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Paying to Save Energy

My love/hate relationship with Tom Friedman (the whole of which is entirely in my head, mind you) continues apace. His at times maddening fondness for anecdotes often gets him into trouble when he goes on to inevitably draw sweeping conclusions. (Flat!) But his hunger for the next surprising anecdote makes him a more avid researcher than your average columnist and a readier resource for interesting raw material. Sometimes Friedman's stories really are intriguing, as is today's.

Friedman continues his tireless pre-book (I'm convinced) exploration of how America can "go green." A few paragraphs into today's column, Friedman hits on a principle that, for this blog's purposes, is a core problem for advocates of environmental advocacy: "If energy efficiency depends on people remembering to do 20 things on a checklist, it’s not going to happen at scale." The solution, as usual, lies with the incentive structure -- in this case specifically with energy suppliers, who as of now are rewarded for creating and selling more watts, rather than getting their customers to use less.

Who's going to convince any business to sell less of their product? What's particularly intriguing about Friedman's story today is that it details how a supplier -- rather than an environmental advocate -- is pushing for a regulatory environment that would invert its incentive structure. Duke Energy has a very promising idea:

“The way it would work is that the utility would spend the money and take the risk to make its customers as energy efficient as possible,” [Jim Rogers of Duke Energy] explained. That would include installing devices in your home that would allow the utility to adjust your air-conditioners or refrigerators at peak usage times. It would include plans to incentivize contractors to build more efficient homes with more efficient boilers, heaters, appliances and insulation. It could even include partnering with a factory to buy the most energy-efficient equipment or with a family to winterize their house.

“Energy efficiency is the ‘fifth fuel’ — after coal, gas, renewables and nuclear,” said Mr. Rogers. “Today, it is the lowest-cost alternative and is emissions-free. It should be our first choice in meeting our growing demand for electricity, as well as in solving the climate challenge.”

Because energy efficiency is, in effect, a resource, he added, in order for utilities to use more of it, “efficiency should be treated as a production cost in the regulatory arena.” The utility would earn its money on the basis of the actual watts it saves through efficiency innovations. (California’s “decoupling” systems goes partly in this direction.)

At the end of the year, an independent body would determine how many watts of energy the utility has saved over a predetermined baseline and the utility would then be compensated by its customers accordingly.

“Over time,” said Mr. Rogers, “the price of electricity per unit will go up, because there would be an incremental cost in adding efficiency equipment — although that cost would be less than the incremental cost of adding a new power plant. But your overall bills should go down, because your home will be more efficient and you will use less electricity.”

Though I'm sometimes skeptical of Friedman's firm belief that the global marketplace will converge (flatten, if we must) and solve our intractable conflicts and economic problems (or remake the system entirely so they go away), there are two things about today's column that are particularly convincing.

First, Friedman is not calling for a mass change of mindset, a cultural shift toward energy conservation in the vein of "An Inconvenient Truth." Too often, advocates for energy efficiency expect Americans to keep the issue top of mind simply because it is so important. Rather, the idea Friedman's lays out integrates energy efficiency into daily life, into the systems we use to supply our power, pay our bills and turn a profit now.

Second, the proposal from Duke Energy addresses head-on the fact that however many energy-efficient light bulbs advocates can convince Americans to use, the effect will be minimal until policy changes can reward efficiency while enabling energy suppliers to grow and turn a profit.

Now if only Tom Friedman can maintain such rigorous standards for his next story.

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