Creating a Market for Negawatts

Addressing our current energy crisis would be so much simpler if we were all as programmable as thermostats. But we’re not. Our nation’s attitudes and behaviors about climate change, energy efficiency, and usage are as wildly inconsistent as our room temperature preferences. And that makes comprehensive solutions all the more challenging.

So we focus on consumer behavior: Switch to CFLs; buy a more efficient refrigerator; drive a hybrid. Despite the extremely low cost of electricity, consumers must be given incentives to make these relatively painless moves. This results, however, in a whole lot of carrots and very few sticks. The current tendency of essentially bribing consumers to do the right thing isn’t a tenable model. We’ll run out of money as we run out of energy. So what is the future model for energy use?

Well, it’s a work in progress. “We’re trying to transform an industry,” says Matt Golden, the founder and president of Recurve, which helps homeowners improve the comfort, health, and efficiency of their homes. “Construction is in not a recession, but a depression. We’re selling products to homeowners who are often underwater on their mortgages. It’s a challenging time across the board but we are seeing the impact of these programs, which profoundly affect consumer behavior. The size of Recurve’s projects is increasing because rebates are bigger with bigger retrofits. That leads me to be pretty bullish. There are billions of dollars being deployed throughout the country. It’s dizzying, the number of programs.”

But Golden, who is both Recurve’s chief building scientist and a policy wonk, argues that we need more holistic incentives. “Call me cynical, but the thing that will change behavior most is setting up a market that properly prices energy and lines up the interests of the key stakeholders—homeowners, contractors, and utilities—with our public-policy objectives. Doing the right thing is a motivator but not necessarily the only one that will do the trick. If you don’t have something that is really causing you pain (i.e., high energy bills or cold rooms) you won’t make the change or do the work. It’s hard to take a big-picture concept like climate change and make a decision like investing $10,000 in your home. But if we solve a pressing problem like keeping your living room warm and cutting your heating bills, we get the climate benefit, too.

“The system of incentivizing each party to do the right thing is so inefficient that we can’t take this”—the current way of doing things— “to scale; the cost goes off the charts. We have to evolve to a market that aligns interests and function much more efficiently, or we run out of subsidies way before we reach our goals. We need to look at the public-sector investment as a tool to help us achieve this transformation, but if we want to get to scale and achieve the promise of meaningful carbon abatement and job creation, the only source of capital sufficient is a market fueled by private investment.”

That long view requires a lot more than a Prius and a prayer. Golden says, “The basic problem is that we set up a ‘market’ for energy that doesn’t even come close to having the right market drivers. Homeowners are paying way too little for energy with little transparency between usage and price. And we are asking them to carry all the upfront cost and risk.” Utilities profit by producing and selling energy, so they’re not necessarily motivated to do work more efficiently. Contractors make money doing a home-energy retrofit—but see no direct benefit from the long-term value they are providing in terms of energy savings. As for financial institutions, well, we don’t have data to show that increasing energy performance increases the marketability of homes.

“If we hope to scale up,” says Golden, “We have to develop a more efficient marketplace. We can use incentives now, but the policies we’re implementing today are really the foundation of the efficient market of the future.”

So if a new energy market is the key to more efficient energy consumption, how do we get there?

“We’re producing demand reduction,” says Golden. “But the end goal is that we can value energy efficiency created through retrofit as a resource. When we work on a home, we’re not installing insulation; what we’re doing is forward capacity. Rather than just handing out incentives for products, we are finally tying rebates to whole house savings.”

A watt reduced is cheaper and cleaner than a watt produced. So our long-term energy goals must go beyond all the lightbulb swapping (which is still important, though not paradigm changing) and move to a level of reduction on a grand scale. Instead of building a new coal or nuclear plant to meet demand, we should be building what amounts to a distributed “negawatt” power plant. It’s far cheaper to retrofit 20,000 homes than it is to build a power plant, and you don’t have to worry about the availability of fossil fuels or the carbon you’re emitting.

Around the country, says Golden, we are building and piloting the necessary components for this future negawatt market. “We are investing in programs like Energy Upgrade California that train and certify contractors, and base incentives on savings. We are investing billions of dollars in smart-grid infrastructure, and gathering the data we need to prove that we can both predict and the deliver on our promise.”

All of this builds toward a much more efficient system that will grow to meet our long-term goals of retrofitting America’s hundred million homes. Such an effort would reduce our country’s carbon emissions by the same amount as taking half of all cars off the road, while employing hundreds of thousands of workers and saving American homeowners billions of dollars in energy bills.

illustration by Mikey Burton