Willingness To Pay (A Little) For Green Energy

Ivy League researchers recently asked people whether they’re willing pay more for electricity that reduces the amount of greenhouses gases by relying on renewable sources such as wind, solar and hydropower and if so...if a person is willing to pay more... ahem...how much? 

To cut to the chase the Ivy Leaguers found that yes consumers would be willing to pay more for green energy. Not a lot more – but some. The annual green energy premium per household was somewhere around $162 in order to support a national energy policy requiring 80% green energy by 2035. The acceptable price tag for green energy is a little underwhelming, I suppose. 

But I’m not particularly concerned about the size of the price tag. I’m just grateful it exists at all. Sure, it’s a modest upward bump. But it flies in the face of assumptions we’ve made for decades that, when it comes to energy, Americans are driven by two, and only two, motives: price and reliability. 

Don't worry. The American consumer hasn’t suddenly transformed into a group of granola-loving-greenies. The data suggests something more subtle than that. If the survey was stuffed full of die-hard green consumers you would see a much larger dollar value, much more radical energy futures. My supposing is that the study reflects a significant, and fast growing, consumer group is conflicted, rather deeply, about what they want. 

It’s a market group, we’ll call the conflicted-consumer, that has some money to spend, willingly arrives at the marketplace to spend it and, sort of, wants it all. The chunk of change in this person’s pocket is limited. The electricity bill can only be so high because they’ve got other bills to pay, other needs to meet. But the person also has a clear sense of the climate implications of using certain energy sources. 

So this conflicted-consumer makes a transaction. One that simultaneously meets their energy needs and avoids the sense they’re trashing the planet in the process. It’s a nebulous process that arrives at the transaction. Variables like how much money is in their pocket? what other bills are kicking around? what are the tax incentives and off-sets available? how urgent does the climate change problem feel? are constantly at play. So the transaction is more of a temporary solution. An expression of how the variables played out this time. My guess is that a conflicted-consumer shops around constantly. They’re constantly on the lookout for better solutions. 

In an energy market the solutions available fall into electrical generating sources: fossil fuels, wind, solar, etc. Some cost more than others. Some pollute more than others. The break-even point between the average American's pocketbook and green energy appears to be that $162 figure floating around this Ivy League study. By the way however modest $162 a year sounds it is, evidently, more than Congress would be willing to pay. 

With some number-crunching and assumptions about how green energy preferences back home would influence Congress, the Ivy League researchers found that the annual added cost per household of a green energy policy would have to drop below $59 a year to pass the current Senate and below $48 a year to pass the current House.

When you get caught up in the numbers game it's easy to get discouraged. Nobody would argue that $48, $59, or $162 a year is much money to a household's annual income and bottomline. But step back from the numbers for a minute and observe that the green  energy agenda is on the mind of an average American consumer rather than a small but vocal group standing at the fringe of the customer base. What I like is seeing a large voting block, a large consumer base, taking notice that our lives, our choices, our energy future have some grappling to do with the environment. It's subtle and it's a small shift but comes from a massive group of people.