE CIBC World Markets