Economic efficiency versus energy efficiency

A recent industry conference featured CEOs of several electronic OEMs discussing business conditions. Surprisingly, most of these gentlemen said their level of activity in 2009 wasn't what you'd call off-the-cliff bad. In fact, a few of them claimed the year had finished on a strong note.

But one quip in particular got chuckles from the crowd: “The only ones who had a really disappointing 2009 were those who were waiting for government stimulus funds to get their businesses moving.”

There's some truth in this wisecrack. Promises made about both state and federal stimulus funds have been either broken or sabotaged. The poster child for broken promises on the federal level were stimulus funds targeting renewable energy. They were built into carbon cap-and-trade legislation that was never signed into law. As it became clear that cap-and-trade was going nowhere, renewable energy provisions slowly got added back into other bills winding their way through the law-making process, but only in pieces and parts.

Funding from individual states has had similar hurdles. The problem there is one of state governments' grabbing funds targeting energy issues and using them to plug budget shortfalls. That is the case with New Jersey, where the governor wants to direct $20 million of clean energy money, on top of the $286 million in such funds already whisked away for the 2010 budget.

New Jersey isn't an exception. In Connecticut, revenues from surcharges on electric and gas bills have been yanked from the state's energy efficiency and clean energy funds. And last year, Illinois took $1 million from its energy efficiency trust fund and another $2 million from its alternate fuels fund.

The uncertainty makes it hard for companies to plan ahead and tap government funding. And even when energy efficiency legislation gets funded, its effects aren't all positive. At least according to economists from the University of Delaware who analyzed “clunkernomics,” the practice of giving rebates for retiring old cars and appliances. They figured that the Cash for Clunkers program yielded net societal losses averaging more than $1,000 per clunker traded in. That figure even included the benefits to the environment from replacing gas guzzlers with cleaner burning, fuel-efficient cars. The program consumed $3 billion to get about 700,000 clunkers off the road, bringing the total net loss to $825 million.

Of course, one justification for clunkernomics is to create jobs. But even on that score, it makes no sense, say the economists. When all was said and done, the value of resources used exceeded the value of resources created. Better, they say, to choose projects that employ workers but also are net positives for the economy.

The cash-for-appliances program now in force fares no better in this kind of analysis. The researchers looked at refrigerators specifically and figured the net loss to society was $6 per refrigerator, even counting $9 per unit in environmental benefits.

One other insight from the study: Rebates smack of markets run by politicians and political influence rather than by consumers and their preferences. We might add that measures promoting energy efficiency at the expense of economic efficiency and growth do no one any favors.

World's Smartest Design Engineer Update

Congratulations to Mathew Rosauer from SKF (aka Automation Boy) on being the World's Smartest Design Engineer of March 2010. His skills at answering increasingly difficult level questions in eight different categories won him these bragging rights for the month along with a $250 Amazon Gift Card. If you haven't registered yet, don't delay. You still have time to enter for a chance at this month's prize of a $250 Best Buy Gift Card. Challenge a coworker to a game at lunch, test your knowledge, have some fun and see who's smarter!

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