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« The Denver Post on HSAs and Single-Payer | Main | Forest, Meet Trees »

I Think They're Called, "Prices"

The Wall Street Journal reports that the government is lagging in instituting an "electricity efficiency" program that would reward companies for saving electricity.

In an efficiency market, states or the federal government would require utilities to buy a certain amount of energy-efficiency certificates.

The certificates would be established when electricity use is permanently eliminated through a project, from changing lighting to replacing air-conditioner chillers. The credits could then be traded on a secondary market, making a growing number of efficiency projects profitable.

Challenges exist in forming such efficiency markets, which already are in place in some European countries. Precisely measuring reductions in electricity consumption can be tricky. In addition, efficiency programs have for decades almost solely been run by utilities, whose profits conversely rely on a steady growth in electricity demand.
Now, one might think that actually saving money on electricity would be enough to induce people to, you know, save money on electricity.  Apparently, these federal regulators have never heard of things like, "Internal Rate of Return" and, "Net Present Value.'

For the uninitiated, a company calculates how much a project will cost, and then calculates how much they'll save or earn on it over its lifetime.  Much like deciding exactly how many shoes much electricity the economy needs, this can be a detailed and careful calculation.

The cost of electricity is factored into these things.  Of course, raising the cost of electricity also raises the cost of the project, since it raises the cost of producing the bulbs.  (No doubt, the government will tell the bulb manufacturers what a fair profit margin is.)

So instead of letting price signals work the way they have for the last couple of hundred years, the government will establish a secondary market, including the oversight mechanisms for it, a taxation system for the electric companies, including its oversight bureaucracy, a means of measuring how much electricity would have been used otherwise, not counting for the fact that cheaper electricity could mean more production, God forbid.

In effect, instead of just letting their customers save money by buying less of their product, the government is going to mandate that utilities sell back the ability to save money to their customers.

You know, if they put this much effort into dynamic scoring of the tax system...

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