Memorandum by A Power for Good Ltd
1. The Government's belief that increases
in the efficiency of energy use will necessarily lead to reductions
in energy consumption is fundamentally flawed.
2. Increasing the efficiency of energy use
is a continuing process. It comes from advances in technology
driven by the economic pressure to use any resource to the maximum
advantage. Improved appliances or processes which perform a given
task with a lower consumption of energy will displace earlier
methods as soon as the financial gains in energy saved are judged
to outweigh the replacement cost. The reductions in operational
cost obtained in this way can then be expected to be invested
in an increased output leading to a greater energy usage or spent
in other ways which necessarily require some energy consumption.
This was pointed out by the Victorian economist W Stanley Jevons
in his classic work, The Coal Question first published
in 1865.
"It is wholly a confusion of ideas to suppose
that the economical use of fuel is equivalent to diminished consumption.
The very contrary is the truth . . . It is the very economy of
its use which leads to its extensive consumption. It has been
so in the past and it will be so in the future."
And he gives an example
"Now, if the quantity of coal used in a
blast furnace, for instance, be diminished in comparison with
the yield, the profits of the trade will increase, new capital
will be attracted, the price of pig-iron will fall, but the demand
for it will increase: and eventually, the greater number of furnaces
will more than make up for the diminished consumption of each.
And if such is not always the result within a single branch, it
must be remembered that the progress of any branch of manufacture
excites a new activity in most other branches, and leads indirectly,
if not directly, to increased inroads upon our seams of coal .
. . It is the very economy of the use of coal (energy) that makes
our industry what it is, and the more we render it efficient and
economical, the more will our industry thrive, and our works of
civilisation grow."
SAVED BUT
NOT SPARED
3. Any increase in the efficiency of energy
use is always a desirable economic aim. It is now a part of the
Government energy policy. As Jevons correctly points out,
"There is hardly a single use of fuel in
which a little care, ingenuity, or expenditure of capital may
not make a considerable saving."
But he goes on to draw the conclusion
"No one must suppose that the coal (energy)
thus saved is spared—it is only saved from one use to be
employed in others, and the profits gained soon lead to extended
employment in many new forms."
4. To the extent that deliberate energy
efficiency promotion measures are successful they will in effect
lower the real price of energy. This can only increase the consumption
of energy as energy is substituted for other things eg labour;
or as the lower energy costs attracts new consumers, or as the
income released by cheaper energy is spent on other energy-consuming
items.
5. A present example can be taken from the
Government calls to improve the efficiency of the domestic use
of energy. To the extent that, for instance, improved home insulation
will lead to reduced heating bills it would be equivalent to a
reduction in the energy cost. If the money thus saved were to
be spent on increasing the level of heating, there would be no
net reduction in energy use; the energy saved being used to provide
a greater level of comfort. If however the savings were put towards
a family holiday in the West Indies, or funding some other energy
extravagant use, the improved insulation, while desirable and
economically sensible, could lead to a greater, not lesser consumption
of energy.
6. The same process can be seen in road
transport. As the energy efficiency of cars has been improved
with more miles per gallon, the oil consumption for road transport
has shown a larger increase with an even greater increase in the
number of motor vehicles on the road. The gain in efficiency of
energy use is outweighed not only by the increased use of fuel
but by the energy used in the manufacture of the new cars and
at a further stage by the now increased expenditure and economic
activity of those employed in the motor industry.
7. The increased efficiency of energy use
will always lead to financial savings. Saving energy saves money.
Spending this money will promote economic growth and capital investment.
All monetary expenditure, all economic activity, attracts some
energy expenditure which will inevitably lead to a higher, not
lower energy demand.
8. Energy prices are expected to continue
to rise, as an ever-increasing world demand faces suggestions
that world oil production may be nearing a peak and, for the UK,
the actual decline of North Sea oil and gas output. Higher energy
prices whether through the market or by a carbon tax on fossil
fuels would restrict consumption. Increasing energy efficiency,
by reducing the cost of energy usage, will offset the restrictions
that higher energy prices would bring and enable economic growth
with its concomitant energy consumption to continue. The promotion
of energy efficiency measures as a means of achieving a 10 per
cent reduction in carbon dioxide emissions by 2010 as hoped for
in the Energy White Paper is a dangerous illusion in that it not
only diverts attention from other more positive means of cutting
carbon emissions but ensures that these emissions will continue
to increase.
MEASURING ENERGY
EFFICIENCY
9. There is no simple way of measuring the
overall effects of energy efficiency on the national energy consumption.
The commonly used reduction in final energy use per unit of gross
domestic product—the energy/GDP ratio—which shows
a marked fall in the UK over recent years is misleading as it
will be influenced by a change in either factor. There are at
least two changes which have occurred over the past 20 or so years
which would reduce the energy component:
— a significant change in the structure
of the economy with a decline in heavy industry, steel and other
metals, heavy engineering, shipbuilding, coal mining, etc, and
a rise in the commercial services sector which use less energy
per unit of GDP earned.
— product changes within some industrial
sectors with a concentration on more specialised products of higher
added value with a lower energy content: pharmaceuticals and fine
chemicals rather than basic chemicals, electronics instead of
heavy electrical engineering and the adoption of computer controlled
techniques in manufacture, and the computerisation of commerce.
and at least three which would increase the
GDP component:
— to the extent that increases in energy
price, driven by the oil price rise, lead to a rise in price for
the goods and services provided to the customer this will appear
as an increase in GDP.
— the production of North Sea gas and
oil which is landed "free" of any energy cost makes
a substantial contribution to an increase of GDP. Now however
that the North Sea output has begun a slow decline this will,
in future, have a diminishing effect.
— The increasing share of final energy
use taken by electricity would also increase GDP since electricity
is a higher value commodity than coal, oil, or gas.
10. It is then not surprising that over
the period 1980-2000 although the energy/GDP ratio has fallen
by 44 per cent the actual energy consumption in the UK has risen
by 14 per cent. If GDP is measured by purchasing power parity,
which gives a more realistic assessment, the growth of GDP over
this period is only about twice the energy consumption growth
11. Improving the efficiency with which
primary energy is used either directly or in the generation of
electricity is always a desirable economic aim and in so far as
it leads to a more efficient use of fossil fuels it will reduce—for
that process or application—the unavoidable emissions of
carbon dioxide but it is an error to suppose that for the economy
as a whole this will lead to lower rather than higher energy consumption.
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