Will financial crisis take the shine off efficiency?

I previously noted that the financial crisis is likely to be very bad news for renewable energy developers dependent upon access to credit for their cash-hungry projects. Geoffrey Styles points out that a credit crunch will also affect consumer-driven efficiency improvements (of the sort the my colleague Erin recently undertook):

> If consumers can’t obtain attractive financing for more efficient appliances, heating systems, or rooftop solar power installations, the markets for those products will languish, and their aggregate impact on energy consumption and greenhouse gas emissions will be less than hoped, at least for the next few years. That also applies to more efficient cars, especially those involving technologies that add significant up-front costs.

There are few different things going on here. One is that consumers often make large purchases on credit. As credit tightens, many will simply be unable to obtain that solar water heater, for lack of access to favorable loans.

A second issue is consumer confidence. There’s a tendency to simply hunker down when times are bad. And while generally consumption is thought to bring pressure on natural resources, the environmental math becomes trickier for products that are themselves consumers of energy. If you drive a 1983 Grand Cherokee, you do the world a favor by swapping it for a Prius.

A final problem is that the financial return on efficiency improvements actually drops when money becomes more expensive (that is, when interest rates go up). If you spend $1,000 on some new double-glazed windows that save you $100 a year in heating costs, you’ll make your money back in about 15 years, assuming a 5% interest rate. Why fifteen years and not ten? Because you could also put that $1,000 in the bank and get a nice 5% return. If the interest rate goes up to 10%, however, your investment in double-glazed windows will pay itself back…never.

On the flip side, if the credit crisis turns into a general recession, people will simply start using less energy to try to bring down their discretionary spending, much as they’ve curtailed driving in response to high gas prices. Unfortunately, such temporary cutbacks don’t offer much in the way of structural, long-lived solutions to greenhouse gas emissions. And more to the point, analysts aren’t really expecting the slowdown to affect carbon output very much.

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  1. Bryan B - September 24, 2008

    Maybe it’s time to move beyond borrow, borrow, borrow and learn to truly live within our means. Try saving for those windows, and pay cash when you have it.

  2. Ddude - September 24, 2008

    Maybe there’s more to sustainability and environmental quality of life than the crass purely monetary aspect of cost payback from a business standpoint. When was the last time we expected our other household equipment to pay for itself? The peace of mind from knowing your carbon footprint is lighter, and that your windows are efficient instead of old leaky rattly ones, is also valuable in itself.
    I suspect we’ll see more investments in the perennial “low hanging fruit” of energy efficiency: stopping air leakage in homes, continuing lighting retrofits with LEDs, etc– and passive solar homes.
    Don’t forget about the bicycle, a zero carbon transportation option!

  3. Ray - September 24, 2008

    Lobbyist money hard at work. Please stop trying to beat the system and break away from your oil addiction. Prevent hangover stay drunk!

  4. williamgeorge - September 24, 2008

    Britain now faces the fastest growth in gas imports of anywhere in the world and the cost of those imports is being driven by the oil price – as on international markets the gas price is set by the oil price – and by the worldwide demand for liquefied natural gas (LNG).
    ———————-
    williamgeorge
    http://www.drivenwide.com

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