Why behavioural studies matter for new “smart” energy demand startups!

Its obvious that huge economic potential is hidden in energy efficiency and smart demand business models. Various private equity companies are at the forefront of this development and build an investment case on the potential role, which technical solutions will play. I would like to emphasize a “low hanging fruit” for future business models. Nudging has become a quite popular word in behavioural studies and for policy makers but despite the general theory a lot of it is about psycholgical details. Different ways of implementation can make a difference between success and failure. I believe that the following paper from Michelle Baddeley (Cambridge/UCL) is highly relevant for any regulator, consulting company and startup in the energy demand sector. Here the link: Energy, the Environment and Behaviour Change: A survey of insights from behavioural economics

 

Just a few highlights to illustrate the difference between idealistic opinions and reality:

-“The highest correlation with actual conservation behaviour was a person’s belief about whether or not their neighbours were doing it.”

-“Given bounded attention to social norms, social norms will only result in behaviour when norms are at the top of the mind.”

- Normative influence matter.

-Families and habits play a key role in society.

-Huge potential lies in the way “toxic” emissions have to be published.

-“Thaler and Sunstein suggest that a Greenhouse Gas Inventory requiring most significant emitters to disclose their emissions could have similar beneficial effects as the Toxic Release Inventory, particularly given the current salience of climate change problems in the public consciousness. Firms will also be affected by the actions of regulators, and this may generate strategic conflicts. When firms social motivations will interact with strategic considerations it introduces additional complexities, for example Shogren et al. (2010) assert that a regulators subsidy can interact negatively with social motives of a firm concerned about reputation. Selfish firms will make an optimal effort and socially oriented firms will be subsidised less than is optimal.” (Just think about the recent increase in EEG costs…)

 

Results: A range of policy tools is required, next to “pricing” energy and emissions. Frequent simple feedback and control is important (smart meter roll out, 80% by 2020 in the EU can play a key role here). Nudging can be used to overcome biases and can be combined with monetary incentives (as outlined by Stern et al 2009), but it is important that policies aim for long term behavioural change.

 

 

My own view is that despite the important insights above, the right way is "top down". We have to change the “vision and goal” of the system as first step. This would mean to internalize the environment and social costs into our measurement of economic success. The Chinese government has already announced that the environment will be its key priority over the next 5 years and it will obviously have strong reflexive influence on the shape of the world. It is time to redefine “economic success”.