Monday, November 14

It's mostly technology and market forces

Real Energy Savers Don't Wear Cardigans. Or Do They? By ANNA BERNASEK forces can help provide solutions: higher prices, on their own, can make people cut back. Just how responsive consumers are to price changes - what economists call the elasticity of demand - has been the focus of much research. Today, economists believe that they have developed a pretty good rule of thumb for energy use. In the case of electricity, which is relatively easy to measure, they have found that when the price rises 10 percent, electricity use falls roughly 3 percent. At the gas pump, a 10 percent increase in price leads to a decline of around 2 percent in demand.

Consumer behavior can change quickly in a crisis. A study by Peter C. Reiss, a professor of economics at Stanford, and Matthew W. White, a professor of business and public policy at the Wharton School of the University of Pennsylvania, provides some recent evidence. In examining San Diego households during the California electricity crisis of 2000 and 2001, they found that use of electricity dropped surprisingly fast. In the summer of 2000, within 60 days of seeing monthly electric bills rise by about $60 - an increase of 130 percent - the average household cut its use of electricity by 12 percent.

That kind of drop requires a big change in behavior. The authors found that households had turned off air-conditioners in the middle of summer and had invested in new energy-efficient appliances, among other things.

High costs aren't the only force that will influence consumers to cut back.
Buried in the middle of the article is the argument that public appeals to save energy can have a substantial impact. Then:

Perhaps the most important reason for optimism is technology's role in promoting energy savings. From 1979 to 1985, in the aftermath of energy shortages, Americans reduced their oil consumption by 15 percent. The single biggest factor was a shift in car-buying habits.


How much more energy-efficient can we become? Amory B. Lovins, chief executive of the Rocky Mountain Institute, a nonprofit energy research group in Snowmass, Colo., says that a barrel of oil today already does twice as much work as it did in 1975. Mr. Lovins calculates that by moving to vehicles that consume less fuel, the nation could double that efficiency again.

Because vehicles account for 40 percent of total domestic oil consumption, there is a big opportunity for savings.

Rate structures in most states...still reward utilities for selling more electricity. One solution is to decouple the profits of utilities from their sales volumes, and to let utilities keep as profit some of the savings they achieve for their customers.


Consider [the Internet's] potential for real-time billing of electricity consumption at home. If households can see at any moment how much they are spending on energy, they can better decide whether changing their habits makes economic sense.

In the end, the most effective energy policy won't be one that fights against market forces. It will be one that helps them work better.

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