Challenges: Behavioural Energy Efficiency in domestic electricity consumer segment

While writing this piece, it is not my intention to get into the ethical debates surrounding the ways of doing things the "libertarian paternalistic" way. I would like to reserve that discussion for some other day.  This piece comes with an underlying assumption that the behavioural interventions for the sake of energy efficiency are completely benign and for mutual benefit of utilities and consumers alike. 

Behavioural energy efficiency is an important part of the bouquet of interventions Governments all over the world are implementing today to provide subtle nudges to enable citizens make informed choices. While these interventions are indeed effective in laboratory conditions, getting them off the theoretical horse on to the ground poses significant challenges. 

Rationality is a virtue of the past. We have all come around the fact that we live in an imperfect world comprising of irrational human beings. Our daily lives are replete with examples of irrationality which we exhibit every single instant. Turning of the car steering on a curved road is not an outcome of a well thought out decision; it just happens automatically and instinctively. A batsman hitting a pace bowler for a six on a 22-yard cricket pitch doesn’t have even a fraction of a second to decide whether he is going to defend the ball or to go for an all-out attack. He does it with an instinct, theoretically also called as a heuristic based decision taken by an automatic mind. Behavioral interventions leverage this automatic mind by making things easier for the human mind to enable them to make their choices quickly.

I am not writing this with respect to consumers having a basic lifeline access to electricity, or having no access to electricity at all. Talking about energy efficiency for such consumers/ would-be consumers would largely be pointless. Electricity access to such people is a socio-political issue, and little opportunity exists for behavioral energy efficiency with such a population. The subject of this article therefore is the aspirational middle class, upper middle class and the rich domestic consumer, who presents a reasonable opportunity for reducing or deferring her energy consumption.

Electricity is not salient in the urban consumer’s lives. it is not considered as a product or a commodity by consumers who are the target group for energy efficiency. Come to think of it; how many times a day would the urban consumer think about electricity and its usage? The answer would not but be in a naught. We deal with our Air-conditioners, television sets, music systems, geysers, etc, on a daily basis. The use is defined by deriving utility or hedonistic pleasure out of usage of that equipment. At any time during the usage of these equipment, we never spare a thought for electricity, which is the proverbial raw material for operation of these equipment. Why is it so?

People act on priorities, and priorities are all about what is visible, audible, or occupies a prominent place in our mind. A priority issue therefore automatically becomes salient to a humans’ mind, and serves as a constant reminder to act upon the same. Thus, to evoke an action, saliency is a must. One of the effective stimulus to evoke saliency in humans is an economic signal, especially a change in price levels. Therefore, to bring saliency of electricity in people’s lives, price signals, or differential/market pricing of electricity on basis of supply and demand would be the most effective instruments.

However, price signals have a limitation. Above a particular income level, the cost of electricity becomes an insignificant percentage of the household expenses. In such cases, the effectiveness of price signals weakens, as she has several other more salient costs to deal with. More so, since the variation of prices of electricity are likely to be within the tolerance range of such consumers, price signals based on the supply/demand of electricity dynamic tariffs become ineffective. So, is that an end of road for behavioral energy efficiency for such consumers? Fortunately, there indeed are other ways, which can be used either individually or in combination to alter consumption behavior. But as we see further, the path towards achieving the same is also fraught with challenges.

Several Behavioural experts cite availability of other-than-price-signal mechanisms to bring saliency to electricity in people's lives. These interventions build up on the general human tendency to conform to social norms. After all, haven't we seen the same people behave different ways in different realms on the same parameter? The same commuter who throws waste on Railway tracks would look out for a dustbin to throw garbage while he travels on Delhi Metro. Try standing up and offer a reserved seat in a crowded bus to an elderly lady, and you would see men sitting next to you on those reserved seats offer their seats to ladies as well. We are sticklers to social norms, and instinctively follow what others are doing. We live in Rome as romans do1

Leveraging this human penchant for adhering to social norms, some behavioural energy efficiency measures try to prime consumers by presenting relative statistics of how well she is faring in respect to similar households in the neighbourhood. This could be done either through monthly bills or through Apps connected to Smart electricity meters installed at home. It has been proven in a few studies that such measures that leverage the "availability heuristic", as this is technically called, achieve as much as 3-4% of efficiency. In short, both price signals as well as other behavioural interventions intrinsically aim at increasing saliency of electricity in consumers lives, thereby stimulating the automatic brain to act upon the stimulus to bring a behavioural shift in energy consumption.

Increasing saliency seems to theoretically sound as a very good option, but it suffers from competing saliency interventions crowding out our mental space. Mobile phones, advertisements, App notifications, colourful advertisements, both print and electronic, vie for our attention 24 hours. Digital billing and payment ecosystems involving automatic billing and payments of bills by consumers have given benefits of timely payments and avoided delays to consumers, but at the same time come with negative externalities. Many consumers don't see their bills for months together, thereby creating an artificial barrier between the intervention and the consumer. At the same time, in this part of the world, easy availability of Servants with affluent Indians to take care of their billing and payment needs, further creates a barrier for any such behavioural intervention reaching the "target consumer".

In all, the path to Behavioural interventions is not an easy one. Very few people know that many times, human behaviour manifests itself in opposite ways to the same stimulus. For example the "Hot hand effect", and the "Gamblers fallacy" tend to evoke directly opposite consumer reactions to the same stimulus. Further, we have already seen that increasing saliency has its own challenges in the crowded space of notifications vieing for our attention all the time. Therefore, Utilities, policy makers and experts would have to work together and conduct considerable diligence before rolling such interventions out, for if the interventions themselves are not effective, and become the new normal, they run the risk of being ineffective even when the intervention is rolled out duly rectified.