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November 27, 2007

CIBC Economist: U.S. Must Conserve More

Tuesday November 27, 3:30 pm ET
By Lauren Tara Lacapra, AP Business Writer
CIBC Economist Says U.S. Must Conserve More As Efficiency Has 'Little Impact' on Energy Use


NEW YORK (AP) -- Americans will have to face a stark reality as they strive toward a greener lifestyle: no matter how much more efficient their vehicles, homes and products are, they're using them too much, a new report suggests.

U.S. energy use per unit of gross domestic product has fallen more than 50 percent since 1975, indicating a more efficient society, according to a report by CIBC World Markets chief economist Jeff Rubin. However, total energy use has risen by more than 40 percent, Rubin said, because of an "efficiency paradox": greater efficiency makes energy cheaper, enabling greater use.

Such a paradox has broad implications for the future of energy security in the U.S., which has been focused on expanding the renewable-energy sector through tax credits and other initiatives to curb carbon dioxide emissions and reduce reliance on foreign oil. However, such measures have had "little impact" on either, Rubin says in his report.

Factors causing the surge in energy demand include a population that has grown by more than 40 percent since 1975, the "suburbanization" of America and a wealthy society than can simply afford to use more energy. However, Rubin is focused on the lifestyle of excess that defines a certain segment of America: "gas-guzzling" SUVs, longer drives, bigger homes, more cars per household and a culture that supports leaving the lights, computers and air conditioners on when no one's home.

People leave those appliances on because "they feel they have a God-given right to consume as much electricity as they want," Rubin said in an interview Tuesday. However, as oil supplies become constrained and prices rise, Rubin said, "that lifestyle is going to be seriously challenged."

Rubin is echoing a sentiment expressed by environmentalists and market watchers alike: Renewable energy and efficient products are promising, but conservation is also necessary to create a major change.

"The problem is that energy efficiency is not the final objective," Rubin said in a statement about his report. "Reducing energy consumption must be the final objective to both the challenges of conventional oil depletion and to greenhouse gas emissions."

He does not suggest that progress in the renewable sector should halt or reverse, but says the only way Americans will conserve more is if they're forced to pay more for using energy. He supports initiatives that will push U.S. consumers toward a European energy outlook: a cap-and-trade system and higher energy taxes.

Carbon trading forces companies to pay for exceeding a certain emissions level and grants them credits for producing fewer, which can be sold on an exchange. With gas prices two or three times higher than in the U.S., Europeans have adopted smaller, more efficient vehicles. On the other hand, light trucks account for roughly half of new vehicles in the U.S. in this decade, according to the U.S. Environmental Protection Agency.

A big challenge in convincing U.S. policymakers and consumers that they need to conserve is rapidly rising demand in developing economies such as India and China. Sharp increases in their emissions will almost certainly counteract gains the Western world makes.

For instance, countries that belong to the Organization for Economic Cooperation and Development, whose largest members are in North America and Europe, are expected to increase emissions by 18.4 percent from 2010 through 2030, according to the Energy Department. Non-OECD countries are expected to increase their emissions by 56 percent, with Asia driving much of the increase.

Rubin acknowledged that the U.S. can't reduce global emissions on its own -- "Of course, we're not going to start closing down our coal plants while China opens 300 each year," he said -- but insists that as the world's biggest economy, with major trade and other bargaining chips, it must take the lead before asking others to consume less.