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To Improve Productivity, Improve Energy Policy

by Skip Laitner • January 3, 2011 @ 10:14 am

The year 2010 closed on a somber note that reminds us how important it is to turn the nation’s energy policy around in 2011.

It appears that U.S. energy intensity increased in 2010 for the first time since 1991. According to the latest data, the economy will have grown about 2.7% last year, but energy use will have increased by about 3.0%. The reason appears to be a hugely lagging investment in 2009 and 2010 (running at levels last seen in about 1998 and 1999), and a 19 percent increase in cooling degree days last year which forced the nation’s utilities to run flat out on some very inefficient generating units. Of course, these are preliminary estimates but the general pattern is likely to hold. And that does not bode well for the U.S. economy.

At the same time, the evidence continues to emerge that we will need to at least double our historic rate of energy efficiency improvement over the next several decades if we are to ensure a more robust and productive economy. This becomes all the more apparent as we note, based on research by Ayres and Warr, that our overall level of energy efficiency hovers at a rather anemic 13%.  The obvious implication? We waste 87% of all the energy that is used to support economic activity within the United States, and that level of waste constrains our overall productivity.

The good news is that there are huge cost-effective opportunities to increase our efficiency and to restore a greater level of robustness to the economy. More critically, the evidence also suggests this can be done despite a likely rebound effect. I might note in this last regard that, in all of our nation’s history, we have never really tried to simultaneously increase our productive capacity in ways that also allow us to reduce our total energy use. It is a daunting task to be sure, but we have the capacity to get it done - if we choose to develop those opportunities.

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