What price motivates customers to save energy?

By Elisa Wood

May 29, 2008

“Are we there yet?” We’ve heard that refrain often over the last couple of years. No, not from our kids in the backseat of the car, but from energy observers wondering exactly how much price pain the consumer will take before cutting back significantly on use.

Two reports circulating this week indicate that we have arrived – or at least we are close.

Americans drove their cars 4.3% fewer miles in March 2008 than they did a year earlier, according to the Federal Highway Administration. This is the first time since 1979 that we took to the road less in March. While a 4.3% drop may not sound like much, it amounts to 11 billion miles, and represents the largest decline since the FHWA began reporting monthly statistics in 1942. http://www.fhwa.dot.gov/pressroom/fhwa0811.htm

It appears the specter of $4/gallon keeps the key out of the ignition. AAA reports that average unleaded gasoline prices hit $3.952/gallon on May 29, up from $3.197 a year ago. Prices already have topped $4 in several states, among them California, Connecticut, District of Columbia, Hawaii, Illinois, Michigan, Rhode Island, Washington, Wisconsin and West Virginia. http://www.fuelgaugereport.com/sbsavg.asp

Meanwhile, on the electricity front, a recent study by Carnegie Mellon University researchers found that charging power generators even a modest price for carbon dioxide emissions would motivate changes in consumer behavior and power plant operations. The study comes as several states in the Mid-Atlantic and Northeast prepare for a carbon cap-and-trade program set to begin next year. Congress is eying similar national rules.

The report, published by Environmental Science & Technology, says that consumers would likely reduce consumption of electricity at a price as low as $35 per metric ton for CO2. This is lower than prices posted by Point Carbon for European trading May 28, which was €26.20 per metric ton or about $40. http://int.pointcarbon.com/Home/Market%20prices/Methodology/category745.html).

In addition, at $35 per ton for carbon, we may see changes in the way that grid operators dispatch power plants. They may start giving preference to lower emissions generators. While power prices would rise, “consumers would pay more attention to their energy consumption or switch to more energy efficient appliances,” said M. Granger Morgan, Lord Chair Professor in Engineering in the Department of Engineering and Public Policy at Carnegie Mellon. http://www.tepper.cmu.edu/news-multimedia/tepper-multimedia/tepper-stories/co2-pricing-study-reveals-consumption-efficiencies/index.aspx

No one wants to see high energy prices – the economic ramifications are enormous. But the good news is consumers appear to finally be saying “Ouch,” opening more doors for plug-in hybrids, energy efficient appliances, green construction and other energy savings approaches.

Visit energy writer Elisa Wood at www.realenergywriters.com and subscribe to her free Energy Efficiency Markets Newsletter and podcast.