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ENERGY CONSUMERS AND THEIR ENVIRONMENT The effectiveness of a national energy system can be judged by at least two general criteria: (1) its capacity to provide energy-related services to consumers at the least possible cost, and (2) its capacity to function in predictable emergency conditions. On both these criteria, the U.S. energy system can use improve- ment. There is ample evidence from several studies that our energy system does not now provide consumers with sources of energy services at the lowest cost (e.g., Ross and Williams, 1981; Sant, 1979; Stobaugh and Yergin, 1979; Solar Energy Research Institute, 1981). Evidence about the ability of the energy system to function in emergencies cannot now be obtained, because the more serious sorts of foreseeable emergencies have not occurred.2 One way to infer the situation is from the concerns of policy makers. It is generally believed that a major interruption of imported oil supplies is a strong probability sometime in the 1980s (e.g., U.S. Senate, Committee on Energy and Natural Resources, 1980), and the policy community shows evident and serious concern over the inadequacy of existing plans for responding to such an emergency. The evidence of the need to improve the effectiveness of the national energy system is one reason to examine how the system functions. Another reason tor examining the national energy system is the recent change in national energy policy. 2The energy system may have served us well by preventing some past events from precipitating emergencies, but the emergencies now being contemplated are created by larger or more prolonged events. 17

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18 According to current policy, the federal role is to be restricted primarily to the development of high-risk production technologies unlikely to be otherwise developed in the private sector. This policy relies more strongly than previous government policy on market mechanisms to do the work of making the national energy system more effective. The change in policy is probably most significant in the provision of energy services to consumers. me federal government is moving out of development, demonstration, and dissemination of consumer energy technologies and leaving these activities increasingly to the private sector. The underlying assumption is that the profit motive will encourage producers to develop and market any technologies that will save consumers money at current energy prices, and that economic motives will similarly prompt consumers to purchase and use such technologies. Because of the change in policy, it is timely to examine the demand side of the national energy system in particular, to gain insight into the likely effects of increased reliance on market forces to meet consumers' energy needs.3 Any analysis of energy on the demand side must flow from assumptions, explicit or implicit, about energy consumers and the determinants of their behavior. A market view usually conceives of consumers as rational economic actors and of their environment as a somewhat imperfect market. It suggests that ineffectiveness in the U. S. energy system is most often due to time lags adjustment or to impediments to market functioning, including the presence of price controls on energy, the existence of regulated utilities, the lack of complete information to guide consumer action, and the prevalence of situations such as rental housing, in which purchasers of efficient energy-using equipment cannot benefit from wise investment. Our analysis allows for models of consumer behavior other than those suggested by the market view. Specifically, we identify several models of 3 The term "energy needs refers to services such as space heating, personal mobility, and mechanical work that are socially defined as relatively essential and that are usually provided in the United States by carbonaceous fuels and electricity. It is distinguished from "energy demand" by the social definition and by the fact that its object is a service rather than a good.

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19 the energy consumer and present evidence suggesting that there is some truth in each. To the extent that some of these models apply, the removal of impediments to the market may have limited effect on energy demand. We believe that the description and analysis presented here and in the work that will follow can supplement market analyses and thus improve understanding of the U.S. energy system. We hope that with improved under- standing, the energy system can be made to function more effectively. This section of the report is divided into two parts. The first focuses on the energy consumer--the ways consumers make decisions about energy use and the cognitive, attitudinal, and interpersonal influences on their behavior. The second describes the environment in which energy consumers behave--an environment of social, economic, and institutional forces that produces the information consumers get, shapes social values, and sets the boundaries within which consumers choose. THE ENERGY CoNSUMER4 It is useful to distinguish five models of the behavior of energy consumers. Some of these are readily compatible with a market view of the energy system; others are not suggested by such a view. Five Models of Consumer Behavior Energy Consumer as Investor For many purposes energy consumers can be regarded as investors for whom energy has a cost that is weighed in considering purchases of equipment that uses energy. Such equipment is considered by consumer-investors as 4Energy consumers include households, firms, govern- ments, and other social entities. Much of the discussion in this section focuses on the behavior of individuals and households, and the behavior of organizational energy consumers is only occasionally discussed. The final report will explicitly distinguish these classes of energy consumers and will discuss their behavior separately.

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20 capital in the sense that it is a durable good that produces a stream of economic benefits, such as reduced energy costs, over its useful life. Consumers may also see the purchase of energy-saving equipment as an investment if they expect it will increase the resale value of a property. Investments are presumably based on stable preferences and on an analysis of the discounted future value of energy expected to be used or saved. Thus, a family decision to exchange a large "gas guzzler n for a new fuel-efficient subcompact car can be regarded as an investment decision: for a capital investment of, say, $7,500, the family will be able to reduce its energy costs by a predictable annual amount. This sort of analysis underlies the practice of analyzing expenditures on energy-efficient technologies in terms of "payback periods or return on investment. But an examination of actual consumer behavior related to energy use shows that energy and energy-using equipment have meanings unrelated to the economic cost of fuel. Consumers who purchase cars do not look solely at fuel efficiency. This consumer act is incompletely characterized as an investment. As another example, decisions about home improvements can have major implications for household energy use. These decisions may be viewed by consumers as economic investments, in the sense that home improvements may have a continuing benefit by reducing operating costs. But they also have implications that do not easily translate into return on investment. They may increase comfort, provide more space or light, or improve the appearance of the home. Thus, when a homeowner considers reinsulating or replacing a working furnace, these choices, whose benefits are chiefly financial, are competing against unlike alternatives--another bathroom, a picture window, new living room furniture, and so forth. Consumers are not likely to weigh the potential but uncertain value of energy saved against the pleasure, convenience, or status achievable by alternative purchases. It is probably misleading to conceive of consumers treating energy efficiency as strictly a question of investment when they are not likely to consider the alternatives to energy efficiency as investments. In households, other important energy decisions are made when furnaces, water heaters, refrigerators, and the like wear out. Such decisions may be made under time pressure and with only partial information, with quick

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21 replacement a more pressing issue than life-cycle energy costs. Although these decisions may affect energy use for years or even decades, the consumer may see them as repair, not investment decisions. In addition, any effort to seek complete information might be very costly, in the sense of imposing hardships on the household. Other important decisions about energy use are made by major purchasers of energy-using equipment who are not the ultimate users. These include developers of residential and commercial buildings and operators of automobile rental agencies. In such cases, the investor is not the consumer. The investor's concerns have to do with ultimate sale or lease of a product competing with similar products. Thus, in new multihousehold residences, electric resistance heating is often installed to keep down the price of the building and to let the owner escape the various management problems associated with central heating. Decisions about what appliances to install may be based more on visual appeal to the initial tenants than on life-cycle cost. labile these decisions are certainly investment decisions, future energy costs are not involved, since they wil be paid by someone not included in the investment decision. Thus, the investor is relatively unconcerned with energy consumption, and the energy consumer is uninvolved in purchasing the durable goods that might be seen as an investment. For all these reasons, the investment model provides an incomplete account of the behavior of energy consumers, even with respect to capital goods. Others models of consumer behavior may be more applicable in many situations. Energy Consumer as Consumer In this model, residential consumers think of their homes and automobiles as consumer goods, that is, as providing necessities and pleasures. While resale value and operating costs may be considered at the time of purchase, energy-using activities and equipment are purchased for the value of using them. Once purchased, money is spent on them primarily to maintain or increase their ability to provide necessities and pleasures, and only secondarily to increase their economic value. This model might offer an explanation of the fact that home improvement loans are taken out much more frequently for room additions or new siding than for reinsulation or new and improved

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22 furnaces. The former expenditures give the owners pleasure or tangibly add to a bome's value as a place in addition to their economic benefits; the latter mainly save money. Among energy investments, the usual preference for storm windows before wall insulation may reflect the same phenomenon: storm windows are attractive and may decrease the physical effort of home upkeep; insulation offers a faster return on investment but lacks these consumer benefits. Energy Consumer as Member of a Social Group In this model, homes and automobiles have social meaning. They express membership in a community or attainment of a certain status in society. Thus, the keys to the family car symbolize attaining adult status. A home in the suburbs symbolizes success in a career. And the home must be acceptable in appearance to the occupant's neighbors or coworkers, or the homeowner risks rejection. As a local manager of energy planning remarked, Firm committed to saving energy and I know plastic sheeting over my windows would have a fast payback, but I wouldn't dream of putting plastic on my house. My neighbors would kill me. Energy considerations take second place when they oppose such strong social pressures. Energy Consumption as Expression of Personal Values In this model, consumers use or conserve energy in ways consistent with their personal ideas of the good life. Thus, for some consumers, central air conditioning may be an important expression of a value of comfortable and gracious living. For others, solar collectors on the roof may express values of self-reliance or environmental preservation. Energy Consumer as Problem Avoider In this model, energy use is taken for granted and is no more than a potential source of annoyance or inconve- nience. Nothing is done about energy until the furnace breaks down, a power outage or a gasoline shortage occurs, or there is such a sharp rise in the price of energy as

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23 to command immediate attention either because of the change itself or because energy becomes a more significant portion of the budget. In this model, energy conservation does not happen until some threshold of annoyance is passed; at that point responses begin and continue until the annoyance goes below the threshold or until some larger and more pressing problem appears. Consumer responses typically are haphazard and oriented toward abort-term avoidance of inconvenience, perhaps guided by hearsay, rules of thumb, "what worked last time, n or other unsystematic influences. Implications We do not believe that any one of these five models is correct generally; rather, there are elements of truth in each. It is appropriate to ask what sorts of energy consumers most closely follow which models, and in what kinds of circumstances one model or another furnishes insights into how energy consumers behave. For example, it seems reasonable to expect that corporate energy decisions, more than residential ones, follow the investment model. But corporate buildings may also be designed to improve the corporate image, and corporate managers may unthinkingly follow rules or act to demonstrate personal status. Considerations other than investment are important to all energy consumers under some conditions, as we elaborate below. Interpersonal Influence and Imitation Recently energy costs have been changing rapidly and unpredictably, rendering the environment for energy- related decisions uncertain. In such an uncertain environment, the ideas and actions of others have a heightened effect on individual judgment and behavior, as has been repeatedly demonstrated in decades of experimental research (e.g., Latane and Darley, 1970; Sherif, 1935). It is not surprising, then, that social influences are important determinants of energy use. Simple imitation is one form of influence. An illustration is provided by Aronson and O'Leary (1980), who demonstrated how this form of influence can induce people to modify a routine habit (taking a shower) in a manner that conserves energy. Even though the over-

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24 whelming majority of students using the shower room at the university field house knew that taking short showers saves energy, and even though a prominent sign on the wall reminded them to keep showers short and to turn off the water while soaping up, only 6 percent of the students took the recommended steps to conserve hot water. When the researchers made the sign very obtrusive, short shower-taking increased to 19 percent, but many expressed verbal hostility in response to the sign. This tactic may have done more harm than good. Finally, the researchers employed students who served as appropriate models by turning off the water and soaping up whenever someone came in to use the facility. When this strategy was used, the number of people turning off the water to soap up climbed to 49 percent; with two people simultaneously modeling the behavior it rose to 67 percent. This sort of influence is obviously dependent on the visibility of the behavior being influenced. Consumers might imitate careful driving techniques or the shutting off of lights, but would probably not readily imitate the installation of insulation in walls or the purchase of fuel-efficient water heaters. The latter sorts of actions are easily influenced, though, by communication with friends and associates. Influence by interpersonal communication has been documented for a long time. Consider the history of the agricultural extension program in the United States. During the 1930s the federal government attempted to disseminate information about improved agricultural practices. At first the government tried to persuade farmers by distributing pamphlets filled with tables, charts, and statistics. This information campaign was a dismal failure. Then a demonstration project was set up in which government agents worked side-by-side with farmers on selected farms. When the surrounding farmers saw the size of their neighbor's harvest, they quickly adopted the new techniques (Nisbett et al., 1976). This sort of influence has been repeatedly documented since the 1930s and has recently been shown to influence energy consumers. Dorothy Leonard-Barton (1981) found, in a study of residential adoption of solar energy equipment, that interpersonal sources of communication are considered most important both by adopters and nonadopters of the equipment. In addition, the best predictor of intention to purchase solar equipment was found to be the number of solar owners that a potential

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25 adopter knows. In a study of the adoption of energy conservation equipment, John Darley (1977) found that a newly developed clock thermostat spread from the people who first used it to their friends, colleagues, and office mates. - communication--neighbors were not necessarily the next to try the new equipment. The experiences of friends and colleagues are influential for several obvious reasons. First, where people lack strong trust in social institutions, the influence of friends is enhanced because friends are trustworthy sources of information or because their biases and values are known and can be taken into account. Second, when a friend or colleague adopts some energy innovation (e.g., a solar water heater or the practice of car pooling), that adoption represents a vicarious experiment for the consumer who will see or hear of the results. Research on the diffusion of innovation demonstrates that people are more likely to adopt a new idea or technology if they can try it on a small scale without fully committing themselves to it (Rogers with Shoemaker, 1971). Trial by a friend can fulfill this function. The spread was along lines of Third, people tend to weigh information in proporption to its vividness (Nisbett et al. 1976; Borgida and Nisbett, 1977; Hamill et al., 1980). The experience of a friend or acquaintance may yield a vivid demonstration (not just a vicarious experiment) of what one might expect to happen when trying the innovation oneself. Impersonal data summaries, even from large numbers of cases, have been shown to have less impact than vivid face-to-face interactions and detailed case studies. The experience of someone one knows well, combined with the opportunity to hear the experience firsthand, is a very strong demonstration and has potent effect even if the friend's experience is atypical. The importance of friends and acquaintances for spreading new ideas in an uncertain environment has implications for changes in energy use. New energy ideas may be held back at first because the fact that they have not been tried is taken as evidence that they do not work. On the positive side, once a new way of saving energy has been tried, it can spread easily along predictable channels. Word of mouth is a particularly important medium of communication for social groups that either do not trust information from established institutions or do not receive the information transmitted in other media

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26 due to lack of access or problems with reading or language. The Momentum of Past Behavior Behavior once undertaken often requires additional bolstering and justification that, in turn, leads to a shift in values. Thus, individuals who have recently made an important decision seek to justify that decision after the fact by convincing themselves (and others) that the decision was a wise one. This behavior is predicted, explained, and researched under the rubric of the theory of cognitive dissonance (Festinger, 1957; Festinger and Aronson, 1960; Aronson, 1969; Wicklund and Brehm, 1976). There is a vast research literature in social psychology bearing on dissonance phenomena: Irle and Montmann (1978) list 856 separate published articles (largely research publications). A few general findings and principles with potential relevance to energy use have come from this research: 1. People tend to rationalize the choice they have made following a difficult decision. They tend to emphasize the positive aspects of the chosen alternative and the negative aspects of the unchosen alternative. As a result, as time goes by, the individual comes increasingly to view the selected option as clearly superior to the unselected one (Brehm, 1956; Darley and Berscheid, 1967). 2. The greater the commitment in terms of effort, cost, or irrevocability, the stronger and more permanent the effect (Axonson and Mills, 1959; Gerard and Mathewson, 1966; Knox and Inster, 1968). Typical of these experiments is a recent study by Axsom and Cooper (1980); obese individuals desirous of losing weight who were induced to make a greater commitment to join a weight reducing program lost significantly more weight than a control group of obese individuals who were similarly desirous of losing weight. Moreover, the effect of commitment was not temporary; the magnitude of the difference was even greater after 6 months than after 3 weeks. 3. People tend to remember the plausible arguments favoring their own position and the implausible arguments opposing their position (Jones and Kohler, 1958). This serves the need for self-justification rather than that of objective fact-seeking.

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27 4. Once someone makes a small commitment in a given direction, that person is much more likely to make a large co D itment than someone previously uninvolved (Freedman and Fraser, 1966). Applied to energy consumption, these principles describe an inertia in our behavior: we resist change because we are committed to what we have been doing, and we justify that inertia by downgrading information that implies that change is essential. _ . _ This partially explains the failure of many energy consumers to take economically justifiable action to save energy. But these principles also suggest that change may be brought about by a process that begins with small commitments to energy saving action and then moves under its own momentum toward more signifi- cant efforts. Personal Values and Norms Energy use is influenced by broad personal values and by specific norms for action. These are products of upbringing, perceptions of world and local events, and the influence of other people. Values and norms can take on the psychological force of moral convictions or of ego involvement. For example, an individual who grew up in poverty may define his or her personal worth in terms of consumerism. Such a person may feel he or she has "made it n ( succeeded in climbing out of impoverished circum- stances) because there is no need to be concerned with cost or to worry about waste. "Why should I turn my thermostat down at night? I can afford it." An attitude like this, based as it is on a person's sense of self, is a formidable barrier to many energy-conserving actions. Similarly, a corporate executive may feel that a person in his or her position should travel by air and private car whenever possible and should work in a spacious, climate-controlled office. These normative beliefs also have obvious implications for energy use. An alternative value that may be held more and more by U.S. consumers has been called "voluntary simplicity. Leonard-Barton (1981) has described it in terms of a syndrome of behaviors: using bicycles for transportation, recycling paper, cans, and glass, taking classes to increase self-sufficiency, consuming meatless meals, buying secondhand goods, and making various items instead of purchasing them. In three studies in California,

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40 the information needed to make rational economic calcula- tions. As a result, they can be expected to make fewer investments in energy efficiency than are justified in terms of lowest energy costs over the lifetime of the equipment. And the investments that are made will not always be those most likely to save money. When individuals function as business decision makers, they may have large resources for gathering information, but great uncertainties still exist. future government policy. Will investment tax credits rise or fall? Will penalties that now exist be removed? Will future penalties or deadlines set by law Answers to these questions would partly Determine the wisdom of delay. But in any event, the more uncertain the future looks, the more reasons that can be adduced for inaction. Increased? be modified? A major one concerns The Symbolic Context of Energy Use Public debate on energy issues is couched in symbolic language: "the moral equivalent of wary Freezing in the dark, "energy independence, n and so forth. Muab of this symbolic debate seems to turn on the association of energy with control, power, and freedom. In the tradi- tional view, these values are associated with ever- increasing energy supply and consumption: energy confers goods and services, upward social mobility, and so forth. Shortages of energy supply are seen to portend national weakness, economic stagnation, and the end of The good life. n Thus, the rhetoric of energy independence was used to argue for energy production, and the "moral equivalent of war" was a national mobilization of capital to produce energy and of consumers to sacrifice, but for a common good. The current administration's rhetoric of "getting government off the backs of private enterprise" suggests that freed of regulations and tax burdens, industry will produce more energy and that more energy will mean national strength. There is another view of the relationship between energy use and freedom and control. In this view, large- scale applications of energy do not enhance Personal or familial control--they shift control from individuals, families, and neighborhoods to large-scale corporate organizations and to domestic and foreign governments. Energy conservation and the development of locally available renewable energy sources are seen as essential _

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41 to regain or retain control. Shortages of supply are the proof that energy means dependence, and freedom is freedom from control by distant suppliers of fuel and electricity. The rhetoric of self-belp and local self-reliance has been used to motivate local energy conservation efforts in cities such as Fitchburg, Massachusetts, and St. Paul, Minnesota. The battle over symbols--the association of control and freedom with energy use or with energy conservation-- will have tremendous implications for the acceptability of alternative energy policies. And the symbolic connections are in turn influenced by occurrences in the energy system. On one hand, conservation measures that occur in response to shortages and within tight timetables are seen as coercive--they underscore the linkage of conservation with loss of control. On the other band, conservation in response to the relatively slow pressure of rising prices may lead some consumers to associate conservation with increased control. (Other consumers, who can afford to respond only by sacrificing amenities, may still see conservation as a loss of freedom.) Policies that facilitate conservation by efficiency improvements will reinforce the linkage of conservation and control, while policies that make it more difficult for consumers to get money to invest in energy efficiency are likely to lead to an association of conservation with suffering and loss of freedom. In suab ways as these the symbolic context of energy consumption and conservation affects consumer behavior and public reactions to energy policy; the symbolic meanings are themselves shaped, in part, by policy. Limited Choice Most of the above discussion implicitly assumes that consumers are free to choose among actions that imply different amounts of energy use. We have discussed whether these choices are conscious, what implicit or explicit decision rules govern them, and what constraints are set on intelligent choice by uncertainty, psycholog- ical processes, and the unavailability of accurate or credible information. Even before consumers have a chance to act, however, their choices are limited. We alluded to some of these limitations in the discussion of energy invisibility. We describe some of the other major limitations here, drawing on more detailed descriptions elsewhere (Schnaiberg, 1980).

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42 Limited Selection of Products Energy consumers have limited control over the alternatives present in the market from which they must choose. While consumer disinterest can guarantee the failure of a product, consumer interest cannot guarantee its production. The producers have the initiative. And producers do not necessarily profit by marketing energy- saving products. In the home appliance market, for example, products that use less energy to provide the same services are usually more costly to produce because of the extra materials needed to provide insulation and to make more energy-efficient motors. Some consumers would purchase such appliances despite the initial cost. But without extraordinary and expensive effort to educate the mass of consumers about the life-cycle cost of owning and operating appliances, a manufacturer who chose to produce efficient equipment would quickly lose the market to a manufacturer of inefficient machines with lower price tags. Because consumer preferences cannot be expected to induce manufacturers to reliably produce efficient equipment, government programs have recently required energy efficiency labels to be placed on appliances and automobiles. The rationale for this approach is that a mandated program to educate consumers about the lifetime costs of owning and operating appliances will make consumer preferences more effective in the market. But even with some knowledge about the energy cost of using a product, consumer preferences for efficient equipment do not get easily translated into the manufacture of such products. Producers may seek less expensive alternatives to filling consumer desires. The marketing of automobiles illustrates this. In 1979, when consumers became concerned about gasoline shortages and began to demand more fuel-efficient vehicles, one response by U.S. manufacturers was to advertise large cars by emphasizing their ability to get many miles-per-tankful. Of course, these ads downplayed the size of the tank that would have to be refilled. Another response was to hold down the prices of large models enough that advertising could truthfully show that even though a large car costs more to run, it is noticeably cheaper over its useful life than some more fuel-efficient, higher-priced models. It seems to have taken a combination of government pressure and foreign competition in addition to intense and persistent consumer nonresponse to force the manufacturers to produce energy-efficient vehicles.

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43 Choices Made for Consumers A more subtle type of limitation on consumer choice occurs when some intermediary--another individual or an organization--makes choices for the ultimate consumers. Housing developers, for example, purchase a large share of all major appliances sold to install in new buildings, and rental agencies purchase trucks and automobiles. While consumers may choose among the purveyors of housing or rental equipment on the basis of energy, the choices are usually limited. And developers and landlords are more strongly motivated to keep down their own capital costs than the energy costs that will be borne by the ultimate consumer. Another way choices are made for consumers is in decisions about which equipment and processes to use in manufacturing, construction, and agriculture. Such decisions affect consumers' indirect purchases of energy, but it is difficult for consumers' actions to influence them because the energy costs of producing an automobile, a school, a tomato, or a bomber are generally well hidden among other costs when the ultimate consumer takes action. The energy costs are more significant to the producers, but their accounting practices may not make these costs salient, and their focus may be more on increasing the quantity of goods and services produced than on lowering operating costs. Paying for Energy Costs "Passed Through n Some energy consumers have the power to respond to higher energy costs by passing them on to other consumers. The most obvious example is the Fuel adjustment" provision common in utility regulation that allows utilities to automatically increase gas or electric rates by the increased cost of fuel to the utility. This arrangement gives the utility virtually no incentive to cut fuel costs, and the customer must pay. The pass-through creates an incentive for customers to cut energy use, and their response in turn lowers the utility's demand for fuel. This course of events does not, however, provide the utility with an incentive to make its operating practices more energy-efficient. As long as regulatory practice allows utilities to pass on fuel cost increases and requires them to pass on any fuel savings to the consumer, their incentive to save on these expenses is severely limited.

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44 A striking example of the power of utilities to pass on costs teas occasionally resulted in the paradoxical situation of consumers paying more for energy because they have used less. As a direct result of decreased demand, some large electric utilities have sought and received rate increases to maintain their guaranteed rate of return against fixed capital and labor costs. These rate increases may be smaller than would have been required if consumers had not cut energy use, because conservation may allow a utility to forego construction of new and expensive plants. This point escapes most citizens, however, because they generally measure the effects of their conservation activities by their utility bills and not by what a bill would have been without the conservation effort (Kempton and Montgomery, no date). Thus, the economic motive to conserve is undermined for consumers. Similar limits on consumer choice exist, on a somewhat limited scale, in other constrained markets. In tight rental housing markets, for example, landlords have little incentive to invest in cutting energy costs even if they are paying for the energy--they can pass the costs directly to tenants. In some cities with rent control, automatic pass-along of energy costs has been written into control ordinances as the only simple way to prevent widespread bankruptcy among landlords. Additional limitations on choice in the rental housing market are created by the poor condition of the business generally, the unavailability of energy credits, and the common belief that energy investments do not increase property values (Bleviss, 1980). Constraints on Renters Those who rent housing or other energy-using equipment are limited in their options to use or save energy. They can make behavioral changes such as shutting off air conditioners and lights, and they may make small changes in the equipment, such as weatherstripping around windows. But they are very unlikely to make larger investments. These may be construed as tampering with private property; even if they are allowed, they are unattractive invest- ments since they improve someone else's property. In addition, some renters are limited even in their behavioral options, for example, by central control of heat in an apartment building.

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45 Choices Constrained by Public Goods and Services Political decisions, such as those to invest billions in limited access highways, to offer tax incentives to home owners, and to develop centralized water and sewer systems, have had major long-range energy implications. These policies have encouraged suburbanization and have made detached suburban homes relatively inexpensive and convenient to reach by automobile. But a dispersed settlement pattern intensifies dependence on the private automobile and increases heating and cooling needs compared with attached city dwellings. And the trend toward suburbanization has further limiting effects on consumer choice. As dwellings and work places disperse and inner-city populations decline, mass transit systems are used less and therefore become less energy-efficient and more expensive. As a result, transit services are cut, making even more consumers dependent on the automobile. In this way, past political decisions, such as those to invest in public highways rather than public transit, have significantly changed the environment in which residential consumers choose places to live and corporations choose places to build plants and offices. The energy implications have been far-reaching. Long-lived Capital Stock Housing is the best example of long-lived capital stock. Buildings last a long time, and many are difficult to reinsulate or adapt for different fuels. It is very difficult and expensive, for example, to convert from electric resistance heating to other heating systems. Similarly, natural gas is available only where lines have been run, so conversion from oil is not always practical. The choices of consumers in a housing market are limited by the stock of existing housing; with rising mortgage rates and construction costs, the stock is replaced more slowly, further limiting consumers' ability to choose energy-efficient housing. The Needs of Changing Households The U.S. population is grouping itself into smaller households, thereby changing both the patterns and the magnitudes of energy use. Per-capita energy use rises

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46 because certain expenditures for energy are essentially fixed regardless of household size. At the same time, smaller households may occupy smaller dwelling units. The increasing prevalence of dual-earner families has also changed energy demand. Wives and husbands may need to be in particular places at specific times more often than in the past. As a result they are more likely to make trips by automobile. Also, because of the premium they place on their time, they may be more inclined than their one-earner counterparts to substitute energy for labor in the home, by acquiring ~labor-saving" devices (Morrison, no date). The present trends have increased the need for housing units, automobiles, and appliances as well as the demand for transportation during rush hours. Reversing these trends, all of which increase energy demand, may put pressure on households to adapt by changing work patterns or living arrangements--changes likely to be resisted strongly. Limited Capital for Energy-Efficient Equipment The choices available to energy consumers are limited because consumers have unequal access to capital. Generally the most effective means of conserving energy for residential consumers involve capital investments, and the means that do not use capital tend to involve the loss of amenities (Stern and Gardner, 1981). As a result, residential consumers wishing to limit energy use must often choose between using capital and sacrificing heat, mobility, or other values. Consumers who lack capital cannot make this choice. The problem of available capital is not confined to residential consumers. Most owners of rental housing are individuals or partnerships whose rent receipts are part of personal income (Bleviss, 1980). It is often difficult for them to obtain capital either from surplus funds or in financial markets. Similarly, small firms are less likely to invest in new energy-saving equipment than medium-sized or large firms in the same industry (Oskamp, 1981). The ability to make capital investments, either from saved or borrowed funds, is limited by the income of the energy consumer, but it is also affected by the policies of governments and lending institutions. Federal energy credits have lowered the eventual cost of energy-efficient equipment to home owners and businesses, although not to

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47 the owners of rental housing. Tax credits, however, do nothing to make capital more readily available. Some utilities have sponsored low-interest and interest-free loan programs for energy efficiency, and these have had some limited success getting capital to home owners. An additional problem is that both firms and financial institutions have tended to favor investments in productive capacity over investments in energy efficiency. One likely implication of a scarcity of capital for energy efficiency is that different segments of energy consumers are responding in different ways to increasing energy prices. More affluent consumers in any sector are more able to respond with investments, with little sacrifice of the services energy provides. Less affluent consumers have more limited options available, so tend more often to respond with curtailments. This may be shifting the symbolic meaning of energy conservation in different directions for different groups and may also leave them with unequal ability to respond quickly to shortages of needed fuels.S Thus, the affluent will have a greater ability to sacrifice in an emergency in the sense that their past sacrifices have not been as severe. Some Implications of the Efficient Working of Market Forces Emphasis on efficiency in an economic system can work against other important values. Among these may be social equity and the redundancy and slack that protect a system from crises. A useful description of the national energy system should highlight the ways in which values come into conflict. We have already alluded to one of these in the discussion of limited capital availability. When the market rewards individuals and firms unequally, presumably because of differential productivity, these energy consumers face unequal hardship when prices rise or when short supplies are hard to obtain. Instances of sThe notion of limited ability to respond to shortages rests on two assumptions: first, that curtailment is the most effective quick response in an emergency, and second, that there are limits to curtailment--one such is set by human physiological responses to cold.

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48 aged, low-income people freezing in their homes graphically illustrate this value conflict. To prevent such an outcome, government has sometimes interfered with the market allocation of resources by providing transfer payments or other relief to individuals who, though economically nonproductive, are socially defined as deserving. Another example of efficiency in conflict with other values is seen in the way the market works to eliminate redundancy in the energy system. Mass transit is the prime instance. Because of the trend to geographic dispersion already noted and undoubtedly for other reasons as well, transit systems are going further and further into deficit. An analysis based on the economic efficiency of the transportation system may rightly conclude at times that such systems cannot be justified (e.g., Lave, 1980). But emphasis on other values, such as adaptability in an emergency, might modify this conclusion. If there is a major interruption of oil supplies, mass transit, especially electrically powered transit, could be used to ease pressure on oil supplies. This might stretch supplies enough to keep homes warm and to keep workers moving to their jobs and consumers to shops. The benefits would be widespread--but such benefits would not be provided by a market that does not take account of the future public good that current expenditures on transit might provide. Current expenses on highways, while they may be more efficient under current conditions, may not promote flexibility in an oil emergency as well as would expenditures on mass transit systems. Thus, to the extent that market forces operate to promote the value of efficiency, they may work to the detriment of the value of adaptability in an emergency. SUM - RY We have described major features of the national energy system that affect energy consumers. This description has raised a number of issues about the system's effectiveness in providing energy services and about the potential for making the energy system more effective. The central points are summarized below. . Energy consumers may reasonably be viewed in many ways: as investors, as consumers, as members of social groups, as people expressing personal

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49 . . . . . values, and as problem avoiders. Each view is partly true, yet each gives an incomplete picture of actual consumer behavior. In particular, the assumption that consumers make investments in energy efficiency when they are justifiable in terms of total eventual cost is likely to lead to the wrong predictions, especially about residential consumers. The behavior of energy consumers is influenced by the behavior and opinions of their peers, the momentum of their past behavior, and personal values and norms, in addition to considerations of cost and expected return. The ability of consumers to respond to changes in price or availability of energy is limited by the invisibility of energy in their daily lives. The trend toward energy invisibility teas eroded consumer knowledge and changed the physical structure of energy-using equipment so that even when energy costs are high and salient, it is difficult to respond effectively. Conflicting, confusing, and inaccurate information is an inherent feature of the environment of energy consumers; providing more useful information is more a problem of modifying information systems so that consumers can find credible information than a matter of collecting technical data to improve the accuracy of knowledge. Energy consumption and conservation have important symbolic content that is rooted in society's images--of success, "the good lifers and so forth. One way energy policy acts is by touching these symbolic meanings. Energy consumers' choices are limited in many ways: by the availability of energy-efficient products on the market, by decisions made for them by intermediaries, by the prevalent use of rented housing and equipment, by the availability of public goods and services, and by the requirements of long-lived capital and household living arrangements. Unequal availability of capital allows some consumers to invest in energy efficiency while others must pay higher prices or curtail energy services; one effect of this may be unequal suffering in an energy emergency.

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50 . The value of efficiency in the energy system sometimes conflicts with other values, particularly those of social equity and of flexibility under emergency conditions. Further work by the committee will build on awareness of these issues. It is likely to include examination of the workings of past and present policies that affect energy consumers and discussion of the implications of alternative possibilities for making the national energy system more effective in meeting the needs of consumers and the nation.