A national think tank’s critique of energy efficiency standards gains little endorsement in Canada’s green building sector. University of Guelph professor and economist Ross McKitrick argues that regulations to curb greenhouse gas (GHG) emissions should be targeted directly at the source rather than indirectly applied in a way that limits consumer choice and/or boosts product costs.
“Which would be more efficient: to manipulate the purchase decisions over some of the tens of millions of appliances along the vast profusion of power lines in the hope that the influence of all this indirect rule-making would travel back along the network and eventually lead to a small reduction in the amount of smoke coming out of the smokestack, or simply to cap the amount of smoke the fossil-based power plant is allowed to release?” he asks in the report the Fraser Institute released May 28.
In turn, bemused report readers suggest McKitrick’s adherence to the primacy of economic theory subverts pragmatic evidence that conservation is cost-effective and necessary.
“A lot of brainpower went into this report. It’s too bad it wasn’t interested in solving the problem,” says Doug Webber, executive vice president of the engineering consulting firm, Halsall Associates. “I think there are some interesting and valid points in what he’s saying. Meaningful caps would be the most effective measure a regulator could implement, but the end result would be the same. Caps would necessitate conservation because there is just no other way to do it.”
McKitrick cites the principle of targeting, which holds that the most efficient form of regulatory intervention is a single rule applied directly to the variable a government is seeking to control. This incorporates the cost of compliance into the commodity itself and gives consumers leeway to adjust their behaviour accordingly.
He categorizes various energy and environmental policies and programs — including prohibition of incandescent lighting, appliance and fuel standards, and incentives to support renewable sources of electricity — as secondary variables that inflate costs and add tangential outcomes to the equation. “The problems inherent in indirect targeting are not resolved by changing the policy rationale to a vaguer notion like ‘energy efficiency’,” McKitrick maintains.
Market needs a nudge toward improved energy management
Non-economists point to inherent problems in trying to apply the principle of targeting in the real world.
“Theoretically, we could just have a carbon tax instead of efficiency regulations, but that doesn’t acknowledge that carbon tax is politically unpalatable,” observes Michael Lithgow, an independent energy management consultant. “And the carbon tax would have to be substantial in the absence of efficiency regs to overcome the huge market inertia — that is, the tendency for energy consumers and their consultants, contractors and service providers to keep doing what they’ve always done unless there is a compelling reason to change.”
Proponents of energy efficiency likewise stress that there is nothing vague about it. Demand reduction is real and quantifiable, as are the economic benefits of avoiding or delaying investment in additional generating capacity. Meanwhile, few real estate industry insiders express dissatisfaction with appliance standards or regret that incandescent lighting has been forced out of the market. Steadily falling prices for more energy-efficient compact fluorescent (CFL) and LED alternatives have notably muted claims of financial burden.
“CFLs came down from a price of about $15 to $2 relatively quickly and they use about a quarter of the power,” notes Bob Bach, co-chair of Ontario’s Building Code Conservation Advisory Committee. “In the bigger picture, it’s incredibly short sighted to think we can go on using electricity at the same rate or, in fact, a greater rate because of the growing population. We have to get this under control.”
“Lighting is a product which has delivered some of the most dramatic improvements in performance,” Webber concurs. “With LEDs, you can now get the same quality of light as an incandescent bulb with 80 per cent less power. Why wouldn’t we want to push the market in that direction?”
Initiatives to reduce greenhouse gas emissions
McKitrick downplays the merits of conservation to address GHG emissions, asserting that “Canadians now get most of their electricity from non-emitting sources like nuclear and hydro.” This is true as a straightforward percentage of supply, as Environment Canada’s emissions statistics attest, but electricity nevertheless accounted for 86 megatonnes or 12 per cent of national GHG emissions in the most recently reported year, 2012.
Energy management specialists further note that his proposed alternatives for addressing carbon output — which include the example of Alberta’s $15 per tonne offset levy for designated emitters and carbon sequestration — are more speculative than real.
“Carbon sequestration is the only potential silver bullet, but it’s not viable,” Webber says. “There is nobody sequestering carbon as a way of saving money, but there are a lot of people installing LEDs as a way of saving.”
Others foresee that effective carbon pricing, as Ontario’s pending cap-and-trade system may demonstrate, will come with more complications than McKitrick suggests. To successfully reduce GHG emissions, decision makers will have to ensure the caps are effective, fairly applied, regularly reviewed and revised as necessary to stay on target — commitments potentially subject to political whim.
Ontario’s existing emissions trading registry for nitrogen oxide and sulphur dioxide offers an example. “Trading has not occurred at the pace originally projected, and without the political will that launched the initiative,” Bach submits.
“So far, attempts at credit and trading schemes have been a complete failure in terms of reducing GHG emissions in North America and Europe. The only thing that has worked has been carbon taxes, and the carbon price needs to be set well above $15 per tonne to affect behaviour,” says Mark Winfield, a professor at York University’s Faculty of Environmental Studies. “British Columbia’s is $30 and good economic modelling puts the figure at $50 to $100 per tonne, or higher, to achieve meaningful impacts.”
The principle of targeting is, as McKitrick reiterates, “a basic and simple rule”, which Winfield calls too simple to work on its own.
“These are complex issues that require the application of a range of different instruments to achieve effective outcomes,” he asserts. “For example, California’s highly efficient and cost-effective approach employs a combination of codes and standards, pricing tools, information, education and outreach.”
Barbara Carss is editor-in-chief of Canadian Property Management and Building Strategies & Sustainability