The Pros and Cons of Artificially Inflating Electricity Prices

In a rapidly expanding world that is increasingly dependent on electricity to function, reducing our own usage becomes important. Yet there exist few incentives to push us down that path. And as our electric grid continues to spread thinner and thinner, we could eventually need people to reduce their own energy footprints. But asking people to do so would prove to be very difficult, how could society accomplish this goal?

On ABB’s energy page, they ask a thought provoking question:

“Should electricity rates be raised and incentives offered to encourage improved efficiencies?”

The first part of this question really stands out. Would something as simple as raising the price of electricity serve the end goal of people using it more efficiently? As with most issues, there are upsides and downsides to raising energy costs to reduce demand.

Raising Prices will Reduce Usage
Chances are your electricity bill is relatively predictable. It’s at one level during months when you don’t run air conditioning, and at another level when you do. While the actual amount fluctuates, it’s usually within the same range month to month. Imagine, then, that one month you get a bill significantly greater than you had expected. Wouldn’t you do what you could to use less energy?

While many consumers might say that they should reduce their energy usages, they won’t act until it hurts their bank accounts. It’s at that point, when they can avoid unexpectedly inflated expenses, that they’ll act. Maybe that’s what would get some consumers to replace their incandescent bulbs with CFLs. Maybe that’s what would get them to shut off lights in the living room when they’re cooking dinner. Maybe they’d turn off the TV, rather than leave it on because they’d be watching again in just a few minutes.

If consumers receive higher energy bills, they’ll likely take those actions in order to reduce it to the previous level. As long as that is possible given the rate increase, we can be fairly certain that consumers will act. They’ll again be paying their previous and predictable monthly electricity bill, but they will consume less energy in the process.

Raising Prices Punishes People Who Have Acted
The biggest problem with this idea arises for people who already conserve energy. For those who turn off the TV whenever no one is watching. For those who not only turn off appliances and gadgets, but unplug them from the wall when not in use. Environmentally conscious citizens who run their refrigerators at reasonable temperatures could potentially get hurt with rising energy costs for being responsible with electricity usage.

Imagine the scenario in which you’re a consumer who does everything possible to use as little energy as possible. Your electric bill is usually much lower than the average consumer’s. If the utility company or government decide to raise rates on everyone, people who already minimize use lose out.

This is the general problem with monetary incentives for behavior modification. While it might work on the segment of the population whose behaviors we want to change, it punishes those who already observe the best practices. Why discourage those who have already acted without incentives?

Practical Issues Stand in the Way
Electricity has become a vital component in our everyday lives. It’s difficult to see a corporate or government entity acting to artificially inflate something that we so clearly need in modern times. If they did, surely consumers would voice their complaints. As we’ve seen with many other unpopular legislative ideas, such as SOPA, a public outcry can crush unpopular legislation where it stands.

On the other hand, electric companies might not need to artificially inflate prices soon enough. With more and more technology reliant on electricity, and with an expanding population, prices might go up naturally. That is, the supply-demand connection might further separate, which would mean higher prices due to market forces. So while artificial inflation might not be popular or even feasible, price increases might be in the offing anyway.

While it might not be practically possible, we can learn much from this thought experiment. Those who don’t monitor their energy consumption might finally find reason to. Others might become more active in the movement to reduce energy usage and find alternative, renewable energy sources that can power our increasingly electricity hungry lives. Whatever the result, merely thinking about a provocative question can go a long way.

Joe Pawlikowski writes about technology at several outlets across the web. He also keeps a personal blog at joepawl.com/blog.

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