Friday, January 18, 2008

California eyes thermostats

About a week ago, it came out that California's energy regulators were seeking the power to control thermostats in private buildings. They would install a radio-operated controller that would let them raise or lower temperatures by a couple of degrees during severe power shortages, preventing system overloads and blackouts.

That provoked plenty of outrage about the idea from the usual suspects as well as others. So much so, in fact, that California withdrew the plan on Wednesday.

Me, I understood what regulators were trying to do, and they do have a legitimate interest in managing power consumption during an emergency. Further, it's pretty clear that access to electricity is not a right. The power company can, and does, shut off parts of the grid when necessary, and that's just life.

But it is intrusive. So here's what I would have done.

1. Make participation in the thermostat program voluntary, in return for a small reduction in the customer's monthly electric bill. We have a similar program here in Minnesota, and my air-conditioner is hooked up to it.

2. Anyone that didn't participate in the thermostat program would be bumped to the top of the list of people who would have all of their power shut off in an emergency, if necessary.

Voila! No intrusion, but a strong incentive to shoulder a small pain in order to avoid shouldering a much bigger one.

But that's not really my point in making this post. Because I think the situation illustrates an interesting clash of collective interest and individual rights.

Concerns about Big Brother and bureaucracy aside, the regulators had a compelling "greater good" argument. Turning everyone's thermostat down (or up) a couple of degrees would inflict only minor suffering (if it can be called that) on each individual customer, while reducing demand enough to stave off a power shortage.

Leaving it up to individuals, on the other hand, would prevent that minor discomfort -- right up until the entire system overloaded and people lost power completely, with far more severe effects on comfort and the wallet.

Thus you have the intellectually unsatisfying conclusion that everyone would be better off if they went with the remote thermostat control -- yet such a plan is politically undoable.

There's a name for this -- the tragedy of the commons. It affects all sorts of resources, notably fisheries and the like, and there are myriad demonstrated cases of such individual acts destroying the shared resources that a given group depends upon.

At this point you might be tempted to shake your head and say "people are stupid." But they're not. Especially in this case, because this isn't just an economic calculation.

Oh, there's an economic aspect: For example, adopting the thermostat plan requires confidence in both the government's intentions and its competence. If you don't think the program will work well or fairly, why give up control of your thermostat to it? That's an economic calculation -- feeling that the payoff will not be worth the cost.

Then there's the question of who gets to define what the "greater good" is.

But the biggest issue comes down to rights: who has the right to control my thermostat? And the problem there is that individual rights are not economically rational; indeed, by definition, they are roadblocks in the functioning of the larger society. Police need to get warrants; that's inefficient. The government must prove its case to a unanimous jury; that's inefficient. You can cause as much trouble with a printing press as you want; that's inefficient.

Individual rights, fabulous as they are, come at a certain price in economic or social efficiency.

Note I'm talking about rights, not freedoms. Freedoms are a different beast altogether; they are the absence of regulation and control, and they create economic and social efficiency.

But freedoms, too, have their limits, because they often assume limitless resources, no cheating and rarely account for externalized costs. The tragedy of the commons establishes a sort of upper limit on freedom: Too much freedom can end up destroying the shared resources that a given group depends upon.

The key to addressing "tragedy of the commons" situations such as this one is to align individual behavior with the interest of the group.

This can be done through enforcement -- in the case of a fishery, you might limit the number of fishing boat licenses available, thus limiting the catch to sustainable levels.

But it can also be done less coercively. The proposed solution in California, for example, creates a market incentive to accept the greater-good approach. This leaves all the power in the individual's hands -- they can always opt back out of the program if it doesn't work for them.

My purpose here is to get people to recognize two things:

1. The greater good is not an absolute good. It may be too violative of individual rights, or the definition of "greater good" may not be widely accepted.

2. Individual rights are not an absolute good. They introduce inefficiencies and, taken to extremes, can destroy economies and societies.

Any reasonable social policy must balance the two, maximizing individual rights wherever possible while efficiently serving society as much as possible.

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