Energy gaps - Paul Krugman Blog

Ryan Avent takes on Ted Gayer so I don’t have to. Mr. Gayer tries to dismiss some of what I’ve said about the cost of climate-change policy by mocking a McKinsey study showing that a substantial amount of conservation would actually save money, that is, have a negative cost.

But Ryan is actually too kind. Gayer doesn’t just have a logical problem; he appears to be unaware that there is a large economics literature on the subject of the energy-efficiency gap: the apparent failure of consumers and firms to take energy-saving measures that would actually save them money. The point is that it’s not just McKinsey that finds this result: lots of people do.

Now, there are some questions about how to interpret the whole thing. But I think it’s fair to say that there’s a lot of evidence for cheap conservation, at least in the early stages.

via krugman.blogs.nytimes.com

At the risk of angering the gods, I kind of agree with Gayer. The energy efficiency advocates sometimes seem to oversell. The breakeven point for solar panels, weatherization,  wind turbines and my solar water heater can be far down the road, and even further if (a) cost savings are discounted at 7% instead of 2% and (b) government subsidies are treated as a cost. The upfront costs are substantial.