Energy Efficiency: What are the Laggards Thinking?

Why do some states avoid creating policies that encourage consumers and businesses to save energy? What’s the psychology of the laggards?

A new report by the American Council for an Energy Efficiency Economy sheds some insight as it examines the states that consistently fall behind in the organization’s annual energy efficiency ranking.

The bottom states are: Alabama, Kansas, Mississippi, Missouri, North Dakota, Oklahoma, South Carolina, South Dakota, West Virginia, and Wyoming. The good news is that even these laggards are beginning to adopt policies to save energy, according to the report, “Opportunity Knocks: Examining Low-Ranking States in the State Energy Efficiency Scorecard.”

But they still have a lot of catching up to do. And why did they fall behind in the first place?

The report authors, who interviewed 55 stakeholders, found one reason is a general lack of awareness about energy efficiency’s benefits. Another is an aversion to government mandates. But one of the most fascinating barriers is a misperception about energy costs.

Industry folklore says that consumers in states with low electric rates have no motivation to save energy. This folklore discourages policymakers from putting time and money into energy efficiency programs. In truth, these states have good economic reasons to encourage consumers to insulate, install better lighting, and undertake other energy savings measures. It turns out that even though electric rates are low in these states, consumers are paying high monthly bills.

This may sound counter-intuitive. But consider these numbers. In Alabama electric utilities charge 10.67 cents/kWh and households pay an average $147.69/month for electricity. Similarly, in South Carolina rates are 10.5 cents/kWh and monthly bills are $137.59/month. Compare Alabama and South Carolina to Massachusetts and California, two states with aggressive energy efficiency efforts. Massachusetts’ electric rates are high, averaging $14.59 cents/kWh, but monthly bills are low, only $97.34. California, too, has high rates of 14.75 cents/kWh and low monthly bills of $82.85.

So electric rates are higher in Massachusetts and California, yet households in those two states pay less per month for power than households in Alabama and South Carolina. This is because they consume less power. Households in the efficient states have an edge; they need less electricity each month to secure the same level of comfort and service in their homes as those in Alabama and South Carolina. So there should be plenty of good motivation for households in the low-rate states to pursue efficiency measures.

Another point of confusion involves the cost to society of investing in energy efficiency. Because it’s generally categorized with other ‘green’ initiatives, energy efficiency is perceived as boutique and expensive. To the contrary, it is cheaper to avoid energy use than to make new electricity, according to ACEEE. Energy efficiency measures cost an average 2.5 cents/kWh while building a new power plant cost 6 to 15 cents/kWh. Because of this cost differential several states now mandate that utilities institute cost-effective energy efficiency before building new generation.

These are arguments, unfortunately, that might get lost in the din of an election year, one in which energy is shaping up to be a major issue. However, as is often the case, the states are leading the way and not relying on federal policy. Even the laggard states are picking up their pace when it comes to energy efficiency, as the ACEEE report describes. More here.

Elisa Wood is a long-time energy writer whose work appears in many of the industry’s top magazines and newsletters. She is publisher of the Energy Efficiency Markets podcast and newsletter.