In a response to a New York Times ‘Room for Debate’ forum on energy efficiency, Cato Institute scholar Peter Van Doren argues that energy efficiency standards are problematic, and that the most effective way to reduce fossil fuel use is to tax fossil fuels to increase their price.
Van Doren writes “if fossil fuel combustion produces byproducts that cause negative health effects on third parties as well as changes in the temperature of the atmosphere, the obvious lesson from economics is to increase fossil fuel prices enough through taxation to account for these effects. Then firms and consumers will react to these prices in thousands of different ways, the net result of which is less aggregate fossil fuel combustion.”
Regarding energy efficiency standards, Van Doren argues that they offer two significant drawbacks.
“First, more efficient appliances and automobiles cost much more to achieve equivalent energy savings than a tax on fossil fuel consumption. This occurs because higher prices encourage all possible avenues of reducing energy consumption — which efficiency standards do not. Second, more efficient appliances and automobiles reduce operating costs, which leads consumers to use more energy than they would if prices had increased.
“Why are efficiency standards so popular? They put the blame and the need to “fix things” on corporations rather than on individuals, who vote. They also create invisible rather than explicit costs. Finally, they allow corporations and other interest groups like unions to shape the regulations to their advantage, whereas taxes on fossil fuel consumption are harder to avoid.”
Do you agree with Mr. Van Doren’s argument? Are energy efficiency standards, as commonly conceived, problematic? Is taxation more efficient than efficiency?