Hillary’s Energy Policy
Well, one part of it at least. I don’t know what prompted me to go look at her plan, but I did. One thing that struck as a bit…well ignorant was this part,
An aggressive comprehensive energy efficiency agenda to reduce electricity consumption 20 percent from projected levels by 2020 by changing the way utilities do business, catalyzing a green building industry, enacting strict appliance efficiency standards, and phasing out incandescent light bulbs;
The italicized part struck me as just plain ignorant of how the utility industry works. Utilities don’t really care how much people use, at least when it comes to electricity. Most utilities are regulated monopolies. As such, they don’t have to worry too much about marketing…at least their overall product. Sure maybe marketing different rates or rate options, but not for electricity. You either buy from the utility or…you don’t get electricity.
Further, as a regulated monopoly, the utility is guaranteed recouping any expenditures that are deemed “reasonable”. And if in the past the entity regulating the utility approved expenditures for transmission or distribution systems, then by definition those expenditures are “reasonable”. So even if you manage to get the utility to reduce the amount of electricity that they generate, transmit and distribute the utility will still recover its costs. Further, the utilities rate of return is also set by the regulatory process as well. About the only way a utility would be bothered by this would be in the long term as its “rate base” shrinks meaning that its revenues will shrink and so will its profits.
However, there isn’t much there for Hillary’s plan either. You see, utilities are generally required by law to provide service to customers who want it. That is, if a customer says, “Screw Hillary, I’m going to increase my consumption by 20% by 2020!” There really isn’t a goddamn thing the utility can do. The utility could cut off the power, but then it would be breaking the law, so that isn’t going to happen.
And the rest of the plan is just dopey as well. While it might result in lower consumption, Hillary and her advisers seem to have forgotten about Jevon’s Paradox.
In economics, the Jevons Paradox is an observation made by William Stanley Jevons, that as technological improvements increase the efficiency with which a resource is used, total consumption of that resource may increase, rather than decrease.
The explanation is simple and one that would probably gall Senator Clinton to no end given her antipathy towards the market mechanism. As something is used less, the price declines. A decrease in price means that people consume more. Thus, the new consumption due to lower prices could offset the savings due to technological efficiencies.
Now it isn’t certain that electricity usage would have to increase (ceteris paribus), but getting a 20% decrease from projected levels in about a decade is almost surely not going to happen.