New technologies—and new expectations—require taking a fresh look at the institutions and practices that have provided reliable electricity for the past century. Collective action is needed to...
Green Power Marketing
appropriately and are used to support renewable energy. Some ways to establish product and fund credibility include:
aligning with environmental groups;
setting up customer advisory boards;
disclosing fuel mix and emissions;
being certified or endorsed by third parties; and
publishing annual reports on the status of the program and use of funds.
Focus on Customer Retention
One of the most important determinants of free-riding is repeat experience. While customers may not free-ride initially, participants may learn it is profitable after observing others do it.
By winning a long-term commitment from customers, marketers can limit opportunities for free-riders. Persuading residential customers to sign long-term contracts for the supply of renewable energy may not be possible, but commitments of one or even two years might be used without a significant loss of customer interest. In Detroit Edison's program, for example, residential customers must sign a two-year contract; for commercial customers, a 10-year commitment is required.
Marketers should also maintain an ongoing relationship with existing customers and offer staged private rewards to long-term customers. For example, if a customer purchases green power for a year, offer a discounted or free month of electricity. After the second year, offer discounts on environmentally friendly products and honor the customer with public recognition. In the Massachusetts pilot program, Working Assets offers new customers Ben & Jerry's ice cream or free long-distance calling. For customers who stick with Working Assets for five months, the company throws in a $25 gift certificate to a green product company.
A Place for Policy and Marketing
We believe that the persistence of the free-rider problem and its impact on the market's ability to supply public goods will remain an important justification for public policy support for renewables. Indeed, public goods offer a standard rationale for government involvement in a wide range of activities, including environmental protection and national defense. Regardless of one's position on policy support for renewables, however, a successful green power market is important in its own right. These programs expand consumer choice and provide a way to profit through raising environmental awareness and accelerating market adoption of cleaner energy technologies. By reducing consumer incentives to free-ride, the strategies we have described will help make green power marketing more effective.
Steve Pickle and Ryan Wiser are senior research associates at Lawrence Berkeley National Laboratory. Work reported here was funded by the assistant secretary for energy efficiency and renewable energy, Office of Utility Technologies of the U. S. Department of Energy.
1We are not claiming that renewable energy is a "public good," rather that the environmental benefits renewables provide - clean air, reduced risk of global climate change - are a form of public good.
2Two classic treatments of the free-rider problem are: P. Samuelson, "The Pure Theory of Public Expenditure," The Review of Economics and Statistics, 36; and M. Olson, The Logic Of Collective Action: Public Goods and the Theory of Groups, 1965.
3See for example, E. Ostrom, Governing the Commons, 1990; or D. Green and I. Shapiro, The Pathologies of Rational Choice, 1994.
4For more details, see R.