Nudging homeowners to action

In this column, Aaron Goldfeder, CEO of EnergySavvy.com, shares new thinking and techniques to inspire homeowners to invest in energy efficiency.

Home energy efficiency programs around the country, run by most utilities and by government entities at all levels, have at least one common goal: To reduce the energy wasted by the nation's aging housing stock. And they all share common tactics: Lavishing homeowners with incentives, tax credits and low-interest loans to induce them to upgrade the efficiency of their homes through low-tech, but high-impact, measures such as adding insulation, upgrading to new high-efficiency heating and cooling equipment and sealing air leaks in the home's living space.

Yet, no matter how generous these programs are – many offer thousands of dollars of incentives per home – they all face a common problem of actually getting homeowners to care about efficiency and to take action. Across the country, home energy efficiency programs suffer from a demand-creation problem.

Traditional energy efficiency programs have tried to address this problem through building overwhelmingly solid return-on-investment (ROI) cases for homeowners. Implement an efficiency measure in your home that costs $1,000 and it will pay you back in reduced energy bills at a rate of $200 per year. Then we'll give you a $500 rebate up front and a zero-interest loan for the other $500, payable over five years. Why would any homeowner not take that deal? Or, in the words of one utility energy efficiency program manager, "Reasonable people reasonably informed will come to reasonable conclusions."

The problem is that most people won't take that deal. Why? The emerging field of behavioral economics would explain that it's because most people don't evaluate ROI in a rational way. Or put another way: People are irrational. Give them reasonable information and they’ll still make bad decisions.

So what does work?

We've been working on this problem for a while at EnergySavvy and can share some of what we've learned as well as the tactics that we're employing and recommending to our customers.

People typically don't know what to ask for, so meet them where they are and then walk them to where they need to be.

It's not that homeowners aren't out there thinking about being more efficient. Many of them are, actually. But they way they are expressing those thoughts isn't exactly what's best for them:

• Windows – Thanks to the nearly unlimited marketing budgets of the window manufacturers, people with windows that are in pretty good shape already come to us all the time asking about getting more efficient windows to upgrade their home's performance. In most cases, the significant cost of getting new windows and the relatively small efficiency gain they provide to the overall house makes them one of the worst ROI investments you can make as a homeowner wanting to save energy.

• Solar Panels – Even if they live in a leaky, uninsulated house with highly inefficient HVAC systems, solar panels always come to mind. The Shelton Group did a survey in 2008 called Eco Pulse where they asked people about green homes. Of their survey respondents, 54 percent said it’s important to have a green home, but only 32 percent of people could name a single feature of a green home unaided. The number one feature mentioned – more than two times the next nearest feature – was "solar panels."

• "Shiny" appliances – We did an analysis a few months ago of the Cash for Appliances programsdesigned and run in each of the 50 states. We looked at how each state designed its Cash for Appliances program and how fast the program "sold out" of rebate money. One of the findings was that two of the three factors that really mattered in determining how fast the program "sold out" were how generous and broad their "shiny" appliance rebates were (refrigerators, dishwashers, washing machines, freezers). The generosity of all the "boring rebates" (furnaces, hot water heaters, heat pumps) didn’t make any difference in how fast a program "sold out."

Why? It's an effect called the Availability Heuristic: Solar panels, windows and "shiny" appliances are much easier to picture in your mind than wall insulation, duct sealing and heat pumps. So that's what people are inclined to ask for.

As a program designer, what can you do about it?

Two tactics we use and recommend:

1. Bait and switch. Or maybe, "Grab and Educate." If you're interacting with a homeowner who is asking about efficient windows (say, through a Google search), grab them with relevant content about high-efficiency windows, then engage them in a way that allows them to express their concerns about windows but also gets them thinking about all the other possible efficiency issues going on in their home. Then transition their enthusiasm about being more efficient from windows to thinking about a whole-home approach that will likely get them a better result.

One way we've found to do this is the quick online energy self-assessment for homeowners we've got on our website. In two to three minutes, someone can come to our site and go through our online energy audit tool and get a quick and simple sense of what the top efficiency issues are in their home. Windows might be on the list if everything else is in great shape. But the odds are, they'll learn about a whole different set of activities.

2. Bundle. This may involve rebates or it just may just involve measure bundling. Let's say the choices a homeowner faces are:
   1. Windows – Costs you $5,000. Saves you $100/year.
   2. Air sealing – Costs you $1,000. Saves you $200/year.

We've already seen that if people have to choose between A and B, many of them will irrationally pick A. Energy efficiency programs have been fighting that choice by offering a large rebate on B and have had some success. Instead, what if a rebate was offered for people who do both, adding a third choice:

C.  Both – Costs you $5,000, after a $1,000 rebate. Saves you $300/year.

Now, by offering the rebate on C, no homeowner (rational or not) would ever pick A. They'll now either pick B or C – and they'll end up with an air sealed home in either case! By adding a third option, the program has changed the Choice Architecture of the decision for homeowners in a way that helps them not choose the "wrong" option.

This is the tip of the iceberg of a lot of research and experimentation that is starting to happen in the industry. To move homeowners to action, we're all going to have to get a lot smarter at program design, by combining the techniques of online marketing technology and study of behavioral economics.

Aaron Goldfeder is co-founder and CEO of EnergySavvy.com, a company that works with utilities, governments and energy service companies to accelerate and manage their energy efficiency programs.

The Pivotal Leaders business network aims to grow the Northwest clean tech industry by cultivating leadership in Oregon, Washington, Idaho and British Columbia. Through this twice-monthly column, members of the Pivotal Leaders network take turns discussing some of the most pressing issues and trends facing clean tech entrepreneurs in the Northwest and beyond.