CLIMATE SPECTATOR: Do energy consumers know best?

Dogmatic adherence to the principle of 'the individual knows best' gets problematic when it comes to household energy consumption decisions.

Climate Spectator

As a general rule running our society on the assumption that individuals have a better understanding of what’s in their own best interests than external third parties works pretty well.

The disaster of centrally controlled communist economies is a testament to what happens when you completely subvert this rule. But like all general theories of human and societal behaviour, it’s important to regularly test and assess it against real-world experience to make sure it’s valid for specific circumstances. Humans are a funny and unpredictable lot, with a one rule fits all approach generally not all that effective.

A dogmatic adherence to this principle of individuals know best is particularly problematic when it comes to household energy consumption decisions. IPART, in a recent submission to a parliamentary inquiry, argued that customers know best, and roll-out of smart meters should be left to the discretion of customers.

Yet can customers really know what’s best when the lack of smart meters means they don’t have any timely data on their energy consumption patterns? In addition there are multiple possible beneficiaries from roll-out of smart meters beyond the customer themselves.

In this chart of the week we’ve plucked something out from an obscure but very insightful paper published in the Proceedings of the National Academy of Science.

It is an illustration of the results of an online survey which attempted to assess the accuracy of people’s perceptions of energy consumption and savings for a variety of household, transportation, and recycling activities.

The chart shows what survey participants thought was the energy consumption of various appliances (black squares) and the amount of energy saved from different actions (grey spots) versus what was the actual likely energy used or saved. If people’s perceptions were highly accurate then all the dots and squares would sit close to the diagonal dashed line.

However the study found that participants underestimated energy use and savings by a factor of 2.8 on average, with small overestimates for low-energy activities and large underestimates for high-energy activities. This will tend to mean people worry too much about things that won’t save all that much energy, while putting inadequate effort into addressing those things that could save a lot of energy.

People’s perception of energy used and saved from different appliances and actions versus actuals

Source: Attari, DeKay, Davidson, and Bruine de Bruin (2010) Public perceptions of energy consumption and savings, Proceedings of the National Academy of Sciences

This study’s finding that consumers generally don’t know best when it comes to energy efficiency, is supported by extensive other studies. As some examples (taken from an Ernst and Young report.

Researchers Levine, Hirst, Koomey, McMahon, Sanstad (1994) note that household consumers often lack information regarding both their current energy consumption patterns and ways to reduce this consumption.

Stern (1986) found that information held by consumers regarding residential energy use, "is not only incomplete, but systematically incorrect. Generally people tend to overestimate the amounts of energy used by and that may be saved in technologies that are visible and that must be activated each time they are used".

In addition, research also suggests that consumers tend to underestimate the energy used by more energy intensive appliances that were less prominent such as water heaters. Shipworth (2000) notes that research indicates, "People usually know the average dollar value of their utility bills. They do not usually know how many kWh [kilowatt-hour] of electricity or MJ [mega joule] of gas they use".

Kempton and Montgomery (1982) found that consumers use incorrect units in calculating energy consumption and related costs, resulting in over-consumption relative to what would result from technically correct calculations.

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