Five Percent: Conserve Energy

Climate Change Is Important: Energy Conservation is the First Step


October 15, 2005

Measuring Energy Consumption

Category: 5%'s Top 10 List,Editorial,Observations,Take Actions – Tom Harrison – 10:12 am

In my first few posts, I have used statements like “2x less” or “a lot less” and other kind of non-specific measures. So if we’re really going to claim a 5% decrease in consumption, we need a way to measure this. Measuring is not terribly easy, though.

The simplest way would be to focus on our main energy bills. In addition to a dollar cost, they measure usage such as therms of gas, kilowatts of electricity and so on. But then there’s the car — I use Quicken to keep track of my expenses, and almost always use a credit card to buy gasoline these days, but here I can only measure cost. I could measure miles driven. I think this part has to be as simple as possible, and for that reason, I think measuring total dollars spent is best.

But measuring dollars on energy costs has several problems. The most obvious is that this year, my natural gas cost is expected to be about 50% more than last year because of shortages; likewise gasoline and electricity costs are certainly higher. I would have to save 7-1/2% just to stay even!

A more subtle problem is that these bills fail to capture costs in two specific ways:

  1. Almost all goods and services require energy to produce and deliver, and
  2. The energy costs we pay don’t reflect the complete costs of that energy.

These two items represent important concepts that I think we need to keep in mind when thinking about our energy usage: many things we buy have hidden energy costs, and we often pay nothing for other energy costs, which economists refer to as externalities.

Hidden Costs

Hidden costs are pretty straightforward. I wrote about How to Rationalize a Widescreen TV making a claim that my new LCD TV was better than our old Tube TV because it used less energy.

But think of what was required to get the TV into my living room. An LCD panel was created, probably in China or Korea. A large factory makes big sheets of glass. Many people are employed there. They have to commute to work and eat food. The body of the TV is made of plastic which is made with oil. The completed product is put in a box with big Styrofoam protective blocks. The box is sent thousands of miles on a cargo ship running diesel fuel, then put in a number of trucks until it got to the retailer. The retailer heated or cooled their space. I picked up the TV and drove it home (in my Prius, at least :-), and the trash guys put the Styrofoam and cardboard on the recycle truck. There are a lot more, of course.

Now my particular TV wasn’t responsible for all of any of these hidden costs, but my demand for the product resulted in an extra “marginal” expense that had all these effects. But how much of the $1,000 I spent on the TV was related to energy costs?

One answer is all of it!

It is possible to make the argument that production and consumption are, in effect, the use of energy. With small exceptions, everything we do uses energy … even eating (you have to grow and transport the food). Wow, heavy, dude.

But while accounting for hidden costs is an interesting and important thing to think about, I just don’t think it’s really practical for our simple mission of reducing energy use by 5%.

Externalities

I studied economics in college in 1984. You might have heard of Milton Friedman who proposed a pretty radical view of economics which is that the free market would take care of almost everything — get the government out of subsides, stop paying so much tax for roads and let private companies built them and so on, get rid of welfare, don’t build public housing, and on and on. In brief, the invisible hand of free markets would do a better and more efficient job because nearly all of costs were “internalized” by the business that produced the goods or services. It sounds ridiculous when over-simplified, but much of the argument was tenable, and indeed many of the notions are now proven and part of our overall public policy. Friedman’s thesis was radical, and failed to account for things like fairness, humanity and other pesky details; it’s far from a “liberal” or “progressive” viewpoint.

But even the radical Milton Friedman recognized that free markets do not account for all costs, and that there is a role for government through taxation, such that external costs that are not included in the cost of consumption, or externalities, are added to the cost that the consumer pays, through extra taxes.

The classic example of an externality is pollution. My car drives along and spews out some bad stuff into the air. The accumulated effect of this from all cars, trucks, factories, houses, airplanes and so on creates costs, such as health problems, global warming, smog and so on. But for the most part, the cost to us is nothing — we have no incentive to reduce our consumption. Milton Friedman says we should “internalize externalities” by adding consumption taxes. We pay tax on gasoline when we buy it … but this tax goes for maintaining roads, for the most part. This is indeed and example of internalizing externalities, but not the externality of pollution.

But there are many other costs, and then there’s the fact that we provide a lot of subsidies to our energy producers to keep overall costs low. Read Far From Free-Market Prices for Gasoline for a sobering assessment of the total cost of a gallon of gas, which they conclude should be as much as $15/gallon. This is a little too far for me, and another report which I cannot find at the moment suggests a more moderate additional $4.00 per gallon at today’s prices (currently around $2.75/gallon here in Massachusetts).

But that’s a lot of fuzzy math for my simple problem.

Conclusion: how do we measure energy consumption?

Well, this is all damnably difficult and complicated. So I’m back to just adding up your main energy bills. Maybe we can find a good way to deal with all these complications – perhaps a monthly “X Factor” that will help add and subtract from the costs we actually pay to reflect something more stable.

If our goal is to save 5%, we don’t need to know the real costs, we just need a way of setting a base and adjusting it as needed to account for changes that are not really in our direct control. More on that after some research.

Until then, it’s off to Quicken to see if I can figure out what our bills were by month last year.

1 Comment

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