Conservation Reduces Costs

U.S. environmentalism has come a long way since the corporate-bashing of the 1960s and ’70s; but even today, to listen to many environmentalists talk, you would assume that capitalism is the enemy of conservation. Doesn’t the profit motive encourage a throwaway culture? Doesn’t commercialism breed waste? Not necessarily, and no. Lightbulbs are examples of why.

“Basically it’s waste elimination,” George David, the chairman and CEO of United Technologies, said in an interview last week, when asked about energy conservation. Like a lot of manufacturing companies, United Technologies finds itself under pressure to cut costs, and energy is a costly input.

Moreover, David foresees an energy-short world for decades to come, as China and India, among other rapidly developing countries, create new surges in demand. Alternative fuels, he says, will eventually bring relief, but not on a sizable scale for decades to come.

But conservation works right now and is, economically speaking, “exactly like renewable energy.”

The article goes on to cite a fact that really drives the point home.

According to the Energy Information Administration, energy use in the U.S. industrial sector in 2005 was below its 1979 level, despite a near-doubling of output.

Now, to be sure, this effort is not being driven by a sense of morality towards the Earth. It’s not being driven by a quest for positive PR. The truth is that conservation directly effects the core of all capitalist enterprises…money.

The word “economically” is significant. If the price of natural gas spikes and the price of grid power falls, the plant can switch over to conventional utility-provided electricity. “If it makes sense to use waste steam, we can do it,” Kopera says. “If it makes sense to use electricity, we can do it. It’s based on an economic calculation.” What the company is buying is flexibility, which, in a world of volatile energy prices, saves money.

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Green eyeshades will wish him luck, too. By my calculations, based on company data, if United Technologies still consumed as much energy today as it did in 1997, its annual energy bills would be almost $50 million higher. If its energy use had doubled in line with its revenues since 1997, its energy costs would be almost $300 million higher.

As I have mentioned in past posts on economics, sometimes it is easy to get frustrated and demand regulation. Afterall, it is a halmark of traditional Progressivism. But this article and other like it demonstrate that on economic issues sometimes the tried and true idea of letting the market sort itself out is important to remember. I am not saying regulation is never the answer, but sometimes patience should come first.