Several people I know are finishing up theses designed around energy conservation initiatives. Most of them touch only tangentially on the concept of Demand Side Management (DSM), the decidedly unsexy concept representing the lowest hanging fruit in terms of energy conservation. DSM proponents suggest that we could dramatically reduce the amount of energy and natural resources we consume just by simple measures that leverage the power of the market (with some regulation thrown in). For example, charging a higher price for electricity used during the day, or providing some incentive for factories to run at night instead of during the day has been shown to reduce overall demand.
Today John Tierney has an article in the NYTimes suggesting that subtle social psychology has worked to accomplish the same ends in California. A smiley face on the electronic thermostat in households lets residents know that they are consuming energy below the mean to cool their homes. Frowning faces on the thermostats in high-consuming homes have prompted those residents to actually drive their consumption down. It looks like you can temper demand without having to go through the contentious process of implementing specific daytime demand management tools.
This is good news, because if I remember correctly, one of our classmates has shown statistically that increasing the money spent on demand side management has the opposite of the effect intended on energy consumption.
HT: Free Exchange
5 comments:
The issue is that the devil is in the details with DSM. A soft-paternalistic intervention could just cause degeneration to the mean or, worse, create some other unintended consequence. Some are no-brainers--low cost, marginal behavioral responses, and testable outcomes--but others we should be more skeptical about.
That's why a carbon tax will always produce better results. If it really is more efficient to run that factory at night, then there is no need to regulate it.
I'm not sure I understand what you mean by it potentially being more efficient to run the factory at night. The DSM measures are intended to normalize consumption over 24 hour periods so that peaking capacity is needed less frequently. The peaking facilities are typically more expensive, less efficient, more polluting generation resources.
I think I am confusing DSM with more deliberate soft-paternalism. When you say DSM you are only refering to peak pricing?
I think I was unclear. Demand side management is a relatively broad term that can apply to measures like insulating old homes, installing more efficient furnaces, etc. When applied to commercial agents, though, it often means manufacturing an incentive for them to change their normal behavior by, for instance, making it more expensive for a factory to run in the daytime than during the night so as to avoid having to turn on peak energy sources (such as oil or an older coal plant) that usually sit idle until there is a need to satisfy a spike in demand.
Other than the regulatory mechanisms such as increasing the cost of daytime energy consumption, there is nothing inherently more efficient about running the factory at night.
Have I totally missed the point?
Other than being less politically palatable, aren't carbon taxes and pricing schemes unambiguously more efficient means of changing behavior compared to some of the more subtle incentives created by DSM (i.e. the type of interventions Sunstein and Thaler propose)?
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