Thursday, March 18, 2010

A Nominal Egg

The story goes that a recent arrival in New England (in the Northeast United States) met a neighbor who warned her that heating her home that winter was going to cost "a nominal egg." Tickled that she had learned a local expression, she told her Boston-born husband at dinner that evening. He told her that it was not a local expression, that people everywhere used it. She said that she had never herself heard it before. He replied that surely someone somewhere had told her that something had cost "an arm and a leg!"

Meanwhile over on's Daily Score, Eric de Place posted an interesting piece on electricity prices. He plotted electricity consumption vs. electricity price for the 50 states (less Hawaii, but plus Washington, D.C.). Lo and behold, even given all the generalizations inherent in such a plot, the higher cost correlated with lower consumption. De Place's conclusion was that to encourage energy conservation, we should raise electricity prices. This sparked a lot of discussion ranging from the efficacy of tiered rates to the need to avoid a regressive rate structure that weighs more heavily on lower income citizens than higher income ones.

The upshot for me was a little different.

Here's the conundrum I see: Higher energy prices encourage conservation. But energy conservation serves only to keep electricity prices where they are. For example, here in the US Pacific Northwest, excess power generated by our dams is sold to California consumers. Basically, the energy we save is just placed on the open market. Those not doing the conserving get cheaper energy (because there is more supply), and to the extent we can get California consumers to purchase our excess electricity, our electric rates get subsidized and are arguably unjustifiably low.

My thinking is that we need to take the electricity conserved and translate that into other resources. For example, we save XXX mwh region wide over a month. We convert that to how much "water-through-the-dams" was saved, and spill that water in a way that benefits salmon instead. That way it's a sort of cap-and-trade for electricity. We are actually generating less electricity and investing more in our other resources over time. The cost of electricity rises, especially outside the region, because the excess created by conservation is actually removed from the market. The 'savings' get invested in others of our resources in our region.

I know there are probably a thousand things to work through to put such a system in place. But it is this fundamental dynamic that will start the positive feedback cycle on energy conservation. So long as our 'conserved' electricity is simply made available for others to use, the price will not go up, and serious energy efficiency, not the energy itself, will appear to cost the 'nominal egg.'

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