Economics of energy efficiency
I read a review of a couple of economic investigations into the bounce that you get if you reduce the fuel needed to heat a house or travel a mile by car. The bounce is the increase in use driven by the reduced price to keep the temperature or drive a mile. As you might expect, the bounce is not large - typically a person will spend 10% of their cash saving on the resource concerned (for an ‘average person’, if she saves 50% on fuel because her car’s more efficient, she’ll drive an extra 5%. That’s ok - a net saving of 45%. However, researchers in Sweden found that the rest of the saving was mostly spent on even more carbon intensive activities than driving, or living in a house; increasing the net carbon footprint!
It seems that the way to reduce global warming is to tax the carbon dioxide produced, rather than just subsidise efficiency.
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