Does Energy Efficiency Save Energy?

What if it turned out that although energy regulations have made our cars and houses burn energy more efficiently, we don't use less energy because the money we save, leads us to drive more, build bigger houses, and let our appliances (e.g., hot tubs) run all the time? A disturbing thought, but that's the tentative conclusion of the environmental economist, Arik Levinson, who teaches at Georgetown and, for a time, was a senior economist for environmental issues with the Council of Economic Advisors under the Obama Administration. Here's the abstract from his current working paper on the topic (emphasis added):

Construction codes that regulate the energy efficiency of new buildings have been a centerpiece of US environmental policy for 40 years. California enacted the nation’s first energy building codes in 1978, and they were projected to reduce residential energy use—and associated pollution—by 80 percent. How effective have the building codes been? I take three approaches to answering that question. First, I compare current electricity use by California homes of different vintages constructed under different standards, controlling for home size, local weather, and tenant characteristics. Second, I examine how electricity in California homes varies with outdoor temperatures for buildings of different vintages. And third, I compare electricity use for buildings of different vintages in California, which has stringent building energy codes, to electricity use for buildings of different vintages in other states. All three approaches yield the same answer: there is no evidence that homes constructed since California instituted its building energy codes use less electricity today than homes built before the codes came into effect.

Levinson is currently circulating the paper, and some folks are quite critical of it. Nevertheless, if he is right, then environmental policy may need to change. In particular, Levinson argues that the most "efficient" way to reduce our carbon emissions is to raise the cost of emitting them. In other words, tax them. As anyone who pays attention to the political scene, however, in the current environment raising taxes is political suicide.

Levinson's study, the debate surrounding it, and its potential implications is the subject of the most recent Freakonomics podcast ("How Efficient is Energy Efficiency"), which can be downloaded from iTunes or listened to at the Freakonomics website. This one is well worth it, but you need to listen to it all the way through because not only is the summary of his study interesting but so is the discussion about the interplay of economic and political policy.