Most people agree that increasing energy efficiency is central to reducing greenhouse emissions. But how can individuals and businesses be persuaded to use less energy? Public policy has so far concentrated mainly on using price-based approaches, such as subsidies for those who switch to more energy-efficient appliances. But the limited success of these approaches, as well as limits on the resources available for subsidies, has led to a dramatic upsurge of interest in energy conservation programs that do not rely on changing prices. Drawing on insights from behavioral science, non-price interventions are typically more cost effective than subsidies and more feasible, both politically and practically, than large-scale changes in relative prices.
One of the most successful of such energy programs is run by Opower, a Virginia-based software-as-a-service company that partners with utility providers to improve energy efficiency. Opower’s greatest innovation is its Home Energy Report letters (HERs), regular reports mailed to the utility provider’s customers that compare each household’s energy use to that of comparable households in the area. The HERs were informed by behavioral research on social norms showing that disclosing other people’s energy use information induces people to conserve energy in their own households. As of 2010, Opower had contracts to run programs at 47 utilities in 21 states, including six of the largest ten utilities in the U.S.
ideas42 partnered with Opower to evaluate a series of programs that involved sending HERs to residential utility customers comparing their energy use to their neighbors. Using data from randomized natural field experiments at 600,000 treatment and control households across the United States over two years, ideas42’s Hunt Allcott found that the HERs program on average reduces energy consumption by 2 percent. The effect is equivalent to that of a short-run electricity price increase of 11 to 20 percent, and the cost effectiveness compares favorably to that of traditional energy conservation programs. In addition to a significant improvement in energy conservation, this simple nudge translates to annual savings of $300 million.