Alex Verkhivker and Jared Meyer provide an important article on the economics21.org website. Jared Meyer is a fellow at Economics21 at the Manhattan Institute for Policy Research and Alex Verkhivker is a contributor to Economics21. They argue that as the academic literature on behavioural economics continues to grow, energy efficiency’s future is poised to engage consumers’ competitive spirits. They state that as people understandably want to lower their utility bills and if companies can nudge people towards energy savings, that might just clear the path to more-sustainable energy use.
A Private Solution to Energy Efficiency
For all the resources our federal government has provided to help Americans make wiser energy decisions, most Americans do not use the EPA’s many certifications, online tools, and calculators (which include ENERGY STAR certification and the “Home Energy Yardstick”). When it comes to doing what is right, such as using energy more efficiently, eating healthy, or exercising regularly, the intention is there for most people—but there is a large gap between intention and action. Acting on positive intentions is difficult, and people often seek outside help to do so.
Opower, a publicly-held, Virginia-based Software-as-a-Service company, offers this sort of outside help. The company’s Chief Scientist is Arizona State University Professor Robert Cialdini, one of academia’s most well-known social psychologists. Cialdini authored a 1984 book on persuasion titled Influence, which showed targeted tips for persuading the public to comply with requests from salespeople, recruiters, and fundraisers. Opower has put recent behavioral economics research into place, and consumers’ energy use during the hottest days of summer fell as a result. These sorts of private sector “nudges” are the future of energy efficiency.
In the summer of 2014, Opower teamed up with utility firm Green Mountain Power and a program called Efficiency Vermont. The goal was to assess whether peer pressure could nudge households into consuming less electricity on hot summer days. Efficiency Vermont and Green Mountain Power identified “Peak Event Days” in the summer when energy use was expected to be exceptionally high. Prior to such days, the two companies notified customers about the upcoming hot days, providing them with no-cost tips for reducing their energy use.
The nudge came when, the day after the Peak Event Days, customers received e-mails from Opower telling them how much they had cut back on their electricity use, as well as how they compared to the average household reduction in their neighborhoods. If a household used less energy than average, it received a smiley face emoticon. If a household used more energy than average, it instead received a frowny face emoticon. Opower used this simple system of neighborhood-level peer pressure and competition in an attempt to incentivize more efficient energy use. This tactic led to positive results as Opower, Green Mountain Power, and Efficiency Vermont reported that electricity demand dropped by as much as five percent on last year’s hottest summer days.
Through the use of behavioral economics and real-time communication, Opower achieved what the federal government has been hoping for—reduced demand for energy through more-efficient use. Positive choices are often difficult to make, and simply providing households with online energy use calculators does not lead to substantial behavioral change. When temperatures rise, customers’ commitment to energy conservation is tested. But, when households are motivated by their neighbors’ savings on energy use, they have extra incentives to keep their air conditioners at 70 or 72 degrees instead of 68 degrees.
Understanding what motivates human behavior allows utility companies to follow Opower’s example and test whether increased friendly competition gets consumers to reduce their energy consumption. In 2012, the National Science Foundation partnered with leading academics to understand the science required to achieve America’s energy goals. This collaboration sparked an interest in researching how nudges can help convince people to use energy more efficiently.
As the academic literature on behavioral economics continues to grow, energy efficiency’s future is poised to engage consumers’ competitive spirits. People naturally desire to lower their utility bills and if companies can nudge people towards energy savings, that might just clear the path to more-sustainable energy use.