We have already mentioned investments like the biomass cogeneration plant in Austria as examples of conservation in action. The following two videos focus on two very different places in the United States that have undertaken aggressive conservation plans.
How the "Take Charge! Challenge" saved billions of BTUs... and four communities won $100,000 in the process.
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Video: Kansas: Conservation, the "5th Fuel" (ENERGY QUEST USA) (7:52)
Baltimore: City government, utilities, and "Energy Captains" reach out to neighbors, with economically stressed communities saving most.
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Video: Baltimore: Conservation in a Big City (6:25)
After you watch the videos, go back to the executive summary of the McKinsey report on energy efficiency, Unlocking Energy Efficiency in the U.S. Economy, and scroll down to look at Exhibit G on page 16 of the report. What strategies employed in Kansas and Baltimore can you find on this chart? Remember that a lot of the emphasis in Kansas and Baltimore was on building energy efficiency, which means things like improving lighting and so-called “shell improvements” (like new windows, weatherproofing and so forth). Can you find these strategies on the graph in Exhibit G? What do you notice about the cost of reducing CO2 emissions using these strategies? If you look hard enough you’ll see that the costs are negative, meaning that the residents of Kansas and Baltimore were saving money and doing something good for the planet.
That’s nice, but it raises an important question for energy conservation. If there really is so much money waiting to be saved through energy conservation, why aren’t people taking advantage? We don’t like to pay more than we have to for food, for clothes, or almost anything, nor do we like to drop hundred-dollar bills on the ground. But people systematically behave like they want to waste money paying for energy. This “energy efficiency paradox” has been noticed by economists for more than thirty years, and we still don’t really know why it happens. There are a few ideas, though:
- Tenancy: Many people do not own the places in which they live, yet are responsible for energy bills. This creates a problem known as the “split incentive,” where a building owner has no incentive to invest in conservation measures because he or she doesn’t pay the energy bills. The tenant has some incentive but does not have the right (since the tenant does not own the property in the case of rentals) to make major energy-efficient renovations. (Tenants can still buy efficient light bulbs and, in some cases, appliances, however.)
- Mobility: People in modern economies move fairly often – about every seven or eight years on average. This is about the typical payback period for a good energy conservation investment. The market does not always price conservation very well (i.e., a conservation investment in a house that you plan to sell soon may not be reflected in the market price of the house), so this makes conservation investments look risky.
- Liquidity: Some types of conservation investments, such as for weatherproofing or new appliances, can be expensive. Not everyone has enough cash lying around to make these investments, and charging expensive items to credit cards involves high-interest payments.
- Myopia or Loss Aversion: The way that people’s brains process difficult decisions may explain part of the energy efficiency paradox. The fact that many people do not make energy conservation investments (whether those are investments in appliances or “investments” in behavioral changes), even though those investments will pay for themselves relatively quickly, suggests some level of myopia (near-sightedness). People may not care about the future as much as we think they should. Another explanation from behavioral economics is that people tend to fear large losses more than they enjoy large gains. (So the bad feeling you get if I take $100 away from you is stronger than the good feeling that you get if I give you $100.) People also tend to fear things that they don’t understand or that represent deviations from historical behavior. So instead of a lack of far-sightedness, the reluctance to engage in conservation measures may reflect a perception among people that those measures will not really save them money; may involve uncomfortable behavioral changes, or will result in the replacement of functional appliances with things that don’t work so well.
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Most of us are not doing everything we could to conserve energy. Do you ever leave your computer on overnight? Drive when you could walk? Do you turn off the lights whenever you leave a public restroom unoccupied? Take a moment to write down what you think might be preventing you from saving in all the ways you could.
All of these factors suggest that there is some role for policy initiatives to play in encouraging conservation. Examples of policy initiatives include efficiency standards for transportation, housing or appliances; financial incentives; and improving information flow to people. Refrigerators in the United States are a simple but good example of how standards can be used to improve energy efficiency without degrading utility. Starting in the 1970s, the US federal government imposed energy efficiency standards on residential refrigerators. The result was, over the course of more than 20 years, the energy usage by individual refrigerators in the US went down by 80% while the size of the average refrigerator went up by nearly 20%.
Planners in some cities have also been able to encourage conservation by making energy-intensive activities more difficult or more expensive. We’ll finish off this module with the following video, which focuses on transportation, shows how Portland, Oregon became the bicycle capital of the US:
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Decisions made 30 years ago are now paying off in fewer car trips, and a more livable city.
Video: Portland: "The Trip Not Taken" (7:55)
In summary, there are ways that communities and other organizations are trying to get beyond the energy efficiency paradox. What the examples from Kansas, Baltimore and Portland (along with stories like the refrigerator standards) show us is that there are different ways to motivate individuals to act (ironically) more in their self-interest, saving money while reducing their environmental footprint at the same time. Good government policy is certainly one way of doing this, although a community-driven organization can be just as effective.