With Efficiency, We Need Price Hikes, Not Cuts

If the goal of an efficiency program is to curtail the amount of resource consumed, then we need to provide both the means to curtail - the tools for the job - and the incentive: a price hike. It's counterintuitive to raise prices in this economy, but by using a tax to raise the price to change behavior, we can help ourselves. 

The NY Times lead editorial today, the day before the Inauguration Day, or COE Day 1 (Common Obama Era), highlights the importance of efficiency. 

The plain truth is that the United States is an inefficient user of energy. For each dollar of economic product, the United States spews more carbon dioxide into the atmosphere than 75 of 107 countries tracked in the indicators of the International Energy Agency. Those doing better include not only cutting-edge nations like Japan but low-tech countries like Thailand and Mexico.

True, energy efficiency has improved, especially in states like California. But American drivers, households and businesses still use more energy than those in most other rich countries to do the same thing. The United States spends more energy to produce a ton of cement clinker than Canada, Mexico and even China. It is one of the most energy-intensive makers of pulp and paper, emitting more than three times as much carbon dioxide per ton as Brazil and twice as much as South Korea.

Per-capita carbon dioxide emissions by households in the United States and Canada are the highest in the world — in part because of bigger homes. And the energy efficiency of electricity production from fossil fuels is lower in the United States than in most rich countries and some poor ones, mainly because of the higher share of coal in the mix.

It wasn't always this way. Gradually over the course of two generations, we got SuperSized - we were sold a bill of goods by our leaders. The illusion of improvement was that our lives were getting better as our waistlines expanded. By getting more, we thought we were doing better. The logic is thus: if one is good, two is better, and ten is great. But it doesn't work that way in reality - there is a law of declining returns at work. Somewhere along the way, we passed a line and the curve of improvement started to work against us. 

If efficiency programs only serve to make things cheaper, then efficiency will work against us. We have been trained to consume more and we need to learn a new way of consuming. We must work with what we have, and what we have is a nation that consumes based on price signals. So, if we need to consume lot less - and we do - then efficiency programs must be accompanied by mechanisms to keep prices high and use taxes to fund other structural improvements that will take us where we need to go. 

Right now, we are without money to consume and we are taking advantage of liquidation sales and distressed retailers. As that wave passes, we need to shift to getting used to having less. We've had bigger challenges, after all. We can do it.