Tuesday, June 16, 2009

Incentives for saving electricity

It is well-known that by far the cheapest way to save carbon emissions is energy conservation in homes. Yesterday's WSJ cites figures from McKinsey consultants suggesting that moving to energy-efficient home appliances saves about $108 for every ton of carbon emissions eliminated. This is what Frank Ackerman, in his new book Can We Afford the Future?, calls a "no regrets" option for reducing greenhouse gasses (pp. 56-60). So why isn't it being done? Ackerman points to the usual suspects: lack of information, lack of access to financing, and the effects of housing tenure. What it is not is lack of incentives. So as reported in the Journal, the approach of Rep. Peter Welch (D, VT) of offering tax rebates for homeowners and businesses to invest in efficiency is unlikely to have much effect. A serious communications and marketing program has a better chance of working. This is a case where behavioral economics has more to teach us than the standard model.

All of this raises questions for me about the "environmental Kuznets curve," the idea that as people get richer, they will spend more on environmental quality. Spending on the environment is what we used to call a "regrettable expenditure,"  like health care and security. It doesn't make us happier, just less unhappy. While we may be willing to pay more for such goods if the expenditures are collective (government spending or insurance), it is hard to part with this money on an individual basis. Nobody gets excited about buying a new water heater or changing to CFL or LED lighting, even if it saves money in the long run and reduces climate change as well. It doesn't make everyday life any nicer. The process has to involve changing people's values so that they can get really geeked about energy saving. I have discovered that on digital cable we have a whole channel devoted to this (grouped in there with HGTV, DIY, Create, and several other of my wife's favorites). Now if I could bring myself to watch it more....

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