Market Forces

Trying to put the rebound effect for energy efficiency in its rightful place is like playing a game of wack-a-mole. Predictably every couple of years, someone new discovers the counter-intuitive appeal of showing how more efficient energy policies may lead to more energy use. Wham! Told you there’s something wrong with those clean-car standards. Well, not so fast.

Yes, the rebound effect is real. But it’s also small. And what’s there is actually positive! Why shouldn’t people who can now afford to due to more efficient energy technologies be able to improve their lives?

Together with three co-authors (Ken Gillingham at Yale, Dave Rapson at University of California, Davis, and Matt Kotchen, currently on leave from Yale to serve as Deputy Assistant Secretary for Environment and Energy at the U.S. Treasury), I surveyed a bajillion+1 energy efficiency rebound studies. Nature then made us cut down those references to 6. We settled at 9.

We couldn’t find a single study that has the rebound be above 100% or anything close to it, what’s necessary to nix energy efficiency savings. The maximum number you can get is 60%, and that’s already quite a stretch. Think 30% as the upper bound for actual behavioral responses. Yes, we are more efficient today than we were a hundred years ago, and we also use more energy today. But that’s far from talking about the rebound effect. It’s simply economic growth.

Establishing a causal link between efficiency and energy use isn’t quite as simple. In the end, the rebound effect comes in four forms. Buy a more fuel-efficient car, and driving that next mile just became cheaper. The result: a bit more driving, to the tune of 5 to a maximum of 30%, although most likely much closer to 5-10% of the initial fuel savings. Then there’s the indirect effect: Drivers may now use some of the savings to buy other products that consume energy.

You can already see that we can’t just add these two effects. If you spend some of the gas money on driving more, you have less to spend on that plane ticket, and vice versa.

Then there are two macroeconomic effects: one via the price and one via technological advances. They are the trickiest to pin down and could, in theory, be the largest. But theory lends a helping hand in getting an upper bound: the basic demand-and-supply relationship tells us that the macroeconomic price effect can’t be more than 100%.

And once again, all these effects aren’t anywhere near that threshold. 60% is as high as it gets for the combined effect, and only in rare circumstances. For the most part, it’s much closer to 5 to perhaps 30%.

So where does that leave us?

When designing energy efficiency policies like clean-car standards, consider the rebound effect, much like the government already does. The Department of Energy’s model uses a highly appropriate 10% rebound figure for the car standards. And that’s about it. Not much else to see here.

If you did want to take it a step further — full disclosure: a step I couldn’t convince my three co-authors to take in the Nature piece itself — everything else equal, the existence of the rebound effect may prompt us to use even stricter energy efficiency standards. If you have an overall target in mind, and the rebound effect shaves off a bit, you ought to consider using a slightly stricter target to get back to where you wanted to be.

For more, check out the full Nature piece. Well worth the $32 to put the rebound effect in its rightful place once and for all.

This blog was originally posted on EDF’s Climate 411 blog.

Yet another study is confirming what we’ve known for quite some time — the benefits of EPA’s clean air rules vastly outweigh the costs.

An analysis from the Economic Policy Institute (EPI) reinforces what other studies have told us time and time again: clean air is a great economic investment.

Unfortunately, that fact is often lost in the unfounded attacks on EPA that have gotten so much attention lately, in the media and even in Congress.

EPI’s analysis examines the combined effect of EPA rules that have already been finalized under the Obama Administration, as well as those currently in the proposal stage. It finds that:

The dollar value of the benefits of the major rules finalized or proposed by the EPA so far during the Obama administration exceeds the rules’ costs by an exceptionally wide margin. Health benefits in terms of lives saved and illnesses avoided will be enormous.

Of course, the most important benefits of clean air are those related to human health. Just three of these rules (Cross-State Air Pollution (CSAPR), Mercury and Air Toxics, and Boiler MACT) are estimated to save up to 57,500 lives a year.

Those lives saved, plus illnesses avoided and other environmental improvements translate to enormous economic benefits:

• Setting aside CSAPR, the combined annual benefits from all final major rules exceed their costs by $10 billion to $95 billion a year. The estimated benefit-to-cost ratios for those final rules range from 2-to-1 to 20-to-1.
• The net benefits from CSAPR range from $112 billion to $289 billion a year.
• The combined annual benefits from three major proposed rules exceed their costs by $62 billion to $188 billion a year. The estimated benefit-to-cost ratios for those proposed rules range from 6-to-1 to 15-to-1

The results are even more striking in chart form:

(For more details on EPI’s analysis, see our new fact sheet.)

EPI has also shown, in a previous analysis, that EPA clean air rules can also have a positive impact on overall employment – including 28,000 to 158,000 jobs from the Mercury and Air Toxics rule for power plants alone.

In fact, Josh Bivens of EPI recently testified before the U.S. House of Representatives on the Mercury and Air Toxics rule for power plants. He said:

Calls to delay implementation of the rule based on vague appeals to wider economic weakness have the case entirely backward – there is no better time than now, from a job-creation perspective, to move forward with these rules.

It’s time for everyone – and especially Congress — to recognize that EPA rules are not only good for our health, but also our economy.

For more on how cleaner air can save lives, improve health, and help our economy, see the following previous EDF blog posts:  “Thank You, EPA,” “The Clean Air Act Amendments: Good for Our Health AND Our Economy,” and “Newsflash: Clean Air Act saves lives, boosts GDP.”

This blog was originally posted on EDF’s Energy Exchange blog.

Oil and gas exploration and production is rapidly expanding across the U.S. due to technological developments that have made extraction of previously untapped unconventional resources such as shale gas feasible.

In fact, shale gas production “has gone from a negligible amount just a few years ago to being almost 30% of total U.S. natural gas production.”

But national clean air standards covering these activities have not been updated since 1985 in one case and 1999 in another. They are limited, inadequate, and out of date, particularly given recent technological advances in this area.

This poses a serious problem, since exploration and production activities emit numerous hazardous air pollutants and other airborne contaminants that threaten human health and the environment. Communities across the country are paying the price, suffering from air pollution in the absence of protective, comprehensive standards.

In July, the Environmental Protection Agency (EPA) proposed new nationwide safeguards to reduce air pollution from upstream oil and gas production activities. Recently, the public was given a chance to express their opinions on the issue at three hearings held in Pittsburgh, Pennsylvania, Denver, Colorado, and Arlington, Texas. EDF testified at all three. (Public written comments will be accepted through November 30^th and EPA is required to issue a final rule by February 2012. You can submit comments online, via fax or through the mail. In your correspondence, please be sure to reference Docket Number EPA–HQ–OAR–2010–0505; FRL–9456–2.)

I testified at the EPA hearing in Pittsburgh where compelling concerns were raised by many in the communities hard hit by air pollution impacts. People in communities across Pennsylvania expressed concern that adequate protection from dangerous pollution in their home state is simply not in place. Some pleaded with the EPA to finalize new standards, others expressed anger that EPA has not done so already, and many fear that the new standards won’t be tough enough to keep their families safe.

The individual who testified before me declared that when it comes to our health and that of our children, the costs of cleaning up harmful pollution should not factor into EPA’s decision-making. He got a standing ovation.

Of course, the hearing also featured industry representatives, some of whom echoed the position of the American Petroleum Institute (API) calling for more time to comment on the proposed standards and to delay their implementation.

Yet, the truth is that the proposed EPA rules will standardize many practices and technologies already being used in states such as Colorado and Wyoming, and elsewhere by natural gas companies. Further, these practices and technologies reduce gas losses, which results in greater recovery and sale of natural gas, and thus increased economic gains. The return on the initial investment for many of these practices is sometimes as short as a few months and almost always less than two years. In these tough economic times, it would seem wise to eliminate waste, save money, and reduce environmental impact.

Based on EPA estimates of natural gas losses, industry lost more than $1 billion in profits in 2009 due to venting, flaring and fugitive emissions. The U.S. Government Accountability Office (GAO), with supporting data from EPA, estimates that around 40% of natural gas estimated to be vented and flared on onshore federal leases could be economically captured with currently available control technologies. Recouping these losses could increase federal royalty payments by $23 million annually, at a time when revenue is desperately needed.

The industry can demonstrate their commitment to bringing natural gas to market in an environmentally sound way by using best practices, acknowledging the benefits of these safeguards, and being proactive in helping them get adopted.

And, while EPA’s proposed rules are a great start, there is room for improvement (for more details, see EDF’s preliminary analysis of the regulations). Bottom line: it is critical that stronger clean air standards move forward. They are vitally important to protect human health and the environment.

At the EPA hearing in Pittsburgh, the public demanded that EPA require industry to be more vigilant about health and safety, and reduce their environmental impact. Considering the potential increased revenue of capturing more gas, advocating for strong clean air rules makes both dollars and “sense.”

Given that EPA is in the midst of finalizing some of the most critical regulation protecting American human health from poisonous air pollution, one might think that a simple “thank you” might be in order.

Instead, EPA is facing unfounded attacks from several angles – one of the most egregious from Steve Milloy in a recent Washington Times op-ed in which he asked the agency to “show him the bodies” of victims of air pollution.

The evidence linking air pollution to adverse human health impacts including mortality is substantial.  Recently, Michael Livermore, executive director of the Institute for Policy Integrity at New York University School of Law, released an excellent response that easily rips Milloy’s arguments to shreds:

“Questioning these health concerns means countering a substantial body of empirical health studies, conducted both by federal agencies and by independent researchers. These studies, which have been subjected to the scrutiny of the peer review process, have come to a set of well-supported conclusions about the relationship between particulate matter and mortality …”

Livermore points to specific research, including that of the National Research Council (reviewed by a range of independent bodies) and other peer-reviewed studies that back up the EPA’s analysis.

Lynn Goldman, Dean and Professor at the George Washington University School of Public Health and Health Services and a member of EDF’s Board of Trustees, also responded to Milloy’s baseless assertions in a recent Letter to the Editor in the Washington Times:

“As a research scientist, I know that volumes of medical science document the harm air pollution does to the human body, and that the scientific community has concluded air pollution causes disease and death …”

She refers to the family members who can actually point to the bodies of loved ones who “dropped dead from a heart attack after breathing too much air on a Code Red day” and to the children she has treated as a pediatrician suffering from asthma attacks. And the problem of air pollution is widespread — according to the American Lung Association, about half of all Americans live in areas with unhealthy levels of ozone or particulate matter.

Similar to Milloy, Texas Republican Rep. Joe Barton has also questioned the science behind EPA’s analyses, but additionally questioned their economic assessment of the value of the benefits resulting from EPA’s regulation.  Referring to the monetized value of avoiding premature death from air pollution, Barton said that he doesn’t trust EPA’s assumptions and wants someone to check them.

In fact, EPA’s assumption about the value of avoiding premature death (known as the Value of a Statistical Life, or VSL) represents the most credible, scientifically sound, and peer-reviewed figure available.  The VSL measures how much people are willing to pay for small reductions in the risk of mortality, and is often estimated by looking at how much you have to pay someone to take a more dangerous job.  The EPA uses an average value across 26 studies estimating the VSL published between 1974 and 1991 – a value of $6.3 million (in 2000 dollars) that has been vetted and endorsed by the Science Advisory Board (SAB).

Although the idea of placing a value on human life can be controversial, the main thing to remember is that regulations reducing harmful air pollution will save lives, and it is crucial that these benefits are captured when undertaking economic analyses – EPA’s methodology for doing so is based on years of careful, peer-reviewed study, and its credibility is widely acknowledged.

As New York University researcher, Scott Holladay, pointed out in a recent blog post, “what the EPA is able to value, it does in the most rigorous, academically defensible manner.”

The conclusion is that cleaner air will save lives, improve the health of Americans across the country, and is a great investment for our economy – thank you, EPA.

For more on how cleaner air can save lives, improve health, and help our economy, see the Moms Clean Air Force website and a previous EDF blog post on the overwhelming benefits of the Clean Air Act Amendments.