OTTAWA - Efforts to reduce global warming through technological innovations that improve fuel efficiency may be doomed and could even make the situation worse, says a new report.
The paper by CIBC World Market economists Jeff Rubin and Benjamin Tal (TSX:CM) suggest the Canadian government's efforts to reduce greenhouse emissions through intensity targets likely won't work because the more you make more efficient use of a commodity, the cheaper you make it and increase its usage.
"We're not saying don't become more efficient, what we're saying is don't count on it to solve your (global warming) problems," said Tal.
"The implication is that intensity targets won't work, that you need to have absolute targets."
That's because of a perverse "rebound effect" noticed by energy economist Daniel Khazzoom following the OPEC oil shocks, which postulates that the greater the efficiency with which a natural resource is used, the greater the demand for its usage.
For instance, the paper notes, following the advent of the James Watt steam engine, coal consumption dropped briefly but increased tenfold between 1830 and 1860. And the breakthrough fuel-saving Bessemer process for steel production led to a surge in steel production and consequent increase in the usage of fuel.
A modern day example is governments' attempt to promote and even compel greater energy efficiency in the transportation and residential sectors, efforts that have worked in realizing efficiency gains 50 per cent faster than the pace in the rest of the economy.
Perhaps predictably, energy usage in these sectors has risen faster than in the rest of the economy and carbon dioxide emissions have increased by 40 per cent, twice the rate of the rest of the economy.
"In short, energy usage has risen fastest where energy efficiency gains have been the greatest," the paper says.
"American drivers consumed all the gains in fuel efficiency by driving more and driving larger vehicles. But the story does not end there. Improvements in fuel economy have allowed more people to drive cars," with the number of cars on the road in the U.S. outstripping population gains.
In households, another major consumer of energy, devices like refrigerators and air conditioning have become more efficient - but there has also been a corresponding increase in the number of refrigerators in use as more families added a second refrigerator, and the number of households with air conditioning rose.
"Across a wide spectrum, there seems ample evidence to debunk the notion that energy-saving technology reduces energy consumption," the paper concludes. "Instead, energy consumption has grown steadily as efficiency improvements have steadily lowered the cost of consuming energy."
Rubin and Tal argue that while it may not totally resolve the problem, the only effective way to ensure that gains in energy efficiency do not make matters worse is to ensure consumers don't get lower prices.
The best way to do that, they say, is by putting a price on carbon through a carbon trading system that penalizes energy usage and rewards those that reduce energy consumption, rather than merely efficiency.
"The moment you put a price on carbon, people will use less of it," said Tal.
