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CHAPTER 1
ENERGY CONSERVATION POLICY AND BEHAVIOR
Although energy policy is not high on the 1985 agendas of federal
officials, energy use remains important to the nation. Energy use
still affects air and water quality, and it might, in the long term,
bring about major changes in climate. Inefficient energy use also
makes the economy less efficient and less competitive internationally.
And the high price of energy is a constant burden on households, busi-
nesses, and municipalities--especially those that lack the capital to
purchase energy-efficient technology. Thus, even if energy prices do
not increase in the future as they did in the past decade, there is
still reason for a national effort to improve the efficiency of energy
use.
Households are an important focus for that effort. Until now,
residential energy conservation forced by energy price increases in the
United States has mainly taken the form of reduced standards of living
rather than increased efficiency of energy use {see Frieden and Baker,
1983; King et al., 1982; Morlan, 1981, cited in Hirst, Marlay, et al.,
1983; Stern, Black, and Elworth, 1983~. Moreover, the reduced living
standards have occurred primarily among low-income households: invest-
ments in improved energy efficiency have mainly been made by the
well-to-do (Dillman, Rosa, and Dillman, 1984; Energy Information
Administration, 1980), while low-income households have cut back on
health care, education, and other household expenses to pay for energy
{Dillman, Rosa, and Dillman, 1984~. Because low-income households have
made few investments in energy-efficient technology, energy costs have
been rising fastest for those households (Energy Information Administra-
tion, 1982), millions of which now pay more than one-third of their
incomes directly for energy (Cooper et al., 1983~.
Because of such developments, many state, municipal, and private
decision makers consider energy efficiency important even though it is
the list of federal Priorities. Many state energy offices
not high on _ __
are working to relieve the hardship of energy costs and to stem the
flow of energy dollars out of state economies. Electric utilities in
several parts of the country are looking to residential energy effici-
ency as a cost-effective alternative to power plant construction for
meeting demand. And even the federal government continues to implement
conservation policies enacted over the last decade, such as the low-
income home weatherization program and the appliance standards and
1
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labeling programs. The continuing interest in policies and programs to
improve household energy efficiency is reflected in a series of
well-attended research and policy conferences over the last several
years (see American Council for an Energy-Efficient Economy, 1984;
Ester et al., 1984; Harris and Blumstein, 1984; Harris and Hollander,
1982; Morrison and Kempton, 1984~.
THE HI}MAN DIMENSION OF ENERGY USE
This report focuses on what we have called the human dimension of
energy use--the way factors such as habit, trust, personal values,
word-of-mouth communication, and recent personal experience affect the
energy choices of individuals, households, and organizations. In
earlier reports (Stern, 1984; Stern and Aronson, 1984), we have shown
the importance for energy policy and policy analysis of an understand-
ing of current knowledge about consumer behavior, including human
thinking, motivation, information processing, and decision making; of
the rules that govern the behavior of organizations and individuals in
the face of change and uncertainty; and of other social and psycho-
~ogical processes. This report extends the earlier work, applying it
to some unsolved problems regarding energy efficiency in buildings.
It may be useful at the outset to suggest the kinds of policy
problems that have been exacerbated by inattention to the human
dimension of energy use. Efforts to implement energy efficiency by
exhorting consumers to save or by sending them information about how to
do it have had little effect (see Ester and Winett, 1982~. People
often fail to notice, understand, or trust the information. Tax
incentives have not reached all the people who could benefit, partly
because many low-income people do not routinely pay attention to
details of the tax code or keep the necessary records. Thus, tax
credits have mainly subsidized affluent consumers (Energy Information
Administration, 1980) and people who would have invested in energy
efficiency even without the incentives (Berry, 1982~. And new energy-
saving technologies are not readily adopted even when they offer a high
return on investment (see, e.g., Office of Technology Assessment,
1982), in part because energy bills give confusing information that
cannot readily be used to confirm energy savings (see Kempton and
Montgomery, 1982; Kempton et al., 19841.
When policy makers fail to recognize energy's human dimension,
policy initiatives have often faltered. When the Residential
Conservation Service program offered homeowners individualized energy
information at low cost or even for free, the response was decidedly
underwhelming (U.S. Department of Energy, 1984; Hirst, 1984; Hirst,
Berry, and Soderstrom, 1981; Rosenberg, 1980~. When conservation
programs offer loan subsidies for home weatherization, few people take
out loans, and the rate of participation has had much less to do with
the size of the subsidy than with the way the programs are marketed and
managed (Stern, Berry, and Hirst, 1985~.
Other disappointments in energy conservation may also be due to
unanticipated behavior. When weatherization programs seem successful--
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when they lead to the insulation of walls, the caulking of doors and
windows, and the installation of energy-efficient furnaces--energy
savings have not matched predictions. On the average, savings are
somewhat less than predicted, but the variability is a bigger surprise:
while some buildings save double what was predicted, others show sub-
stantial increases in energy use (Goldman, 1984; Goldman and Wagner,
1984; Hirst, White, and Goeltz, 1983; Hirst and Goeltz, 19841. Many
plausible explanations have been offered for these outcomes, but none
has been proved and the reason or reasons remain unknown. Perhaps
people take some of their energy savings back as increased comfort by
altering thermostat settings; perhaps installers of energy-efficient
equipment do not install it the way the predictive models expect; and
perhaps even the carefully constructed computer models used to predict
energy savings are not correct or not precise, since different
engineers using the same model of the same building often vary by 100
percent in their estimates of how much energy a building uses
(K. Teichman, U.S. Department of Energy, personal communication).
ABOUT THIS REPORT
The committee's past reports show that conservation policies and
programs have been built on an inadequate understanding of how people
respond to prices, information, incentives, and other stimuli. Some of
the needed knowledge exists, but much still has to be developed in the
process of designing and implementing energy policies and programs.
This report offers guidance for policy makers who need to understand
the human dimension to make policies and programs in the building sector
work. It addresses a small selection of policy issues, applying the
relevant behavioral knowledge that exists and suggesting ways to develop
the needed knowledge that does not yet exist.
This report follows from the past work of the committee and draws
heavily on evidence reviewed in our previous reports (Stern and Aronson,
1984; Stern 19841. Following those reports, it emphasizes contributions
from the noneconomic behavioral and social sciences, particularly
research on topics that have not been the primary foci for economists,
such as word-of-mouth communication, program implementation, and the
effects on consumer behavior of the sources of information rather than
its content. We draw on some work by economists, but have not attempted
to systematically review recent research in economics that, like the
work reported here, could help illuminate the role of behavior in energy
use. Such research includes modeling efforts that allow different
determination of behavior as a function of climate, income, housing and
appliance stock, and time of year (e.g., Dubin, 1985; Ruderman, Levine,
and McMahon, 1984~; efforts to model appliance choice separately from
appliance utilization (e.g., Dubin and McFadden, 1984; Goett and
McFadden, 19827; efforts to test psychological hypotheses in econometric
models (e.g., Hill, 1985, 1986~; analyses of consumer expectations of
the behavior of markets (e.g., Mishkin, 1983~; and economic models of
information search by consumers (e.g., Hirshleifer and Riley, 1979;
Salop and Stiglitz, 1977; Wilde and Schwartz, 1979~. Such work by
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economists is moving on a parallel track with the kinds of behavioral
research that form the primary basis for this report.
The remainder of this chapter distinguishes four approaches to
conservation policy--information programs, financial incentives,
standards, and technological research and development--and identifies
the major kinds of behavioral questions that arise in considering each
kind of policy. Chapter 2 offers a framework that policy analysts can
use to get answers to these types of behavioral questions. It discusses
the methods available for answering such questions and outlines the
strengths and weaknesses of each. Chapters 3 through 6 examine selected
policy issues in more detail. Chapter 3 examines the effectiveness of
incentive programs for residential energy efficiency, reviewing avail-
able data and drawing conclusions about what makes such programs attrac-
tive to energy users. Chapter 4 focuses on the role of information in
home retrofit programs, showing how the key behavioral questions that
arise in that context could be addressed more comprehensively in the
future. Chapter 5 addresses another information-based policy option,
the development of home energy rating systems. Drawing on available
knowledge, it offers suggestions for designing and evaluating future
rating systems. Finally, Chapter 6 examines a current issue in the
implementation of energy-efficient technology:
observed and expected energy savings from home retrofits. It sets
forth a research program for determining the major causes of the gap
between prediction and reality that considers both the behavioral and
technical factors involved.
We believe this report will be of value to policy makers considering
and implementing policies for residential energy efficiency. It is
especially pertinent to the policy issues specifically raised in chap-
ters 3 through 6, but it can also help in considering other policy and
program options in the residential building sector. Thus, the report
speaks to concerns of several offices in the U. S. Department of Energy
^ ~ - ~ municipal governments,
the discrepancy between
(DOE), state energy offices, utility companies,
and nonprofit organizations.
BEHAVIORAL QUESTIONS RELATED TO CONSERVATION PROGRAMS FOR BUILDINGS
Information Programs
Many conservation programs for buildings are based largely on
information. For example, Residential Conservation Service programs
have offered better information to energy users through home energy
audits, and DOE's Home Energy Rating System (HERS) and appliance
labeling programs aim to save energy by providing more accurate
information to purchasers about the energy efficiency of buildings and
appliances. The success of these programs depends on the effect of new
or improved information on major expenditures by energy users, for home
purchases and retrofits and for major appliances. To design and
implement such programs effectively, several types of behavioral
questions must be addressed.
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How can a program be designed so that the information it offers is
used? Experience shows that information from energy programs often
goes unnoticed, fails to be understood or correctly interpreted, or is
ignored because of mistrust of its source.
How can a Program be designed to spread information widely? Energy
programs reporting the most widespread success within a target audience
are usually those that are advertised by word of mouth or through highly
credible local institutions. Community groups are being used increas-
ingly to implement energy programs because of a belief, supported by
case studies, that such groups spread information more successfully
(e.g., Gaskell and Pike, 1983; also see Chapter 3~.
How can the of facts of a oroaram be forecasts Formal energy demand
models rarely contain terms for information, so they can only forecast
its effects by making assumptions about how information affects the
variables that the models represent. Empirical knowledge about how
people respond to Information IS essential For Forecasting.
How clan the of feats: cuff a uroaram he assessed accurately? For
measuring the effects of information on energy use, surveys asking if
people received the information or what they did after receiving it are
less reliable than direct measurement. But metering energy use gives
an incomplete picture of the effects of a program if people choose to
improve comfort rather than cut energy use. Thus, some program outcomes
(e.g., comfort) that are essentially behavioral influence the energy
effects of programs.
To what can program effects be attributed? For improving programs,
it may be more important to know what produced a program's effect than
to know how large it was. Few program evaluation studies to date have
considered this question.
Incentive Programs
Federal and state governments now offer tax incentives for energy
efficiency, and utility companies offer energy loan and rebate programs.
Such incentives are effective if they encourage investments that would
not otherwise have been made, and their success in turn affects the
need for other conservation programs. Some major behavioral questions
about financial incentives have been examined (Stern, 1984:Chapter 3;
Stern, Berry, and Hirst, 1985}, and we update that material in Chapter
3. In general, there are five behavioral questions about incentives
that should be considered.
How does investment change as a function of the size of an
incentive? Evidence suggests that incentives work not only by changing
the economic calculus for people who are considering investments, but
also by attracting other people's attention to energy efficiency. If
further study confirms this hypothesis, analyses of investments only in
terms of their size would have to be broadened.
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How does investment depend on the type of incentive offered? House-
holds may have definite, though nonuniform, preferences for different
types of incentive. For example, some studies show that rebates are
more attractive to many households than loan subsidies of the same
economic value: they are preferred by low-income households and
households that foresee bleak economic times for themselves (see
Chapter 3~. Policy analyses have rarely examined the possibility that
different types of incentive attract different types of consumers.
What programmatic factors affect consumers' use of incentives? The
marketing, organization, and management of an incentive program makes a
tremendous difference in program success. These effects can even
overwhelm that of the size of the incentive (see Chapter 3~.
-How much investment would have occurred without the stimulus of an
incentive? Most people who use incentives say they would have invested
anyway. Self-reports, however, are not a reliable way to study
people's motives, and more needs to be known to answer this important
policy question.
To what extent does an incentive increase the pace of an
investment? The limited evidence suggests that incentives speed
investment, but more needs to be known to see if the effect is large
enough to justify particular incentive programs.
Standards
Although energy-efficiency standards for buildings are not
currently being pursued in the federal government, there is federal
legislation regarding appliance standards, and some state and local
governments set energy efficiency standards for appliances and in
building codes. Under the appliance standards legislation, DOE has
been analyzing the behavior of appliance manufacturers and purchasers
to determine whether standards would produce energy savings in addition
to what can be expected as a result of market pressures (rising prices,
foreign competition, etc.~. Four major behavioral questions are
implicit in such analyses.
Under what conditions does energy efficiency influence consumers'
purchases? If energy efficiency is an explicit consideration when
consumers choose buildings or appliances, better information will make
their decisions more economically rational in terms of energy. If
energy is not being considered, however, a national goal of increased
efficiency may require setting standards.
How might alternatives to standards, such as appliance labels or
energy ratings for buildings, make energy efficiency a prominent
consideration in purchase decisions? Well-designed information may
attract attention to energy efficiency and make standards less
necessary. To implement informational alternatives to standards,
l
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informational strategies that attract attention to energy efficiency
must be developed.
How is the importance of energy efficiency in purchase decisions
affected by the circumstances and purposes surrounding the purchase?
People probably do not consider energy efficiency when replacing a
furnace or water heater that suddenly breaks down, but there may be
more time for comparison shopping for refrigerators or dishwashers
purchased in nonemergency situations. Knowledge about the circum-
stances of purchase may show that standards are more needed for some
appliances than others.
In the absence of standards, how do manufacturers, builders, and
others make choices? To evaluate the need for standards one must know
about the production of equipment in the absence of standards. Pur-
chasers are not the only ones whose choices are relevant. There is a
need to know more about how appliance manufacturers use information
prices, and market characteristics
product lines. There is also a need
of builders, distributors, con-
tractors, and retailers affect the decisions of purchasers.
~ , , _
about competition, expected energy
in deciding whether to develop new
to know more about how the choices
Technological Research and Development
New technologies are constantly being developed for building con-
struction and retrofits and for use in appliances. Behavioral questions
arise because the practical effect of any new technology depends on
human choices about its purchase and use. Adoption decisions, in turn,
depend on whether estimates of energy savings from the new technology
are reliable, and it is hard to make estimates when the energy savings
depend not only on the operation of the technology but on the behavior
of the people who use it. For example, superinsulated houses save
energy, but if people open windows frequently to freshen the air,
savings will be much less than expected. Technological research and
development raise at least two such behavioral questions.
Which energy-efficient building technologies are most likely to be
accepted readily in the market? This question is essentially in the
market research field. For example, a heat reclaimer for flue gases
may be easier to build as a new product than to include in a redesigned
furnace or water heater, but the market for heat reclaimers to retrofit
on flues may be very small compared with the market for energy-efficient
furnaces or water heaters with built-in heat reclaimers.
How can reliable es ~
. .
technologies? Energy use in a building can change by 100 percent when
the occupant changes (see, e.g., Sonderegger, 1978~. This fact is a
warning against estimating energy savings from a new technology without
observing how it works in field conditions when operated by people like
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the intended users. Even holding the user constant, engineering
estimates are imperfect because decisions about the purchase and the
intensity of use of a technology influence each other {Dubin and
McFadden, 19847.
In sum, no conservation policy or program can be evaluated
realistically without examining a broad range of behavioral issues.
However, policy analysts have not yet given high priority to studying
the processes of choice among consumers, manufacturers, builders, and
other important actors. More such study can be done, even within
existing resource limits. m e next chapter offers a framework for
answering behavioral questions about energy efficiency in buildings.
.
Representative terms from entire chapter:
behavioral questions
