The Unintended Consequences of Innovation

Sabine Boston and Dieter Adam, 17 Oct. 2022

Innovation can sometimes end up causing a U-turn from its original goal – but that doesn’t mean we should stop innovating, of course.

The Economist recently explored the adverse effects that have come from environmental innovation in the past, and what they could predict for the future. Some examples cited included Danish housing and American car-amassing.

In Denmark there was a push way back in the 1970s – after the oil crisis – to improve the insulation of houses as a way to increase fuel efficiency when heating homes. However, that backfired in that as it was now cheaper to heat houses, larger houses were built, and their tenants became more accustomed to warmer houses. For the past three decades it’s been common for homeowners to wear t-shirts in their homes during winter, and total housing energy consumption hasn’t seen any change.

In the USA there was a push in the 1970s to encourage consumers to buy more fuel-efficient vehicles in the face of oil shocks. Within 5 years from that push, the typical American car improved from 13 to 20 miles to the gallon (12 to 18 l/100km) – still very high numbers by today’s standards. The assumption and hope was that the public would pocket their savings from the increased fuel efficiency, but instead that extra spending money went to even larger vehicles bought in greater numbers and used to travel further and faster. By the mid ‘80’s total oil consumption for transport was higher than it had been back when the push for fuel efficient vehicles began. More recently, and in Germany, average car engine power output rose from 91 kW to 118 kW between 2005 and 2020, and fuel consumption dropped from 7.9 to 7.4 l/100 km. That drop could have been much bigger, however, had the quite spectacular increase in fuel efficiency not largely been eaten up by cars becoming bigger and heavier with every model update.

In New Zealand the 1973 oil crisis saw a push for a reduction in the use of petrol – carless days. The legislation introduced meant that vehicles had to be off the road on a dedicated day, and it wasn’t particularly successful and was ultimately scraped in under a year. Exemption stickers were easy work-arounds to the rule, and the black market for them was quite lively. If you were a household that could afford to run more than one car there was also nothing holding you back from continuing to drive on whatever day you wanted or needed to. To add insult to injury, there’s been anecdotal evidence that those who did follow the legislation and only drove six out of seven days of the week actually upped their weekly mileage in order to make up for not being able to drive for one specific day in the week.

Back then the aim was to adapt to a situation where oil supplies were limited. Today we are concerned about CO2 emissions from transport, but it’s the same old story. The Tesla Model 3, the most popular EV new car sold in New Zealand, can accelerate from 0 to 100 km/h in 4.4 seconds, but weighs 1,920 kg, almost half a ton of which is just the weight of the battery. Do we really need sportscar-like acceleration in a family car that will do most of its travel by far around town, given the associated penalty in weight and efficiency?

All of this does feel a bit like the story of Sisyphos, and to environmental economists this is known as the rebound effect – when efficiency gains are (partially) negated by augmenting product features. Carbon pricing can be used to dampen this rebound effect, the direction followed by the EU, for example. The US, however, is going the other way: President Biden’s recent Inflation Reduction Act subsidises clean technologies, instead of taxing dirty ones.

In New Zealand we’ve already seen our government step in and propose that farmers start paying levies on methane emissions from 2025. Often when it rains it pours, so the likelihood of more crackdowns and charges against other industries is pretty high. Manufacturers may be next to be encouraged to reduce their carbon footprint or pay the cost – either directly, or through increased cost of energy from non-renewable sources. Thankfully, technology to reduce manufacturers’ carbon footprint is becoming more and more readily available. We’ve seen several manufacturers already begin to be more environ­mentally conscious in their operations in the past few years, and they can act as a role model for others.

As we continue to play this game of boulder up the hill, boulder roll down the hill, we can certainly see that it looks like we’re getting closer to the top every time.