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OCR for page 17
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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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.
OCR for page 19
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.
OCR for page 20
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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
OCR for page 21
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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
OCR for page 22
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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
OCR for page 23
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-
OCR for page 24
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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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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
OCR for page 26
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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.
OCR for page 27
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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,
OCR for page 40
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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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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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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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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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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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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.
.
.
.
.
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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.
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.
Representative terms from entire chapter:
energy costs
