NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Programs to Affect Clean Electricity Demand Need Careful Design

The reduction in emissions associated with donations in support of green electricity outweighs the increase in emissions brought on by the increased electricity demand.

The purchase of a hybrid car, solar panels, or home weatherization products may be justified to an individual based on the payback period, but in many cases the rate of return is too low to fully explain such purchases. Indeed, the purchase of certain green products or carbon offsets, or participation in green-electricity programs, may operate more like charitable contributions, with a primary goal of promoting environmental quality. In The Behavioral Response to Voluntary Provision of an Environmental Public Good: Evidence from Residential Electricity Demand (NBER Working Paper No. 16608), authors Grant Jacobsen, Matthew Kotchen, and Michael Vandenbergh seek to understand why we observe the latter type of pro-environmental behavior, which they refer to as "voluntary provision of an environmental public good", and whether such behavior is in fact beneficial for the environment. In particular, they consider whether individuals who undertake green behaviors do so in part to offset other behaviors that are less than environmentally friendly, whereby the former behavior provides a "moral license" for the latter.

The authors analyze billing data for participants and nonparticipants in a green-electricity program in Memphis, Tennessee, in which enrolled households make monthly donations for expanding the production of clean energy. The researchers find that households that consume more conventional electricity are more likely to participate in the program and these households make larger donations among the participating households. When evaluating whether the program leads to a behavioral response, the researchers find that households participating above a minimum threshold level do not change their electricity consumption, but those participating at the minimum threshold increase consumption by 2.5 percent after enrolling in the program. This finding suggests that households motivated by a "buy-in" mentality behave differently than households that choose to contribute beyond the minimum.

Still, despite the increase in electricity demand among households with an apparent "buy-in" mentality, the net effect of participation on household emissions is a reduction in pollution. That is, the reduction in emissions associated with donations in support of green electricity outweighs the increase in emissions brought on by the increased electricity demand. The authors further find that the net effect of the program, when all participating households are included, is a reduction in pollution emissions. However, they caution that this may not always be the case, and that it is important to take into account the behavioral response when designing and evaluating green-electricity programs. Existing green-electricity certification programs appear to recognize this need and to address it with minimum purchase requirements. The Green-E national standards for certification in the United States, for example, require that capacity based green-electricity programs selling block products, which the Memphis program does, must require a minimum block purchase of 100 kWh/month. The results of this study suggest that such a minimum purchase is large enough to ensure that green-electricity programs are not counterproductive from the standpoint of reducing emissions.

--Lester Picker

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