Thought Experiment - Family 1

Let's conduct a thought experiment today. The goal is to find out what happens with different behaviors related to energy use. I'd like to conduct this experiment on a family level, a corporate level, an industrial level, and a societal level. First, let's focus on family matters.

I want to consider three alternatives - first, what happens if a family is self-motivated to use more efficient technology and practices. Second, I'll think what happens if they rely on government incentives to change what they buy. Finally, I'll think what would happen if they're cost-motivated, and make choices with no incentives, but assuming costs go up for electricity, natural gas, and gasoline. Each of these experiments will run 10 years to see how these changes will affect the reasonably near future.

In each case, the family has a combined gross income of $50,233 per year (the national median income), and we'll ignore inflation and changes in income for this exercise. With no changes to any family's behavior, the take home pay is roughly $36,675, of which, $12,659 pays for their house and property taxes (10 percent smaller than the 28% or gross income often recommended). Electric, gas, and water utilities account for another $2,840, savings $5,000, and $3,059 for gas for two cars, leaving $13,117 for food, insurance, car payments, and discretionary spending. (Utility and gasoline expenses estimated from the EPA's average values, assuming $2.50 for a gallon of gas. $210/month for electric and gas utilities, split evenly between gas and electric; $320 annually on water; 240 miles per week in a 20.4 mpg car)

Now if we consider our first family, who does things for their own accord. Let's assume they do simple things - buy EnergyStar conditioning systems and appliances, use compact fluorescent lights in the house wherever possible, and drive a hybrid car. Appliances save approximately $178 per year (refrigerator ~ $60, washer ~$46, dishwasher ~$52, 2 TVs ~$10 each), although they cost an extra $209 (refrigerator ~$180, washer ~$129, dishwasher ~$0, TVs ~$0) up front. An EnergyStar air conditioning unit will save them roughly $165 per year for an additional $556 up front, and an energy star furnace will save $280 for an extra investment of $320. All told, they spent an extra $1,085 the first year to save $623 per year after that.

Lights are pretty simple - assume they spend 9% (EIA average) of their electric bill on lighting, and they can save 2/3 of that by switching to compact fluorescent lights. That would result in a $76 annual savings for an investment of roughly $100 to change out all the lights in the house.

Their one hybrid car (assume they only upgrade one car) will be only slightly more complicated because it, like many cars, is assumed to be financed. A Prius starts at $22,000, as compared to a Camry, that start at $15,350. Over a 5-year, no-money down, purchase agreement with 5.99% APR, this family would spend $554 instead of $387, or $167 more per month ($2,004 more per year) to save ($2.5 x 240 x 52 x (1/20.4 - 1/50) = $905) on gas in a year.

In the first year, this family would spend an extra $1,585, leaving $11,532 (88% of their original budget) for their food, etc. Each of the next four years, they would have $376 extra coming out-of-pocket, leaving $12,741 (97% of the original budget) for those extra expenses. For years 6-10, they would save $1,628 per year from the gas and utility budgets, expanding their discretionary spending to $14,745 (112% of the original budget).

More likely than cutting into something like food, this family would save less in the first five years, and would try to make up for it with the final five years. At 6% interest, $865 of their surplus would be required each year to make up for the extra expenses in the first five years. All told, then, this family breaks even, with five years of a surplus of $763 per year at the end. Unfortunatley, this scenario poses a risk, as their savings are depleted for the first five years.

Environmentally, this family would save 28% of their energy costs (utilities and gasoline), which roughly correspond to source energy content. This would correspond to a reduction of 17,430 pounds of CO2 per year, based on the EPA estimate of 62,250 pounds per family of 3.

In the end, this is a net benefit to the family, who gains surplus income over a ten-year period, and a benefit to the environment due to reduced fossil fuel emissions. The overall economy is benefitted from the extra expense spent on the new equipment up front, and the utility providers reduce their distribution stresses - although this would result in a decrease in infrastructure maintenance and utility income, which would have an overall balancing effect. The economic impact would be to transfer financing from utility infrastructure and fossil fuels to innovation and manufacturing (Energy Star equipment) and production of other consumer goods and services (accounting for the $566 surplus in the last 5 years).

Extrapolating this to the entire country taking part, we can come up with some large-scale impacts. Assuming the EnergyStar equipment takes no more energy than the non-EnergyStar appliances to produce, the expenditures of this family would increase by 12% in other areas, which would increase corporate and other industrial production (and energy use) by 12%. The net effect on the environment would be a 28% reduction in residential and transportation use for 10 years (roughly 36% of national use) and a 12% increase in commercial and industrial use for 5 years (roughly 64% of national use), or the equivalent of a 6% overall reduction over the full 10 years.

The other cases will follow another day.