Friday, August 07, 2009

Conservation vs Efficiency

In a short article on the economics of conservation Steven McDougall made a few cogent remarks about the likelihood of success for conservation practices in reducing fossil fuel consumption in particular and energy consumption in general. His definition of conservation is voluntary reduction in energy use, such as turning off lights or using fewer disposable products. He clearly and concisely lays out the economic consequences of conserving earth’s resources against the backdrop of partisan politics in the U.S.

Although McDougall is not opposed to conservation as an energy policy, McDougall’s case suggests conservation is not likely to solve our energy and environmental problems vis-à-vis fossil fuel consumption. The problem lies primarily in the weakness of economic mechanisms available to encourage or enforce conservation - publicity campaigns, quotas, taxes.

Consequently, it may be that efficiency measures may be a more effective approach to reducing fossil fuel consumption and therefore harmful emissions. Take for example improved combustion engines that use less fuel whether it is coal, oil or renewable fuel. Such an engine would by definition be part of a conservation program, but does not require any change in human behavior. Said engine could continue to provide even the most rapacious amongst us with the same social or personal gratification as the older fuel-hungry version. This eliminates the need to publicity campaigns.

Enforcement? Simply stop allowing the manufacturers to put the older inefficient models on the market. This approach should now be sounding quite familiar as it is the very approach taken by regulators to remove gas-hungry, polluting passenger and commercial vehicles from the highways. We would probably be much further down that highway to lower fuel consumption and reduced emissions if there were not so many loopholes in the regulations that allow automotive manufacturers to continue putting inefficient cars into dealerships.

The automotive experience notwithstanding, I argue that efforts to create efficiency in the way we use fuel and energy must become a more visible option to reach economic sustainability. Investors should look more carefully at how companies are working toward efficiency in their operations. Of course, there are a number of companies offering exciting new products aimed at creating efficiency in energy use. Look for a few names in the next posts.

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