Consumer Energy Conservation: a Framework For Policy Research

Gordon H. G. McDougall, Wilfrid Laurier University
J. R. Brent Ritchie, The University of Calgary
ABSTRACT - Three elements should be considered when conducting policy research in the consumer energy conservation area; the pay-off matrix, the policy process, and policy types. This article describes each element and the resultant implications for research.
[ to cite ]:
Gordon H. G. McDougall and J. R. Brent Ritchie (1980) ,"Consumer Energy Conservation: a Framework For Policy Research", in NA - Advances in Consumer Research Volume 07, eds. Jerry C. Olson, Ann Abor, MI : Association for Consumer Research, Pages: 272-276.

Advances in Consumer Research Volume 7, 1980     Pages 272-276

CONSUMER ENERGY CONSERVATION: A FRAMEWORK FOR POLICY RESEARCH

Gordon H. G. McDougall, Wilfrid Laurier University

J. R. Brent Ritchie, The University of Calgary

[The authors would like to acknowledge the financial support of Consumer and Corporate Affairs Canada and the assistance of John Evans and Lee McCabe of that Department.]

ABSTRACT -

Three elements should be considered when conducting policy research in the consumer energy conservation area; the pay-off matrix, the policy process, and policy types. This article describes each element and the resultant implications for research.

INTRODUCTION

A significant problem faced by government officials is the need to reduce energy consumption in North America. In Canada and the United States many policy makers are Concentrating on devising energy policies which will ensure a strong economic base while providing sufficient energy for the consumer sector. Canada's stated program for self-sufficiency by 1990 can only be achieved if the forecasted increase in energy requirements of the industrial sector is offset by savings in the consumer sector (Energy, Mines and Resources, 1976). The current situation in the United States is somewhat confused with alternative programs ranging from massive investments in coal to energy conservation programs being suggested.

While the goal for both countries is clear - to reduce their dependency on off-shore sources for energy - the means of achieving the goal is not. The diversity of the solutions proposed and the conflicting statements concerning the impact of these solutions illustrates the need for an organized approach to the problem. Alternative energy policies must be examined within some common framework in order to assess their impact and effectiveness. The main objective of this paper is to suggest a possible framework for policy research with respect to consumer energy conservation. The framework may he used to influence, direct, and organize research for policy and, as such, should assist both researchers and decision-makers in the consumer energy field.

CONSUMER ENERGY CONSERVATION

The goal of energy self-sufficiency might be achieved with a variety of programs, based on technology, increased exploration, and other activities designed to increase supply (regardless of form). Alternatively, efforts can be focused on reducing energy demand. One important area of demand reduction is consumer energy conservation. Substantial energy savings can be achieved by either using energy in the consumer sector more effectively or reducing demand for energy. To illustrate, if the average miles per gallon obtained by cars in Canada was increased from 18 to 20, an annual saving of approximately 13 million barrels of oil would be achieved. To obtain similar savings through a reduction in miles driven would require each car owner to drive approximately 1,270 miles less each year (McDougall, Ritchie, Claxton, 1979). Applying a similar assessment to home heating, which accounts for approximately 70 percent of residential energy use, re-insulating existing Canadian housing stock to recommended standards could reduce energy usage by approximately 30 percent (Knelman, 1975). Reducing the thermostat setting in Canadian homes during the day from the current average of 69 degrees F to 64 degrees F would save an estimated 5 percent of energy expended on home heating (Cullen, 1979).

These examples show that a nations' energy requirements might be significantly reduced by altering the products that use energy and by modifying consumer behavior in using the products. The problem that exists for policy makers is to identify those options, among an extremely wide range of possibilities, which can achieve the greatest actual energy savings. The problem is complicated by two further factors. First, many consumers do not see the energy situation as a serious issue (McDougall and Keller, 1979). Attempting to impose policy options which restrict or seriously alter existing lifestyles (e.g. - gasoline rationing) are likely to be met with considerable consumer resistance. The consequence of current consumer attitudes is that many policies cannot be implemented because they are politically infeasible. The second complicating factor is that a number of options which are viable from a political standpoint and have a high potential energy savings may have a small actual savings, again because of consumer resistance or apathy. For example, home furnace retrofitting can increase the furnace efficiency by 15 percent or more for the existing housing stock in Canada (Knelman, 1975). Homeowners instituting this change can achieve a two to three year payback on their investment. The fact that this option is feasible in both economic and political terms does not mean that a significant proportion of the population will adopt this behavior. For reasons that are all too familiar to those who study consumer behavior (e.g. - apathy, resistance to change, distrust of business/government) it is likely that most consumers will not consider this option in the near future without special programs to encourage such action.

The essence of the above problem is to develop a structure which can be used to identify the range of policy options available, determine the potential energy savings of each option, and then assess the probability of realizing part or all of the savings under various scenarios. A structure designed to accomplish part of these tasks is the consumer energy conservation policy pay-off matrix.

THE PAY-OFF MATRIX

The pay-off matrix (Table 1) has two dimensions; "intervention stage" and "nature of energy consuming activity". The intervention stage differentiates between policies designed to affect product/service availability (e.g. -ban on sale of air conditioners for cars), the purchase decision process (e.g. - require energy efficiency labels on all appliances), or product use behavior by the consumer subsequent to purchase (e.g. - advertising campaigns to use less hot water). The nature of the energy consuming activity can be classified into three categories; Home related activities, such as home heating and appliance use, correspond broadly with residential energy consumption. Work/maintenance related activities involve energy consumption required for such items as travel to work, travel for shopping purposes as well as any other form of non-home energy use required to maintain the existence of the household. Leisure related activities include those energy consuming activities such as vacation travel and recreation undertaken for personal relaxation and development.

TABLE 1

CONSUMER ENERGY CONSERVATION POLICY PAY-OFF MATRIX

The purpose of this pay-off matrix is to identify the level of potential and probable energy savings for each policy category within the framework. Considering the potential savings first, it is relatively straight forward to determine the energy savings that would accrue by increasing the ceiling insulation in a home from an R Value of 10 to 20 in a particular geographic area. This level of saving can be determined on a technical basis and estimates of the total energy savings for the country could be calculated with existing sources of information. By using the matrix various policy options Can be ranked according to the potential energy savings and, presumably, a number eliminated on an initial screening because the savings are small relative to other options.

The more difficult step is moving from potential to probable savings. It involves establishing various scenarios, which might be considered analogous to marketing strategies, and estimating the outcome of these scenarios in terms of probable savings. For example, if energy costs rise faster than the general inflation rate, it is likely that a certain proportion of the population will re-insulate their homes. This proportion could, and has, been increased by government programs which pay part of the insulation cost (Gander and Belaire, 1978). The proportion might also be increased by advertising messages which discuss the monetary savings involved. Determining the probable savings requires consumer research. The type of research will depend on the policy option and the particular scenario. The general research objectives would be to identify the extent to which actual energy savings will match the potential energy savings specified by the pay-off matrix. By using the matrix a cost/benefit analysis can be conducted to rank order the options within and between the matrix cells to achieve the most effective policies. As a side-note, there has been considerable research in the area of "electricity" and the consumer. A number of studies have examined the effects of message appeal, appliance energy labeling, and feedback devices on the consumer within the "electricity" area (Anderson and Claxton, 1978; Craig and McCann, 1978; Russo, 1977). While these studies provide useful information and insights into certain aspects of energy end consumer behavior, the studies are of marginal use to the policy-maker. Using the pay-off matrix approach it is found that the net effect of policies designed to reduce energy consumed by appliances and house lighting is minimal when compared to policies designed to reduce energy consumed by home heating, hot water heating, and the automobile. Prospective researchers as well as policy-makers in this field can use the pay-off matrix to identify those areas which have the highest research pay-offs.

In addition to identifying the target for policy options, the "nature of energy consuming activity" dimension also considers the concept of discretionary versus necessary energy consumption. By categorizing energy consuming activities in this manner, an assessment of the degree or level of discretionary consumption can be made. For example, many home related activities such as home heating would be considered "necessary" expenditures and energy savings are most likely to occur through technical options (e.g. - reinsulation, retrofitting). The options would be focused on making the home situation more energy efficient. In contrast, since many leisure related activities could be considered "discretionary", options in this area could be focused on behavioral changes. For example, certain leisure activities are energy intensive (e.g. - alpine skiing, golf) because they have high direct, indirect and maintenance energy requirements, involve substantial travel and rely heavily on the private automobile (Ritchie, 1979). Policy options could be designed to discourage these activities and encourage all increase in low energy consumption leisure activities (e.g. -swimming, tennis).

In summary, the pay-off matrix provides the initial structure for categorizing and ranking policy options in terms of potential energy savings. The transition from potential to probable savings in many instances requires consumer research. However, before determining whether research is required, and, if it is, what type of research, two further steps have to be undertaken. The first is to understand the general policy process within the context of consumer energy conservation. The second is to understand the major policy dimensions within the field.

THE POLICY PROCESS AND CONSUMER ENERGY CONSERVATION

Understanding the policy process is an essential prerequisite for individuals interested in conducting research in the consumer energy conservation field. As shown in Table 2 the six stages in the process can be matched to the type of activities for each stage and the type of research to be conducted in each stage. In the first two stages, Canadian policy makers recognize that a significant problem exists and have established a policy of reducing energy demands in the consumer sector. However, consumers do not share the same level of concern. A five year tracking study of Canadians' attitudes towards energy indicates that, on average, consumers do not feel the energy issue is a serious problem (McDougall and Keller, 1979). This dichotomy between the perceptions of policy-makers and those of consumers has important implications for the third policy stage; impact analysis and policy selection. First, the selection of policy options which are voluntary in nature (e.g. - advertising appeals to conserve energy) are likely to meet with limited success because many consumers do not perceive that a significant problem exists. Second, this lack of problem recognition may lead to consumer opposition to mandatory policy options on the basis that they are unnecessary and excessive. The net effect of these existing consumer perceptions is to limit the number and type of options that can be considered in the third stage of the policy process.

Of major interest to this discussion is the third stage; impact analysis and policy selection. This stage uses the pay-off matrix to initially screen the policy options under consideration. In addition to determining the size and nature of the energy savings, two further criteria should be examined. While certain levels of energy savings need to be achieved, it may be that alternative policies required to meet the conservation objectives will have substantially different impact on consumers. On an overall basis, there is a need to determine the level of acceptability of alternative policies by consumers in terms of the extent to which the policy; reduces consumer choice, causes inconvenience to the consumer, and impacts fairly across all segments of society. While dramatic increases in the price of energy may reduce demand, the affect on lower income consumers, who already pay a higher proportion of their income for energy, would be particularly hard.

A second criteria for consideration is the enforceability of the policy. Even though a particular policy might be effective and acceptable if observed, it will be of relatively little value if it is difficult to enforce or if the costs of enforcement are unreasonable. Indeed, evidence indicates that consumers, when asked to rate the acceptability of various policy alternatives, tend to he favorably disposed towards certain actions which do not appear to be particularly attractive simply because they feel such policies cannot be effectively enforced (McDougall, Ritchie; Claxton, 1979).

For both policy makers and researchers, this process of impact analysis and policy selection is an extremely difficult stage. The probable consequences of different actions may not be discerned by intuition. Recent events suggest that when faced with limited energy availability, consumers opt for behaviors which are often unanticipated (e.g. - motorists behavior during the gasoline shortages in California in 1979). The lack of sound and thorough research makes the impact analysis difficult as there is little or no empirical evidence to support behavioral predictions related to energy usage.

In summary, the policy process provides a general framework for identifying the type of consumer research appropriate to each stage. Through research, particularly in the first two stages, a preliminary assessment of impact analysis and policy selection can be made to identify viable options. The pay-off matrix, along with additional criteria, allows for further screening of options. What is then required is a framework within which the major policy options can be enumerated.

THE POLICY TYPES

In the case of energy consumption by consumers, policy types are defined along two .major dimensions (Table 3). Dimension one examines the economic aspects and defines policies along the financial-non-financial spectrum. Dimension two examines the degree of policy coerciveness and defines policies along the persuasive-regulatory spectrum. A choice of policy types from within this framework involves a trade-off between effectiveness and social acceptability. Non-financial, persuasive actions are generally viewed as acceptable by consumers but their effectiveness frequently is not great. Policies which are financial and persuasive in nature appear to be more effective but still leave to Consumers the ultimate choice as to whether or not they Will modify a particular type of energy consuming behavior. Financial, regulatory policies are essentially policies which impose financial penalties on all consumers who refuse to conform to regulations or laws governing energy usage. Maximum speed limits are a recent, typical example of an area where laws have been modified to reduce energy consumption. While such laws forbid energy wasteful behavior, they obviously do not eliminate it completely. Indeed, the effectiveness of this policy type is largely dependent on the severity of the financial "penalty" and the efficiency of related enforcement mechanisms. The final policy types, non-financial, regulatory are by their nature most effective in that they render non-desirable forms of energy consumption extremely difficult if not impossible. Policies which restrict the availability of energy inefficient products or establish minimum efficiency standards are examples in this area.

While there is a substantial amount of literature concerning the effects of various inducements on behavior in general, this area has not been well researched in the specific field of energy. A review of the empirical evidence concerning persuasive policies, both financial and non-financial reveals a lack of concrete results that would be useful in assessing the impact of various policies (Evans, Ritchie, McDougall, 1979). At a general level it appears that information programs alone will not affect behavior; however a combination of programs which mix financial and non-financial actions Can influence behavior. The review of persuasive policy findings led to the following conclusions regarding knowledge gaps:

* The long-term effects of most policy actions are not clear. Virtually all studies have measured the impact of an action on short-term behavior (i.e., one to three months)

* The differential effect, particularly in terms of cost-benefit analysis, of policy combinations needs to be examined

* The degree to which results from one energy area (e.g. electricity use and behavior) can be extrapolated to other areas has not been determined. Thus, behavior with respect to energy use in the home may not be related to energy use in the automobile.

TABLE 2

THE POLICY PROCESS, ACTIVITIES, AND CONSUMER RESEARCH (EXAMPLES)

TABLE 3

CONSUMER ENERGY CONSERVATION POLICY TYPES AND EXAMPLES

The final step in the framework is to link the pay-off matrix to the policy types. An example of this linkage is presented in Table 4. The framework, along with the pay-off matrix (which is the "bottom line"), should enable researchers and policy makers to generate, rank, and evaluate alternative policy options. In the final analysis, the framework can be used to identify priority areas for research and determine the type of research that should be done to determine the most efficient and effective options for achieving consumer energy conservation.

THE POLICY FRAMEWORK AND CURRENT KNOWLEDGE - SOME OBSERVATIONS

The study of consumer behavior vis-a-vis energy is a complex issue because of a number of factors, some of which have already been discussed. Other complicating factors include the uncertain nature of the overall effects of a particular policy. For example a program which reduces consumer energy use in one area might lead to increased use in another area. The consequences of energy saved (and, for the consumer, money saved) in one situation may result in the money being used to "buy energy" through activities in another situation.

A second factor to consider is that some energy use appears to be primarily income based (e.g. - higher incomes lead to larger houses, more appliances) whereas other energy use appears to be more strongly affected by attitudes (e.g. - desire to travel). An understanding of the underlying causes or bases for energy use should lead to a better assessment of the impact of policy options.

Finally, there is the notion of adaptive behaviors. Consumers have shown, in any number of new situations, a remarkable ability to adapt to the situation by engaging in behaviors which are frequently unanticipated by theorists. The objective of their behavior is to, at a minimum, maintain their existing lifestyle. Research into the possible adaptive behaviors consumers would use under various policy scenarios would be both insightful and useful for policy makers.

CONCLUSION

The development of policy in the consumer energy conservation field is a complex issue. Frameworks and structures are required to add clarity to the situation. The number of options available to reduce consumer energy consumption are immense. A major issue is to identify and implement those options that are effective and fair. Through an understanding of the policy process, and the use of policy framework and pay-off matrix, options can be enumerated, ranked, evaluated, and selected for implementation. Consumer research has an important role to play in each step of the process.

TABLE 4

CONSUMER ENERGY CONSERVATION POLICY TYPES WITH EXAMPLES

REFERENCES

Anderson, C. Dennis, and John D. Claxton (1978), Energy Information at Point of Sale: An Overview, Unpublished Working Paper, University of Manitoba.

Craig, C. Samuel and McCann, John M. (1978), "Assessing Communications Effects on Energy Conservation," Journal of Consumer Research, 5:3, 82-88.

Cullen, Carman W. (1979), The Potential for Energy Conservation in the Residential Sector, Unpublished Report, Consumer and Corporate Affairs Canada, Ottawa.

Energy, Mines and Resources Canada (1976), An Energy Strategy for Canada: Policies for Self-Reliance, Ottawa.

John L. Evans, J. R. Brent Ritchie and Gordon H. G. McDougall (1979), "Energy Use and Consumer Behavior: A Framework for Analysis and Policy Formulation," Journal of Business Administration, (forthcoming).

Gander, James E. and Belaire Fred W. (1978), Energy Futures for Canadians, Energy Mines and Resources Canada, Ottawa.

Knelman, F. H. (1975), Energy Conservation, Science Council of Canada, Ottawa.

McDougall, Gordon H. G., and Keller, G. (1979), "Marketing Energy Conservation in Canada: Some Implications from a Longitudinal Study," in Developments in Canadian Marketing Vol. 1, Administrative Sciences Association of Canada.

McDougall, Gordon H. G., J. R. Brent Ritchie, and John D. Claxton (1979), Consumer Energy Consumption and Conservation in Canada, Unpublished Report, Consumer and Corporate Affairs Canada, Ottawa.

Ritchie, J. R. Brent (1979), Leisure Activities and Energy Consumption - A Review, Unpublished Report, Consumer and Corporate Affairs Canada, Ottawa.

Russo, J. Edward (1977),"A Proposal to Increase Energy Conservation Through Provision of Consumption and Cost Information to Consumers," Proceedings, American Marketing Association, 437-442.

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