Welcome the Negawatt Revolution

Imagine being able to save half the electricity for free and still get the same or better services! … You get the same amount of light as before, with 8 percent as much energy overall—but it looks better and you can see better. … In the space conditioning case—heating and cooling—you get improved comfort. … It is doing more with less.

The Negawatt itself is a theoretical unit of power measuring energy saved—Lovins came up with the idea after seeing megawatt misspelled with an n and deciding that this was a potentially useful conceptualization. It sounds self-evident now that you could reduce electricity consumption not by cutting back on energy usage but by improving energy efficiency standards and modernizing antiquated power sources. But the concept was revolutionary at the time. A major problem with getting people to understand the environmental and cost-savings benefits of energy efficiency was a perverse incentives structure that rewarded power companies based on amount of electricity sold, not for how much of a needed service it was providing. Lovins described the dilemma as such:

There isn't any demand for electricity for its own sake. What people want is the services it provides. … Nonetheless, most of our utilities have gotten into the habit of thinking they're in the kilowatt-hour business, so they should sell more. … For some reason, it's hard for them to get used to the idea that it's perfectly all right to sell less electricity, and so bring in less revenue, as long as costs go down more than revenues do.

Though Lovins brought the idea to the fore of the environmental policy discussion, he wasn’t the first to articulate the issue: In 1982, California devised an inspired solution, called decoupling, to this problem. The idea was that the state would reverse the incentive structure by establishing the revenue rate that the power company would need to meet in order to return a profit, along with a separate target for electricity production needed. Any revenue over the target amount would be returned to customers, while anything below would be added on to the following year’s bills. This meant that greater efficiency could actually return greater profit.

Decoupling is largely credited with making California the most energy efficient and environmentally friendly state in the country. But a mere disincentive to keep utilities companies from pegging profits to electricity usage was not enough, so the state launched a second program called “decoupling plus” in 2007 in order to incentivize power companies to lower their electricity production. Through this program, regulators set savings targets, and customers are asked to pay fees to help provide the down payment for power companies to meet these targets. Regulators then calculate long-term economic savings of this efficiency. If the utilities meet or surpass their targeted electricity savings, they get a cut of the projected savings. If they don’t meet the targets, the utilities pay a fine.

In 2007, California was still the only state in the union to have even a basic decoupling system in place. In the last five years, though, there has been a decoupling revolution across the country. By the start of 2011, 27 states and the District of Columbia had adopted gas decoupling, electric decoupling, or both. While the incentive programs are not yet in place in the vast majority of these states, at least the initial roadblock of the bad incentive structure has been largely removed.