November 28, 2007

Energy efficiency regulations have little impact, says new CIBC World Markets report

New York, New York – A new report from CIBC World Markets says that energy-efficiency initiatives and regulations do little to cut energy use and often end up increasing consumption, with little impact on helping the environment or reducing dependency on foreign oil.

“While seemingly perverse, improvements in energy efficiency result in more of the good being consumed, not less,” said Jeff Rubin, Chief Economist and Strategist at CIBC World Markets. He said he finds an “efficiency paradox” where consumers have taken the cost savings gained through greater efficiency, and spent the savings on more and bigger energy-guzzling products. “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. Despite the huge gains in energy efficiency, that is simply not happening. Instead, energy consumption is growing by ever-increasing amounts.”

The report finds that while energy use per unit of U.S. gross domestic product (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,” Rubin said. “In short, energy usage has risen faster when energy efficiency gains have been the greatest.”

The report notes that the transportation sector account for almost 30 per cent of end-use energy consumption and 70 per cent of oil consumption in the form of gasoline, diesel and jet fuel. Since 1980, average miles 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 larger vehicles. In 1970, the average American car was driven 9,500 miles (15,288 km); today, it is driven over 12,000 miles (19,312 km) per year. There are also 130 million more vehicles on American roads than there were in 1970.

“While initially the pursuit of fuel economy in North America led to the replacement of gas-guzzling eight-cylinder full-size cars with four-cylinder subcompacts, over time, steady improvements in fuel economy encouraged Americans to drive larger and larger vehicles,” Rubin said. “The number of light trucks, which include SUVs, vans and pickups, has risen 45 per cent between 1995 (and) 2005, nine times faster than passenger cars. In fact, light trucks accounted for more than 80 per cent 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 per cent worse fuel economy than the standard car.”

Connect with