Meredith Fowlie:
The use of moral suasion to encourage conservation is not unique to California. Public appeals for reductions in energy and water use are ubiquitous. And it is easy to see why. For political and jurisdictional reasons, it is often easier to mount a conservation campaign than raise energy or water prices in times of scarcity. But what impact do these interventions actually have on energy and water consumption?
A new E2e working paper explores this question in the context of electricity. More than a year after the Fukishima earthquake, several of Japan’s nuclear power plants were still out of commission and electricity supply was tight. Policy makers were looking for ways to reduce electricity consumption during critical peak times.
Koichiro Ito and his co-authors set out to test the relative effectiveness of an increase in critical peak electricity prices versus “moral suasion”: a polite request for voluntary reductions in consumption. Customers who volunteered to be part of the study were randomly assigned to one of three groups:
- A price treatment: Higher electricity prices during critical peak hours. Customers were charged prices ranging from $0.65/kWh – $1/kWh (up from a base rate of approximately $0.25/kWh).
- A “moral suasion” treatment: Courteous day-ahead and same-day requests for electricity demand reductions during critical peak days.
- Control group: No notification of/price increases during critical peak events.
The figure below summarizes the average impacts of the two treatments on household electricity consumption during critical peak hours (relative to the control group). Effects are summarized by treatment “cycles”. Each cycle consists of three non-consecutive critical peak event days, so the graph helps to illustrate how the effect of the treatments persist (or not) across repeated critical peak days throughout the season.
Average effect of treatment on peak electricity consumption
It probably will not shock you to learn that the price treatment had a much larger impact on consumption as compared to moral suasion. ...
These qualitative results are compelling – and pertinent to a crisis we are currently facing here in California.
We are in the midst of the most severe drought on record. ...
An executive order issued last week signals a move in this direction. The order imposes mandatory water restrictions designed to achieve a 25 percent reduction in potable water use by urban residents.
Hitting this conservation target will be difficult – if not impossible – to achieve with only public appeals and hard-to-enforce restrictions. So, to echo arguments that have been made again and again on this blog (we are a persistent bunch), the time is ripe for water prices that reflect the true cost of water use. ...
This approach is painfully obvious to economists.
