British Columbia’s Premier John Horgan and Finance Minister Carole James announced an outreach plan in mid-June asking BC residents to help determine how to spend $1.5 billion in funds set aside for COVID-19 economic recovery. The government is clear that climate change will be considered in the design of recovery measures to build a strong, resilient economy. What kind of projects could conceivably help build that kind of economy and drive market investments into low-carbon solutions? “Shovel-ready” energy efficiency projects seem to be the top priority in many green stimulus proposals currently being announced in European and North American jurisdictions.
It is easy to see the appeal of increasing investments in energy efficiency. These investments can build on existing government programs while giving back jobs to unemployed energy efficiency workers, support low-income households, and potentially help reduce climate change. These arguments were used back in 2009, when many jurisdictions worldwide implemented energy efficiency programs as part their stimulus packages. A decade later, we have a substantial body of energy-climate policy research suggesting that energy efficiency programs are less effective than previously thought.
This is because new energy efficient technologies are not perfect substitutes to conventional technologies. Many analysts assume that technology investment is a simple function of financial (capital and operating) costs. Academic literature and empirical evidence suggest that besides financial costs, new energy efficient technologies have high behavioural (intangible) costs.
Specifically, these technologies have a higher premature failure rate, making them riskier to adopt than tried-and-true technologies. They also require long payback periods, requiring consumer acceptance of large up-front investments. Breaking a $20 smart LED light bulb is different than breaking a $1 conventional bulb, which is why people tend to buy technologies with lower up-front costs even if they have higher operating costs over time. Further, people do not always see new energy efficient technologies as perfect substitutes for conventional ones due to differences in the level of service, attractiveness, and comfort. Many people do not like the brightness of LED light bulbs in their living rooms and choose conventional bulbs for ambient lighting.
Ignoring intangible technology costs creates an illusion that energy efficiency is profitable — the main argument used in favour of energy efficiency back in 2009. Some researchers integrate financial and intangible costs of new energy-efficient technologies to tell the full story about their likely profitability and effect on GHG emissions. These studies conclude energy efficiency is not “cheap and easy.”
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In cases where energy efficiency is adopted, it often leads to rebound effects: lower operating costs of an energy service (car travel or home heating, for example) stimulate an increased demand, which in turn leads to higher energy consumption and greenhouse gas (GHG) emissions. In other words, energy efficiency does not move us on a rapid decarbonization path. As explained further in a new book by Simon Fraser University’s Mark Jaccard, this is why the fossil fuel industry encourages energy efficiency in gasoline burning vehicles, diesel burning trucks, natural gas and oil home heating, and natural gas burning in industry. Energy efficiency keeps us on the fossil fuel path, and this strategy has been successful for the fossil fuel industry in the last 30 years.
Therefore, any green stimulus should focus on fuel switching. What could that be?
- Investments could be directed towards home retrofits to replace natural gas or oil with electricity and/or wood in near-zero-emission stoves. Fuel switching in existing buildings is expensive and requires stronger senior government support to help reduce the cost burden for substantial GHG abatement.
- Subsidies and regulations could be designed to help and require all condominium and townhouse complexes to install electric vehicle rechargers for each residence. New research by transportation researchers out of Simon Fraser University has shown that home recharging is key for higher electric vehicle adoption, not recharging at work or when shopping. The biggest boost in zero-emission vehicle sales occurs when households have access to home charging infrastructure. The impact of workplace charging is half of that of home charging, according to this research.
- Finally, there may not be much money for government targeted spending on the climate file. So government should keep tightening its existing climate regulations with market flexibility features (for example, credit trading as a compliance option) that stimulate low-carbon market investments. Examples include the BC Low Carbon Fuel Standard, which requires decreasing average carbon intensities of transportation fuels thereby driving biofuel investments; and the BC Zero-Emission Vehicle Mandate, which requires car manufacturers to sell a higher percentage of zero-emission vehicles over time, helping to turn over the vehicle stock, again with fuel switching. These flexible regulations are projected to result in substantial GHG reductions at a moderate cost due to their broad coverage, predictable targets, and credit trading compliance mechanisms. Increasing their coverage, targets, and market compliance options would generate even greater investments into low-carbon technology and fuels and help accelerate the transition to a cleaner economy.
The COVID-19 recovery presents us with an opportunity to build a low-carbon resilient economy. Past experiences and independent research confirm that energy efficiency programs do not result in cheap and easy climate solutions. It is time to focus on fuel switching.
This article is part of the The Coronavirus Pandemic: Canada’s Response special feature.