Thursday, June 28, 2007

Cheap ways to reduce greenhouse emissions

An interesting article in The Economist last month took a look at the cost of various options for reducing greenhouse emissions (summarised in the graph above).

Two things are particularly notable:

  • There are a number of options that have a negative cost. In other words, not only would they reduce emissions, they’d also save us money. The biggest one is insulation and low-energy lighting is also up there.
  • The solutions we hear a lot about – such as wind, solar and carbon capture – are among the most expensive options.

So why are we not voluntarily making decisions that would not only reduce emissions but also save us money?

The Economist identifies a couple of possible reasons, the most compelling to my mind is that the people who make the choices are not the people who pay the costs of those decisions. For example, property developers have to pay for insulation but they won’t get the benefits of lower electricity bills, so their incentive is to go cheap on insulation. If the property is to be rented out, it’s not even the buyer who pay those bills – it’s a tenant.

How to solve this? In theory, awareness of the issue should be enough: if tenants and buyers of new houses (or other buildings) are aware that good insulation can save them substantial amounts of money, they should demand it and be prepared to pay more for it – in the same way they’d be prepared to pay more for a good bathroom or kitchen.

So why isn't this happening? And seeing as it doesn’t seem to be happening, is there a role for government in mandating it in building standards or requiring developers and sellers to at lease provide understandable information (eg, energy efficiency ratings)?

[HT: RSMG Blog]


Bianca Nogrady said...

Hi davo
I was gobsmacked to see how cost-effective and efficient it is to just improve housing insulation, and can testify to it first hand. We just had all our windows double-glazed and the difference it has made is extremely tangible, so I'm sure that will translate into reduced heating bills. I absolutely believe it should be mandated for new homes to have double-glazing and proper insulation, just as it is for us to install water tanks. It's lunacy not to.ciafrav

Verdurous said...


It would seem that the answer lies in the fact that people are often irrational. Renters (I was one for a long time) don't factor in every variable. Sometimes they are uncertain how long they will live in a place. Other times they fall in love with the view or the kitchen makeover. But energy efficiency would rarely seem to be on the "check list" for renters.

Clearly the market needs guidance (from government) here because it fails to act in a fashion that simple economic theories might suggest it should. Perhaps, carbon pricing is the answer in the end. Expensive electricity will surely change people's priorities.

Eilleen said...

I think the problem is that the benefits of energy efficiency can only be reaped in the long term. And most people prefer the quick profit. Our consumerist culture has led us to expect instant gratification. So a benefit that can only be reaped 3 or 4 months down the track (and sometimes more) is often a lower priority than those benefits that can be reaped now.

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