The Paradox of Clean Energy Choice

A couple of years back, my sister, who lives in Manhattan, received an advertisement in the mail from a local clean energy firm.  She sent me a text message with a photograph of the flyer and a simple question: “Should I do this?”

For the past few decades, this question never would have crossed the mind of the average consumer.  Indeed, since consumer choice in electricity markets was essentially non-existent, it could not have. 

With the proliferation of residential clean energy products in recent years, however, we may be facing an inverse problem: consumers may have too many options from which to choose, and consumer adoption of clean energy may well suffer as a result.

All Jammed Up

This finding is, on its face, counterintuitive.  But it is consistent what has been termed the “paradox of choice,” a contemporary paradigm that is challenges how economists have traditionally—and, perhaps, incorrectly—thought about how consumers make decisions.

A Swarthmore professor named Barry Schwartz has brought the concept into vogue over the past fifteen years.  But the genesis of the paradox of choice came earlier.  It owes, in particular, to a groundbreaking study carried out by two psychologists named Sheena Iyengar and Mark Lepper about, of all things, jam.

In their study, Iyengar and Lepper exposed unwitting grocery shopper to two in-store displays: one with 24 types of jam, and the other with only six types of jam.  Iyengar and Lepper found that the display with more jam varieties generated more initial interest from shoppers, but the display with fewer jam varieties generated ten times as many sales.

The reason for this finding, Iyengar and Lepper hypothesize, is that when we face too many choices, the result is “choice paralysis.”  Rather than make an informed decision, we make no decision.  As Schwartz puts it, drawing on this work, “with so many options to choose from, people find it very difficult to choose at all.”

The 31 Flavors of Clean Energy Products

In the not-too-distant past, this concept would have carried few implications for clean energy markets.  Historically, of course, electric utilities have been regarded as natural monopolies, with firms empowered to be the exclusive service provider in a particular geographic area.

Two related dynamics have upended this arrangement.  First, states have, in name of increased competition, moved to deregulate retail electricity markets.  Second, the sharp decline in the price of clean energy technologies has made retail clean energy products markedly more compelling to consumers.  In short, American consumers, for the first time, can now choose clean energy and, moreover, have real reason to do so.

The benefit of this increased consumer choice has become an article of faith among clean energy advocates.  In a New Yorker article entitled “Solar Power for Everyone,” Bill McKibben quotes two conservative solar advocates as follows: “Obamacare is bad because it diminishes health-care choice. Public education is bad because it diminishes school choice. You’d think it would apply as well to energy.”  In a speech the same year, no less than President Obama himself declared that “…across the country, this is about whether big polluters control the system, or whether consumers have freedom to choose cleaner, cheaper, more efficient energy.”

And this is where the concept of the paradox of choice has something important to say.  Consider the case of an American household that wants to support clean energy and is seeking the best way to do so.  Increasingly, that household can now opt for, among other things, rooftop solar, community solar, solar crowdfunding, and “green power” purchase programs.  And the decision of which category of product category to pursue is just the first step; assuming the household opted for rooftop solar, it would then need to determine who they should use as a provider, what type of product best meets their needs, whether they should pair the installation of their panels with other home improvements, and so forth. 

Against this backdrop, if Schwartz is to be believed, the dynamics that led to consumers buying less jam may also lead to consumers purchasing less clean energy.  The household that wants to do the right thing may end up instead doing the easiest thing: making no decision at all and, in so doing, sticking with the local utility company.

In recent years, it should be said, economists have rushed to the defense of consumer choice and, in some cases, have arrived at results that seem to run counter to Iyengar and Lepper’s findings.  And in recent interviews, Schwartz himself has urged caution when it comes to the geneneralizability of the concept.  Moreoever, the notion of American consumers facing an overabundance of clean energy options, after having suffered from a deficit of them for so long, is to some degree a high-class problem to have.

Even so, as the clean energy industry matures, the paradox of choice is something its proponents will need to be mindful of and increasingly grapple with.  In the second part of this series, I will examine ways that industry might go about doing so.  Done successfully, the answer to the question my sister posed can and should be, for millions more Americans, a resounding yes.

 

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