Efficiency Essay ⋆ Environment Essay Examples ⋆ EssayEmpire

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Efficiency is the ratio of outputs to inputs in a system, whether that is benefits to costs, results to effort, or action to energy. Economic efficiency is satisfied when an activity’s benefits exceed its costs; or, stated otherwise, the ratio of benefits divided by costs is greater than one. Energy efficiency is measured in a similar way by the ratio of work divided by effort. In practice, this tends to be a measure of work accomplished relative to the energy required to produce the work. Dividing benefits/work by costs/effort allows comparison across options.

The range of costs and benefits associated with an option might be limited to effects with wellrecognized dollar values, and only those costs and benefits accruing directly to those involved in the decision-making process, such as an individual business. Alternatively, efficiency assessments might include consideration of costs and benefits experienced by the larger community, and costs and benefits that do not have market-determined values. Such social efficiency measures are commonly used for assessing environmental policy options.

Assessing social efficiency gains can be conducted a number of ways. Comparing benefit-to-cost ratios across options and choosing the greatest does not consider the distribution of costs and benefits.Comparing only net social benefit assumes that if those experiencing increased net benefits (benefits minus costs) could more than compensate those experiencing decreased net benefits, the option increases social efficiency. In practice, it is rare that any such transfer compensation occurs. This measure, Kaldor-Hicks efficiency, is the efficiency typically employed for cost-benefit analysis. An alternate, more equity-demanding efficiency measure considers that an efficiency gain only occurs if no one experiences decreased net benefits. This is known as Pareto efficiency. Other comparisons of options give greater consideration to equity, although they experience rare usage in policy settings. Distributive efficiency involves identifying the allocation of resources or costs and benefits that provides the greatest net social welfare. Another method entails maximizing the product of individual net benefit gains, there by identifying the most equitable distribution of gains, inspired by the Nash Bargaining Solution in game theory. The maximin principle advocates maximizing the least individual net welfare or net welfare gain, inspired by John Rawls’s theory of justice.

Efficiency Measures

Efficiency measures are typically employed to prevent or minimize waste and seek to identify options that do not expend unnecessary energy, while economic efficiency measures are used to avoid wasted expenditures. Demand for water usage in areas such as agricultural irrigation and watering lawns can often be equally well met with less water when using more water-efficient technologies. In agriculture, achieving the same production with less water, all else being equal, demonstrates more water-efficient methods. Demand for gasoline is not based on a demand for gasoline itself, but for the transportation it allows. Transportation efficiency, the energy needed to transport a given object a given distance, provides a good case study for consideration of how different perspectives on efficiency – in which benefits and costs are most important – can lead to different policy recommendations.

Fuel efficiency is often targeted as a goal for addressing environmental concerns such as air pollution and climate change. Fuel efficiency for automobiles typically refers to the mileage per gallon (mpg) of gasoline. In 1975, in the wake of high oil prices due to the 1973 Arab oil embargo, the Energy Policy and Conservation Act set fuel efficiency standards that automakers were required to meet on average across their entire fleet. These are known as Corporate Average Fuel Economy (CAFE) standards.

Fuel efficiency improvements equate to reduced gasoline demand and reduced air pollution, such as carbon dioxide and particulate matter. If people drive the same amount with vehicles achieving greater fuel efficiency, less gasoline is consumed. The extent of gasoline demand reductions depends on the price responsiveness of drivers to the cost of driving, or in economic terms, the price elasticity of demand for driving. The more responsive, or elastic, demand for driving, the less there will be a reduction in gasoline consumption. Elastic demand for driving will equate to increased driving with reduced driving costs. This response reflects the joint influence of supply costs and consumer demand on gasoline consumption and the associated pollution and traffic concerns. Many urban planners seek to increase use of public transportation by making it less costly, more convenient, or making driving more expensive as through tolls and parking fees. Public transportation is more energy efficient than individual driving because more people can be moved with the same amount of energy. Therefore, while fuel efficiency in cars does save costs and reduces air pollution, a more fundamental goal of energy efficiency, minimizing the energy required for transporting people, is likely to have greater net energy conservation benefits.

From an economic standpoint, transportation considerations of energy efficiency are closely tied to economic efficiency. Once a vehicle is built, if it has greater fuel efficiency than an earlier model, it will be less costly to drive and therefore be more economically efficient. However, more fuel efficiency in vehicles, all else being equal, typically requires more advanced engine and energy management technologies that are more expensive. Therefore, an individual’s private considerations of economic efficiency might change when considering the total costs, if the individual does not personally see much benefit from reduced pollution and societal gasoline consumption. Total private cash costs of transportation with a more fuel efficient vehicle might be greater or less than those with a less fuel efficient vehicle, depending on the price of the vehicle and the price of gasoline. Even if total private cash costs are greater with a more fuel efficient vehicle, net benefits to society might be increased, due to health and environmental benefits from reduced pollution and gasoline demand. The case of transportation efficiency reveals the varying conclusions depending on the type of efficiency considered, the time frame for costs and benefits, and the size of the group considered. Fuel efficiency and transportation efficiency maximizing can lead to different conclusions because of different consideration of and consequences for resource depletion, pollution, and congestion.

Because most market-based decisions are made by individuals, only individual economic efficiency considerations are typically included. Achieving more socially efficient outcomes can require incentives for individuals to change their economic decisions. These incentives can come from private or governmental organizations. In some cases, where the more socially efficient outcome is deemed of great importance, direct government intervention might be necessary. An example would be regulations to keep lead out of drinking water so as to avoid birth defects, even though the added cost might reduce an individual company’s economic efficiency.

Bibliography:

Herman Daly and Joshua Farley, Ecological Economics: Principles and Applications (Island Press, 2003);
Robert Frank and Ben Bernanke, Principles of Economics (McGraw-Hill, 2003);
Joseph Stiglitz, Economics of the Public Sector (Norton Publishing, 2000);
James Winpenny, Managing Water as an Economic Resource (Routledge Publishing, 1994);
Donald Wulfinghoff, Energy Efficiency Manual (Energy Institute Press, 2000).