Severin Borenstein “Energy Hogs and Energy Angels: What Does Residential Electricity Usage Really Tell Us About Profligate Consumption?” (Revised July 2024) | WP-341R | Blog Post | Blog Post 2
Abstract:
Since the 1970s, high volumetric (per kilowatt-hour) electricity prices have been justified in many policy discussions as encouraging more efficient use of electricity and placing more of the cost burden on those who are less prudent in their use. The argument has been used in support of increasing-block electricity pricing, under which the price per kilowatt-hour rises as a household consumes more electricity per month. More recently, in California, opponents of a proposal to lower volumetric prices and replace the revenue through fixed monthly charges have suggested that the change would just benefit “energy hogs”. In this paper, I first investigate characteristics of households who are high electricity consumers. I conclude that such pricing primarily targets benign household characteristics—e.g., many occupants, children and elderly present, not adopting rooftop solar, living in locations with more extreme temperatures—rather than profligate consumption. I then look more broadly at the energy usage individuals are responsible for in the economy, how other energy usage is priced, and the role that residential electricity use plays in the overall picture. Finally, I connect the discussion of profligate direct and indirect energy consumption with the negative externalities produced, which are typically the justification for such penalty pricing.