Another thing that people don't appreciate is that these conservation projects require (in addition to money) another resource that is in short supply, human time and initiative. I only have the time and mental energy to deal with so many things that "I really should do" in my life.

In my house (an average size house in CA, with 3 people), my electricity bill is ~$20-25. I've done the simple stuff, like buying an efficient washer and using flourescent light bulbs. I'm probably not going to do any more though. In fact, the only reason I've done as much as I did is because I have a personal interest (or hobby) in energy issues. It was more piece of mind, and being able to say "I did my part" on the conservation side. The money savings issue alone never would have been enough.

The fact is that a power bill of $20-25 is a negligible amount compared to our income of over $100,000. My new (efficient) washer says that it will have an energy cost of $8/year!! You can't expect people to lift a finger to save a handful of dollars (a fraction of 1% of their income) by reducing their energy use. Not when they have so many other much more important things that demand their attention. The fact is that energy costs almost nothing, and people won't try hard to conserve it until it costs more. Case in point, the SUV craze.

An analogy can be made to the Fed trying to stimulate the economy by making interest almost free. The fact is that, while high interest rates can restrain expenditures, low interest rates can not necessarily cause people to spend if they are not otherwise inclined to so so. A phrase associated with this effect is that "you can pull on a string, but you can't push on one".

The fact that many conservation measures make economic sense, despite the extremely low cost of power, is akin to "pushing a string". If energy just doesn't cost enough to be important, people won't make the effort to persue these measures, no matter how low their economic cost. High energy prices, on the other hand, are analagous to "pulling on the string", and/or high interest rates slowing down the economy. Energy has to cost enough to be a significant expense for people before they will look into saving it, period. And the fact is that energy costs, as a fraction of income, are quite low compared to most of our history.

There are other issues as well that limit conservation efforts. One is that often people rent and pay the utilities, so the landlord has no incentive to spend money on efficiency measures. The conservation economics calculations will never accout for this. People are also, unfortunately, often short-sighted, and focus only on the initial cost of an applicance, as opposed to the total eventual cost (although some of this might be logical, as I pointed out in the "competition for capital" argument above.

The given reasons why people support conservation generally involve the "external" costs of energy, including pollution (and associated health effects), global warming, and foreign energy dependence. Limited supply/reserves is also often cited, but it seems that the market should take care of that automatically. So, we have to issues. First, energy costs do not include the external costs, and second, energy needs to cost more before people will conserve (no matter how "cheap" the actual conservation measures are).

Based on the above, the solution is obvious. I don't believe in mandates of any kind, such as the DSM mandates given to utilities that you discussed in your article. We should use incentives, not mandates or standards. Then let the market decide. Specifically, we should scientifically estimate the external costs of various energy sources and emitted pollutants, and we should asses those costs fully in the price of that energy source.

With the "true costs" fully accounted for in the market price, the market should naturally move us towards an optimal solution. Energy prices will rise, which will encourage conservation. Cleaner, more efficient sources/plants will have the approproate financial advantage over other sources, and should flourish. Most important, the market will determine and decide the most cost-effective means of reducing foreign energy dependence, CO2 emissions and other pollution.

If, despite the higher e

If, despite the higher energy costs, people still don't choose to spend the time, initiative, and money to persue conservation projects, well then darn it perhaps they just aren't worthwhile. Utilities should be "mandated" to do anything (with the possible exception of a reliability requirement).

James made calculation error in explaining the saving offered by an improved washing machine - 96 to 1,00,000 is 0.096% or 0.1% approximately. So financial savings of energy coservation are marginal. $ 1000 bn in 10 years, which I offer to save through innovative technologies and projects, is under 1% of American gross production in 10 years and political / local considerations overweigh the savings.

But the real issues are environmental. Los Angeles was turned into virtual death valley due to pollution and smog. In comparison Italy preferred to import 17,000 Mw from other countries- more at peak time, than allow about 30,000 Mw capacity on own soil. You don't need mandate but education to motivate people to adopt conservation measures.

Another vital consideration is high manpower cost to replace inefficient appliances. Cost of installing / plumbing solar water heaters may be more than the cost of heater.---Ravinder Singh, ravindersinghy77@yahoo.com

James made calculation error---

Stan Hadley

Regarding Mr. Hopf's comment on externalities--the external costs HAVE been scientifically estimated (and often not so scientifically) and when the actual damages which result from air pollution are included in decisions--they don't make a difference because in reality they're too small, to overcome the economic costs of doing without (yes, I can do without Monday Night football, but at some point my quality of life declines) much less the competition for capital.

At the time of the publication of Lovins' original article, immediately following the first Arab oil crisis, the electric industry was a marginally increasing cost business. This was due both to the quantum increase in petroleum prices and to increased air pollution regulation. The industrial policy in the US to build nuclear power capacity to replace oil consumption coupled with a time of high interest rates (remember Jimmy Carter?) also contributed to this raising marginal cost in nominal dollars.

Today, I'm not so sure. While the new fleets of combined cycle plants have indeed reduced the system heat rates, the effect on natural gas fuel markets may negate the advantages of better combustion efficiency in the intermediate term. Good point - I'll have to follow up with some current research. If so, then there is even less justification for energy conservation programs that transfer money from all ratepayers to favored groups of ratepayers.

Here in Silicon Valley, it is infuriating to see huge, multimillion dollar homes with new solar panels paid for by "the little people" through everyones' rates when the justification for the involuntary transfer of resources is "it's for their own good." Worst, the real cost of power from these panels is pushing 40 cents a kilowatt-hour! Call it just another California energy mistake and Mr. Lovins' sophistry about negawatts is partially to blame.

A large part of the problem is that in today's commercial framework for retail electricity, utilities have a statutory obligation to meet all customer demand without regard to cost, but consumers have no matching obligation to take delivery. They're on a pay-as-you-consume plan, so there's no rational way to place a value on deferred consumption.

Consider a somewhat different arrangement in which consumers purchase a contract from their local utility for a certain volume of electricity at a fixed price that includes an obligation to take delivery of specific amounts of electricity every hour (admittedly this is only practical for larger consumers with relatively constant demand). This arrangement helps the utility by improving the certainty of its demand forecasting, fuel purchasing and bulk power procurement processes. It also provides a baseline against which customer demand reductions can be measured. If a customer signs up for a constant demand of 500 kw and consumes less in an hour, there's a measurable basis upon which it can be paid for its conservation effort at the prevailing spot market price. Similarly, if it consumes more in an hour, there's a rational basis for charging the difference above contract consumption at prevailing spot prices.

Georgia Power, Niagara Mohawk Power, Public Service Company of Oklahoma, and other utilities successfully implemented programs with these features for their large industrial customers in the 1980s. Although baseline quantities were negotiated rather than measured, customers liked them because they had a clear price signals upon which to make operational decisions, and the utilities found them to be quite profitable.

The same issues apply in numerous other contexts, e.g., renters who don't pay utility bills and senior citizens are two glaring examples. There is plenty of evidence of senior citizens exhibiting astronomical discount rates with respect to energy efficiency. it's not because they don't have the money. It's because they don't expect to live long enough to see the payback. The problem is that the inefficient housing stock is going to outlive the seniors by decades. That creates a social problem that cannot be solved by the market or incentive pricing. Unless the utilities or some other agency are mandated to make the investments on behalf of society (e.g., weatherization), we all pay.

One final point - in the vast majority of cases, the consumers are not being irrational in displaying astronomical discount rates. For example, many of the seniors may, in fact, not live long enough to reach payback on their energy investments. Obviously, renters don't receive any payback. In other cases, non-energy factors (e.g., water heater warranties) dominate the decision. The bottom line is that market intervention is often warranted (as in the case of applicance efficiency standards and weatherization).

Vice president Cheney was wrongly criticized when he truthfully said that conservation should be a personal choice. There are those however who do not want it to be personal choice. They want energy prices to rise high enough that people will be forced to conserve because for them, as much energy as they need is unaffordable. At the same time, if energy prices rise far enough, then presumably the alternative renewables look more and more attractive no matter how unreliable they are. The whole manipulated thing is a house of cards and a recipe for environmentalist-inspired social disaster and human tragedy, as possibly the recent blackouts in the U.S. northeast, Britain and Italy may foretell. Of course Newcomb's Paradox will avoid it all. A disaster predicted, rarely happens. It depends what we choose to do about the wakeup call.

This word 'conservation' is also being misused. The intent is to avoid wasting energy, just as one should avoid wasting food. Energy is also a lot like food, don't waste it, but if we try to conserve food to the point where we do not get enough, then we will be in the same dire straights as by coercive conservation of energy. One day we will get to the point where there is not enough energy to meet demand and need. At that point industries close, jobs are lost, people begin to die and then the various complaints about the present state of the environment (mostly wrong) will pale into comparison to the real environmental damage that will result. Abundant, affordable, available and assured (four 'A's) energy underpins social stability, progress, peace and the entire future of society.

The true social morality lies in having whatever amount of energy is required by society, when it needs it. There is no morality in conserving or not having surplus energy. As with food, too little or unaffordable energy, causes deaths (from both heat (Europe and India this summer) and cold (Russia and Chicago)), and needless hardship.

We should not forget that the most significant achievement of the 20th century was the development and use of electricity. It comes as a shock to realize that it might be unavailable. As one patient wondered with some concern, when asked if he had any questions as he was being prepared to go under the knife, and was surrounded by banks of lights and electronics: 'What is the backup power supply?' Well? What is the backup power supply and is it available? A lot of people in elevators and traffic realized that it didn't matter what the backup might have been or how deficient it had become, because the transmission system had died. How lucky we were, that the blackout did not happen in the dead of winter, or was more prolonged. If we ever get to the point of rationing electrical energy and doling it out for 2 hours a day as in some countries, we might begin to realize its importance.

We should have access to, and be using more energy, not less. And energy should be as cheap as it can possibly be, and provided affordably to all who need it. Energy provides progress and builds the necessary social security and infrastructure to address the real social and environmental issues (poverty and ignorance). The most publicized issues of environmentalism, GCC etc., are publicity stunts and money machines, and are all red herrings designed to achieve undeserved power over the people without either representation or accountability.

From the point of view of the well-heeled enviro's - like Amory Lovins - energy costs are immaterial. He lives relatively high on the hog and can invest tens of thousands, or more, of other peoples' dollars to be able to boast that his electricity bill for a month might be a few dollars, without disclosing the massive investment required to do it. Most such agitators for deconstructive social change are those who are least affected by any of it, but stand much to gain from it. They are usually financially insulated from changes that devastate the poor and the elderly. To these so-called environmentalists, the poor and the cash-strapped elderly do not count, they could be 'conserved'. What a pity they are not held accountable for social failings that stem from their poor and antisocial energy advice to politicians and the appeasing CEOs who buy into their ideas without recognizing the social damage that they do.

Imagine if when you went to Walmart to buy a package of 7,000 hours of 1700 lumen light and the price included the power needed to provide that light. Package A costs $55. Package B costs $20. Same light for the same amount of time. Again, power is included in both purchase prices.

Who in their right mind would buy package A? Walmart probably would not even stock package A.

But in the real world, most of the time people ARE choosing package A!

Because the price of power is not included in the purchase price, the price of Package A is really about $2 and the price of B is about $6 (incandescent vs. compact fluorescent light (CFL) bulbs). As a consumer, I do not get a separate power bill for my package A of light…its cost is lost in the noise and monthly variation of my overall power bill.

Isn’t this separation of price and costs the real perversion and distortion of the free market for the service of “light” provided by light bulbs and power?

I agree that rebates and efficiency standards are poor substitutes for a truly clear pricing method. For a variety of reasons I don’t think a system of buying the power up-front would work. But I think that most consumers feel no electric market signals now. Simply raising or providing nearer to real time electric bills, even if higher rates are the consumer’s own fault for opposing new power plants or not buying efficient equipment, seems likely to lead to increased regulation of the power industry – not to the real goal of clear market information for consumers.

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Background numbers: 7.5 cents/kWh. Package A is 10, 700-hour-life incandescent light bulbs at 100 watts each ($2 plus $53 for power). Package B is a single, 7000-hour-life compact fluorescent light bulb at 27 watts ($6 plus $14 for power). If we assume burning the bulbs at 6 hours per day, we use up 7,000 hours in less than 4 years and can mostly ignore discounting the money paid for power up-front. Even if you assume our 7000 hours of light is burned over 10 years, slice the power component of the price in half as an estimate of the discount for time and at the prices of $28 and $13 very few would choose package A.

This is just the cost of the bulbs and power – nothing is included for health and environmental impacts. Though I agree that the cost of environmental and health impacts is not huge, it is not zero either. Finally, CFLs are not perfect substitutes for incandescent light bulbs…for example, few work with dimmers.

As a Portland native, one nit I feel obligated to pick is that there is no "Portland Gas and Electric", though the local utility, "Portland General Electric" is facing a local vote to have part of its service territory condemned in an attempt to form a public utility district. By all accounts, Amory Lovins had nothing to do with this egregious refutation of free market capitalism.

However, open markets and the free enterprise system will prevail as being the best if allowed to flourish without undue interference from government. We need markets that are open and fair and the consumers will make their own decisions as to what to buy or not buy and the consumer is ALWAYS right if given choices that make sense to him/her.

The energy/power industry has taken a good kick in the head since the Enron collapse; it is high time to move forward and make our electric generation, transmission, and distribution system the best and most cost effective in the world without undue government interference.

It makes sense to terminate all R&D subsidies to non-renewable energy companies - they're very mature and aren't particularly needy. Subsidies for development of renewable technologies should be maintained, but phased out as the technology approaches maturation. Regarding the energy efficiency subsidies - they're rather paltry and could probably be dispensed with without grave harm to the industries benefiting them.

As James Hopf points out, though, the 'cost at the meter' for electricity doesn't reflect it's total cost. At the Federal level, all external costs for non-renewable and nuclear energy should be tallied up and added to the retail cost as a surcharge, with the funds used for safety, cleanup and enforcement of this polluting industry, and partially to fund the renewable energy R&D subsidies.

Certainly the watt-hour consumption of a new light bulb can be measured with engineering precision. Just don't expect the millions of users to be so predictable in their behavior. The physics is solid but the social science is weak as I alluded to with my Woody Allen quip.

From my personal experience in the management of a major West Coast utility, our regulated utility only took energy conservation seriously when the company was offered a 10% cut of the ratepayer funds collected for energy conservation. Given the political halo of energy conservation, neither the utility nor the PUC had any motivation to produce a clear-eyed assessment of the REAL net savings to the ratepayers. After all, it's just OPM (Other People's Money) and the more they spent the more they made. Again, "negawatts" is just an excuse to siphon off some gravy from the rubes.

As to the purity of the free market in energy, it doesn't exist and it never will. The huge sunk capital costs and the social and economic catastrophy attendent with failure to deliver means that energy transcends mere economics and becomes an issue of national security and public health and safety. As Gray Davis' recall shows, a politician can let energy get screwed up only at his mortal peril.

Mr. Ellis suggests that the form of contract between utility and end-user might produce energy conservation. The specific form he suggests was common with natural gas before the deregulation of the natural gas production and transmission - they were called "take or pay" contracts and caused all sorts of problems and dislocations with evolution of pipelines to common carrier status. I think we should not expect too much from this arrangement for electricity.

The solution as I see it is insist that electric utilities stick to one thing - supplying reliable electricity. That meand more technocrats and fewer economists. Re-establish a competent, focused regulatory authority to watch them closely. Then we citizens have to watch the regulators and the politicians that appoint them. Let people pay for what they use but don't try to make end-use decisions for them. We deviate from the KISS principle at our own risk.

My mistake, sorry.

Life is even stranger than fiction. I am told it takes about $0.50 to get oil from the ground and put it on a boat. So it is easy to understand how rich the oil producing nations have become. Is there any other commodity other than perhaps diamonds that has made a country rich? Economists will tell you that nations dependent on commodities are generally the poorest nations in the world. How did we get to the point where we are presently?

As I get older, I am more and more convinced that government only makes things worse when they get involved. However, with energy and energy conservation, I am convinced that government intervention has become absolutley necessary. Appliances are more energy efficient and cost less today in real dollars than they ever have. Refrigerators use less than 1/2 the energy that they did 20 years ago. Government efficiency standards and mandates are a major cause of this success in energy efficiency.

Utilities should not have anything to do with energy conservation efforts. Talk about the fox guarding the hen house. Why would any company spend money marketing products and services that show their customers how to buy less of their main product ( in this case, electicity and gas). As one commenter noted, the utilites were interested in the 10% or more management fees they obtained from the programs. And if the programs failed, better yet. Electric utilities are experts in making electricity, not energy efficiency. Having worked at two utilities as well as private enterprises in the energy conservation field, I have seen first hand that the motivation and level of energy conservation expertise is higher in private industry.

Energy codes are needed for many the same reasons as buidling codes. Much as the size of a sewer line should be mandated to insure proper operation, the efficiency of a building and its equipment should be mandated to insure a building owner is not subjected to incompetently designed energy consuming components. The level of energy expertise in the buidling industry is not sufficient to design properly designed buildings from an energy perspective unless minimum codes are available. First cost is the major motivating factor in design, not ongoing energy costs.

The present state of energy codes in this country is probably 20 years behind the times. Some building codes have no energy efficiency requirements. Even in the most aggressive states, older versions (1989 vs. 2003) of energy codes (such as ASHRAE 90.1) are incorporated into the buidling codes. In most cases, code officials are not trained to enforce those energy codes that are in effect. The best outcome - a building that meets code and is the least efficient buidling that you can get away with building. From my experience, the average building today can be built to use at least 30% less energy by employing cost effective (0-5 year payback) energy conservation design. Higher savings are possible from retrofits to exisitng buildings.

What will be the future state of energy in this country?

Scenario 1 is the U.S. consumes more and more energy until one day, the supply cannot meet demand. Prices rise causing riots as people prevent themselves from freezing. The economy goes into a deeper recession than that caused by any other oil shock in our history. There is no time to install renwable energy sources or install energy conservation equipment. That will take 5-10 years. The U. S. is forced to invade oil producing states to save our citizens from freezing to death.

Scenario 2 is the U.S. has painlessly adopted cost effective energy conservation measures in building codes and appliance energy standards. The extra disposable income from reduced expenditures in energy has created an ongoing fiscal stimulus to the economy. The U.S. has become energy independent since buildings, cars, and appliances use half the energy that they once used as older equipment has been replaced due to age. Standards in effect in 2003 account for half of these energy savings . Ironically, the price of oil has dropped to $1 per barrel since supply now exceeds demand and oil is just a commodity with excess supplies. Renewable energy is now less expensive than conventional energy due to continuous improvements. U.S. intervention in other countries' affairs has reduced considerably and terrorists find targets closer to home. The economies of oil producing nations no longer can support funding of terrorists.

Sound impossible? If the U.S. imports 30-50% (I am not sure of this figure) o

Sound impossible? If the U.S. imports 30-50% (I am not sure of this figure) of its energy, and presently available technology allows for a cost effective (often less than 5 years payback) energy reduction of 30-50%, then does it not make sense to invest in our future? Can we afford not to, especially considering the alternative?

The main hurdle is how to accomplish the implementation of energy conservation in the most cost effective manner. If private industry and the government adopt a policy of implementing energy conservation in their everyday practices, then the energy industry will respond to market pressures.

Final thought - why is a 5 year payback too long?

Overall there are a huge percentage of snakeoil salesmen in these issues. Many experts who are incompetent in the math and physics and can't distinguish a megawatt from a hole in the ground (negawatt?). I have a large folder on my favorites/energy directory subtitled "hoaxes", and it just keeps growing.

My general opinion is that politics as we know it needs to be kept out of the issues as much as possible since it is impossible to know motives. That said, some good arguments have been made above for certain conservation subsidies to correct for market errors which we don't wish to correct. And all methods of acquiring energy for market must be made to cover all costs incurred present and future (future costs discounted for certainty level?).

"You have to be an intellectual to believe such nonsense. No ordinary man could be such a fool."