Thursday, October 18, 2012

The Romney Camp's Take on Energy Efficiency

Consider this Romneyism: "Energy efficiency is a solution looking for a problem... if it saved money, people would do it on their own." (Source)

The assumption that consumers make "rational decisions" relies on an unstated assumption, to wit: the consumer has complete custody of every step in the decision-making process. This means that the consumer (1) detects some lapse of utility, (2) recognizes the cause[s] of that lapse, (3) seeks and evaluates a remedy, (4) procures the remedy, (5) implements the remedy, and (6) at the end of the day is able to reap the benefits of it.

Especially with regard to energy, rarely are all these stages embodied in one decision-maker. A single-person residential setting comes closest, but even then there may be disconnects-- look no further than centrally-metered apartment units. The rational decision-making assumption is shot down in flames when pondering the commercial/industrial sector. In this case, the six stages listed above usually manifest randomly across departmental lines. The decision stages belong to a management diaspora in which each individual makes energy-related choices that optimize their individual, departmental interests as opposed to being harmonized for the organization as a whole. For example, this paraphrase comes from a chemical plant energy manager who we interviewed last summer: "Our first priority is to ensure that we distribute in a timely and accurate manner all our energy acquisitions across our facility to all the points of production that need them... this is a goal that can sometimes be at the expense of 'efficiency'."

My point: the Romney statement is a non-starter only because the "rational decision maker" is not properly established. Without clear and conscious custody of the decision process, one cannot expect rational decisions to be made. The take-away is that energy efficiency opportunities are directly linked to market failures that can and should be addressed by public policies and programs.



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