There’s an old joke about an economist who goes for a walk with his 8-year-old son. The boy sees a $20 bill on the ground, shrieks with joy, and bends over to pick it up. The economist stops him and says, “Son, that’s not real money. If it were, someone would have taken it by now.”
Likewise with our nation’s energy policy. Decision-makers generally assume there’s no way to mitigate global warming while simultaneously cutting energy prices. After all, if companies that generate power could somehow save money by being good to the planet, they would already be doing it, right?
Wrong. Our national energy system is actually highly inefficient. In fact, for every unit of energy that’s produced, two units are thrown away — usually in the form of waste heat that power plants just vent into the atmosphere.
That’s why Congress is considering a measure that would improve the efficiency of how power is generated. The result would be reduced demand on our electric grid, leading to a cleaner environment and more money in our pockets.
The legislation being advanced by Edward Markey (D-Mass.) and Henry Waxman (D-Calif.) would include a new energy efficiency resource standard mandating that by 2020, utilities would have to cut the demand for electricity by 15 percent and for natural gas by 10 percent. Sexy? Not in the slightest. But this measure would save consumers an estimated $168 billion — no small chunk of change. Meanwhile, carbon dioxide emissions would fall by 262 million tons, which is like taking 50 million cars off the road for a year.
The bill would also encourage the use of “energy recycling” — a technique that captures waste heat that manufacturers and power plants spew on a daily basis and converts it into clean power and steam. The environmental potential here is massive, as studies suggest such efforts could reduce our country’s global warming pollution by 20 percent. Meanwhile, costs for consumers would fall due to the increased efficiency of our energy system.
So back to the concerns of our hypothetical economist: If the potential for such cost savings really existed, why haven’t our oh-so-efficient markets already snatched them up? The answer is simple: Our energy market isn’t really efficient.
Due to local and state regulations, most utilities enjoy guaranteed profits based partly on how much power they sell. Moreover, these monopolies are usually allowed — nay, required — to pass all operating costs on to consumers. That means the utilities have very little incentive to be efficient. And consumers pay the price, financially and environmentally.
For this reason, efficiency measures like the ones in the Markey-Waxman bill are essential to improving our energy system. By requiring that utilities improve their efficiency, the federal government can circumvent local rules that distort the market and, metaphorically speaking, leave $20 bills lying on the sidewalk.
In short, we can get something from nothing.
