Sunday, February 8, 2009

Can Energy Decoupling Save Us?

If we want to alter what our economy values, we need only look to how our innovators and entrepreneurs are encouraged to make money. One policy initiative built upon this idea is energy decoupling, and it may provide a solution on which even business profiteers and avid environmentalists can agree.

The concept itself is simple. An energy company’s profits must be “decoupled”, or separated, from the amount of energy it produces. If our goals as a nation are to progress in our ability to conserve our natural resources and to reduce our dependence on foreign sources of oil, then providing a financial mechanism through which our energy businesses can profit while fulfilling these goals is paramount.

Why are energy companies paid for producing as much gasoline and mining as much coal as possible when we live in a world of limited resources and a changing climate? A year ago, each of the major oil companies were brought before Congress to testify as to why they weren’t investing more of their windfall profits into new technologies and renewable energy alternatives. They gave little answer, and provided even less action the following year as energy prices soared. Nor have these questions diminished in the wake of falling energy prices and an ensuing financial crisis. Little more than a week ago, Rep. Edward Markey of Massachusetts chastised Exxon for not investing more of its windfall profits in renewable energy. “In these difficult economic times, the whole country is banding together to help save our economy, and Exxon must join in that effort.” But short of public flagellation, few have any positive ideas on how best to get private companies to do this.

Within the public utilities sector, energy decoupling has now been implemented in three states: California, Idaho and Maryland. To be sure, there are advocates and detractors. Current mechanisms for accomplishing decoupling allow utility companies to adjust their rates up or down, in order to cover their fixed expenses, regardless of the number of customers served. But there is still much public debate as to the effectiveness of these policies.

One extremely relevant critique of this approach is that decoupling actually strips individual consumers of their incentive to reduce their own consumption, as they will be charged higher rates just as those who do not reduce their own consumption. Personally, I find this line of thought to ring at least partially hollow. Though my rate may be the same as my neighbor (who has done little to limit his energy consumption), if I am charged a higher rate fewer times, then I will still be paying less than someone who is charged that same rate more frequently.

More importantly however, this removes the veil from what decoupling is really accomplishing. If energy companies are able to maintain their current profits by increasing their rates to all consumers when consumption declines, then each of us is effectively shouldering a larger burden to reach a collective goal. Put another way, an individual’s action can only reduce his or her energy costs respectively, not absolutely.

But is that really any different than it is now? In the current system, those who consume more energy pay more for it. Decoupling does nothing to alter that fact. We simply pay more for less; all of us. And perhaps this is why it will never work in America. As a community, we still are not ready to put a price on conservation.

1 comment:

Abhinav Sharma said...

Garret ,
I agree with your point that no matter how much an individual saves but the burden has to be shared by all. But all in all, the policy of decoupling is somewhat responsible in making California the most energy efficient state along with promoting its economic growth. After the mass electricity shortages in 2000-01, Decoupling was readopted in California by a big (2billion$ investment) energy efficiency campaign was launched which regenerated in more than 2$ for every dollar spent in that campaign.
Moreover, Decoupling accounts for the volatility of the prices. For example, Oregon adopted decoupling in 2001 for natural gas utility and since then the residential rates increased just $0.00212 per therm(or unit of gas).
One suggestion which I was thinking was the installation of intelligent meters which report the amount of energy saved in percent to a particular standard for a household. With that measurement the household saving the most may be charged less.. as an incentive to energy saving/efficiency.!!!!

Pro's and cons to a problem will always be there. As of now, Decoupling has shown promising results and hence been adopted by California, Idaho, Minnesota, Maryland etc. Is there any other policy/ way which has proved better than Decoupling? Please do let me know, if any...