Economic Opportunities and Rebates
There is considerable press about large improvements in energy efficiency resulting from utilities, and others, providing rebates for the purchase of energy efficient appliances. These rebates are largely mandated by government.
Energy Star appliances, for example, are pushed by Green groups and by the government. Energy Star appliances are more efficient, and paying more for an appliance may be worth the price … though that’s not certain.
Here is how one organization hypes energy efficiency1:
“Utility energy efficiency programs have yielded significant energy and economic benefits to the utility system and to ratepayers.”
But is this accurate?
Utilities have spent millions on rebates, yet I haven’t seen any evaluation on whether this money is well spent. The money used for rebates either comes from the utility, or from its customers in the form of higher rates for electricity. In either case, the money could have been used for other purposes that might have had a greater positive effect on the economy.
The basic question is:
Do rebates promote the purchase of more efficient appliances more effectively than relying on market forces?
This can be answered, at least in part, by examining improvements in energy efficiency from lighting in the residential sector, and then comparing these improvements with all the other improvements achieved from using rebates.
While this analysis isn’t perfect, it does shed light on the value of mandated rebates and the value of government mandates overall.
The analysis is based on a study of residential lighting from 2010 through 2012, and a report on the amount of electricity used for these same years2.
The residential lighting study established the amount of electricity used by Compact Fluorescent Lamps (CFLs) in the average residence, and the amount used for incandescent and other types of lighting, e.g. Halogen.
From this, it can be determined that CFLs resulted in a 20% reduction in the amount of electricity used for residential lighting during this period.
CFLs, however, were an incremental improvement on fluorescent lighting technology that had been in use for half a century. The real revolution in lighting is from Light Emitting Diodes (LEDs), a new lighting technology.
LEDs use half the electricity of CFLs and last for years, not hours. LEDs are flexible in terms of color rendering, in the use of controls and in how they are configured, i.e., single lamps or sheets of LEDs.
The cost of LEDs was initially high, making them unsuitable for most applications. The cost has fallen dramatically, and will continue to fall making them competitive with CFLs, especially when their longer life is considered.
The advent of LEDs will result in continued improvements in energy efficiency, until the residential lighting market becomes saturated.
It can be argued that these improvements in lighting are the result of a revolutionary technology driven by market forces … not energy efficiency programs.
And what has been the effect of rebates?
The Energy Information Administration (EIA) estimated that residential usage accounts for 13% of total electricity consumption.
The EIA reported that the use of electricity for all purposes, between 2010 and 2012, fell by 71,193 Megawatt Hours.
At 13% of total electricity consumption, residential lighting consumed 187,942 Megawatt Hours of electricity in 2010.
The use of CFLs during this period resulted in a 20% reduction in residential usage of electricity, which amounted to 37,588 Megawatt Hours.
Therefore, the use of CFLs resulted in more than half of all improvements in energy efficiency, while all the energy efficient appliances, i.e., washing machines, driers, stoves, microwave ovens, air conditioning units etc. combined, had a smaller effect on improving overall energy efficiency in the residential sector3.
Since most appliances are purchased when they fail, and not because of a rebate, it can be argued that rebates are ineffective and that the money spent on rebates could have been invested in other areas having a greater positive effect on the economy.
While it’s true that the government, by mandating the elimination of incandescent bulbs, forced the adoption of CFLs, it’s also true that LEDs, because of their savings in electricity and long life, would have resulted in the eventual demise of incandescent bulbs without the government mandate.
The end result of the government mandating the elimination of incandescent bulbs was to accelerate the adoption of alternative lighting, with CFLs being an intermediate step that also resulted in considerable mercury being added to landfills.
- American Council for Energy-Efficient Economy, ACEEE
- Department of Energy, Residential Lighting End-Use Consumption Study: Estimation Framework and Initial Estimates, December 2012. And the U.S. Energy Information Administration report, Table 7.6 Electricity End Use.
- 37,588 Mega Watt Hours divided by 71,193 Mega Watt Hours, equals 53%.
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