The government policy of reducing U.S. energy consumption by improving the efficiency of individual homes isn't working because the policy costs more than it saves, according to a recent article in the Wall Street Journal.
Educators at the University of Chicago and the University of California at Berkeley recently studied the issue using a randomized control trial to evaluate home improvements made under the federal Weatherization Assistance Program. The program sponsors energy-related home improvements, and President Obama has recently proposed using the same program to convert homes heated by oil and propane to natural gas heat.
The premise of weatherization assistance is that reducing household energy consumption is a societal good and that the government should "nudge" customers to implement energy conservation measures. The study, led by the University of Chicago's Michael Greenstone and Berkeley's Meredith Fowlie and Catherine Wolfram, found that energy savings were much lower than anticipated, with a return of only $2,400 on a typical government subsidy of $5,000. "The authors put the annual return at minus 2.2 percent over 16 years, much worse than the historical returns on bonds or stocks," the article states.
Consumers "may not be irrational when they pass up such investments: The programs simply aren't as beneficial as their promoters think," the article states.
The cost to society of an emitted ton of carbon has been placed at $38 by the Obama administration, but it costs the Weatherization Assistance Program $329 just to eliminate one ton of carbon emissions, which means the program "flunks the cost-benefit test by a wide margin," the Journal wrote.
Greenstone says the study raises questions about other energy initiative programs whose anticipated savings are based on projections rather than on field evidence. Climate change policies shouldn't be exempt from standard analytical tools, he said. "We need to develop a playbook of different approaches, and rank them based on cost per ton," he said.
To read the Wall Street Journal article, click here.