Paying Poor Households Reduces Energy Waste

 

 

Summary: 

 

The price of energy is a key factor in determining how much energy is consumed. The lower the price of energy the less likely consumers are to make an effort to use energy sparingly and efficiently, and the greater the unnecessary waste of energy will inevitably be. This problem of low-price energy is particularly acute in developing countries, where electricity is often subsidised in poor areas. Instead of subsidising the price of energy, legislators could provide poor families with an allowance to cover their unsubsidised electricity bill and thus strengthen the families? incentive to save energy and, therefore, money.

 

The idea:

 

The price of energy determines to a large degree how efficiently energy is used. The lower the price of energy the less likely consumers are to make an effort to use energy sparingly and efficiently, and the greater the unnecessary waste of energy will tend to be. And wasteful consumption quickly leads to problems of capacity and may result in blackouts. The problem of low-price energy is often particularly acute in developing countries, where electricity may be subsidised to help the poor.

 

However, rather than subsidising the price of energy, legislators could provide poor families with a monthly allowance to cover their unsubsidised electricity bill. This would provide the families with an incentive to conserve energy where possible in order to use the rest of the allowance for other purposes.

 

One way to establish an energy allowance system would be to:

  • estimate the average electricity need for poor families with and without energy-efficient equipment (e.g., compact fluorescent lamps, efficient refrigerators);

  • give the families the monthly amount needed at cost-covering prices to buy the estimated amount of electricity and the energy-efficient equipment;

  • use the state subsidy saved to fund other programmes to assist poor households to acquire compact fluorescent lamps, efficient refrigerators, etc.

  • raise energy prices to cost-covering levels.

 

Everyone wins with a system like this one. Emissions and the need for new power plants will be reduced and poor families will benefit financially.

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