Too good to be true environmental solutions

... roughly 42 percent of U.S. lighting energy (in Canada the fraction might even be a little higher) goes to incandescent bulbs. ...compact fluorescent lamps in all sorts of sizes and shapes that have roughly quadrupled efficiency -- 11 watts replacing 40, 18 watts replacing 75, and so on. They last about thirteen times as long as a regular light bulb; therefore each one of them saves you not only three quarters of the electricity, but also a dozen replacement bulbs and trips up the ladder. That more than pays for them, even though these things are rather expensive.

Think of such a compact bulb, with 14 watts replacing 75, as a 61 negawatt power plant. By substituting 14 watts for 75 watts, you are sending 61 unused watts -- or negawatts -- back to Hydro, who can sell the electricity saved to someone else without having to make it all over again. It is much cheaper to save the electricity than to make it -- and not only in thermal stations. It is cheaper for society to use these bulbs than to operate a Hydro plant, even if building the dam were to cost nothing. Each bulb has a net cost of minus several cents per kilowatt- hour, and no dam can compete with that! - The Negawatt Revolution 

The crackpot with a mo, Amory Lovins, wants people to be paid to not consume electricity as a way to promote energy efficiency and decrease the demand for energy. He has been pushing the negawatt bandwagon for twenty years, yet for all our dramatic increases in energy efficiency, we consume more energy than ever (or more correctly, we use more natural resources to generate more electricity, heat and motion than ever). 

The term negawatt describes the fact that in a capacity constrained electricity generation system, reduced energy consumption by one customer allows an increase in consumption by another customer. Without the reduced consumption by one customer, the increased consumption by the new customer would only have been possible by investing in new generation capacity. Thus, the energy saved is as good as energy generated - so much so that the energy generator could pay users to reduce their energy consumption.

From an engineering perspective there is little wrong with this concept. Unfortunately, an economic perspective reveals many flaws.

First, we have a baseline issue. Customers use electricity over time in an irregular manner. If I was being paid to not use electricity I would make sure my baseline measure was extremely high by leaving on all lights and appliances all day and night. Then, when I go back to normal use, I would be paid.

Second, there is a pricing issue. If someone reduces their consumption of electricity they save the cost of electricity. The new users would then pay the same price for their electricity. Thus revenue is unchanged for the generator and they have no incentive to offer payments to reduce electricity consumption.

Third, if new customers are willing to pay more for electricity then the price can be increased. Existing users then have greater incentive to reduce use to save a now greater electricity cost. Further, with higher prices, electricity will be directed to higher value uses.

Finally, there is a problem of rebound effects when electricity consumption is reduced through economic adoption of energy efficient technology. Increased spending elsewhere, and increased demand for electricity from new appliances need to be considered.

In light of these extensive problems, nega-incentives are becoming quite popular in other areas. Recently a QUT Professor proposed that paying the Japanese to stop whaling – for negawhales – would be a good idea.

Hang on. I don’t whale. Where’s my money? There is clearly a severe baseline problem here, let alone a problem of equity. 

Why stop there? If this approach is so effective, why no pay criminals not to commit crimes?

Maybe I’m being cynical, but if a something sounds too good to be true, it probably is. As a rule, never pay anyone to not do something.