ENERGY FOR A SUSTAINABLE WORLD - World Resources Institute

energy performance targets. Such targets help
protect—among others—those energy users
who are stuck with energy-using equipment
purchased by builders or landlords. They also
give manufacturers signals, clearer and steadier
than those of fluctuating prices, that energy efficiency
matters to both consumers and society
as a whole.
In some cases, such targets offer major social
benefits that market forces alone cannot bring
about. For example, compare the private and
the social benefits of improving automotive fuel
Consumers would not be any better or
worse off with cars of higher fuel
economy, but society would be much
better off.
economy. With today's technology, the fuel
economy of automobiles could be improved
from the current global average of 18 mpg (13
liters per 100 kilometers) to 80 mpg (3 lhk) or
better. (See Chapter IV.) Although the total cost
per mile or kilometer of owning and operating
a car declines rapidly with improved fuel
economy up to about 30 mpg (8 lhk), it remains
roughly constant at higher fuel economies.
(See Figure 26.) The consumer has no incentive
to seek fuel economies better than
about 30 mpg (8 lhk) because savings owing to
reduced fuel requirements are just about offset
by the higher first costs for fuel economy improvements
and because at high fuel economy
levels, fuel accounts for such a small fraction of
the total cost of owning and operating a car. In
other words, consumers would not be any
worse off with cars of higher fuel economy,
but they wouldn't be any better off either.
In contrast, society would be much better off
if consumers had more efficient cars. If oil imports
were lower, the world oil price would
probably be lower too. In addition, the world
would likely be more secure, with a smaller
likelihood of conflict over access to Middle East
oil. The prospect of generating such enormous
social benefits without burdening the consumer
provides a powerful rationale for public sector
intervention to promote high fuel economy in
cars.
Various policy instruments could be used to
bring about market shifts to high-efficiency
products. Energy performance might be regulated
to promote high automotive fuel economy
or high-efficiency appliances. Taxes might accomplish
much of the same goal; for example,
devices performing worse than the average for
new devices of their kind might be taxed at the
time of purchase, with the penalty increasing
in proportion to expected extra life-cycle energy
requirements. Utilities might be required to
offer rebates to customers who buy household
appliances that are more efficient than the
average for new appliances, with the rebates
increasing proportionally with the expected
energy savings. To the extent that such rebates
allow a utility to defer investments in more
costly new energy supplies, the consumer, the
utility, and all the utility's rate-payers would
benefit. A growing number of U.S. utilities
offer such rebates for certain appliances.
Stabilizing Consumer Oil Prices. The market
cannot be relied on for regulating the world oil
price. The world oil market has been characterized
by wildly fluctuating prices with alternating
periods of shortage and glut. (See Figure
1.) The onset of a glut following each price
shock gives investors the misleading impression
that the oil crisis is over and encourages
increased oil consumption, setting the stage for
still another shock. Moreover, the periods of
oversupply, as we have seen in the mid-1980s,
diminish the sense of urgency needed to induce
oil importers to reduce their long-run
vulnerability to supply disruptions. In general,
uncertainties about future oil prices discourage
investments in energy efficiency.
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