Tag Archives: subsidy

States Should Expand Incentive Programs for Smart Thermostats (Revised)

Thesis: States could boost economic activity in just a few short years by making subsidy programs for smart thermostats more popular amongst households. 

Smart thermostats are devices that allow a household to optimize the use of their heating and cooling utilities by auto-scheduling the process: they turn the temperature up or down at key times, like in the morning and around dinnertime, and let the HVAC system relax when users are asleep or out of the house.  While programmable thermostats have been around for a while, new brands like Nest utilize smartphone GPS data or sensors to make the process far easier for users by detecting when people are home, learning a customized schedule that can react to sudden changes.  It’s a household product that makes too much sense to not be utilized – Nest estimates that they save the average household $173 a year on utility bills, but homes in more extreme climates or those with less efficient heating systems, such as those that use heating oil, stand to save even more.  One user’s analysis of his change in utility bills from blog Get Grok, controlled for temperature changes, demonstrated that by using all of the Nest’s features, he was able to reduce his bill by a whopping $305 in a mere four months.

With a price tag of just $250, the average household’s savings would pay for a Nest or a similar product in just a year and a half, and many homes like the one in the example above would earn back the upfront cost in essentially no time.  Considering this short payback period, states should expand their rebate programs that can be applied to smart thermostats – the aggregate savings from consumers making the switch would ripple through the economy within a few years, translating to more spending on other goods and services.  There are currently a couple dozen rebate programs available for smart thermostats, in the range of $10 to $100, as compiled by a post on the Nest community page, but most of them are offered by local utility companies, making them scattered and inaccessible to many homes.  By making these incentives available statewide and more attractive (i.e. increasing the subsidy), states would see consumer savings get a slight bump as households hold on to a portion of their utility bill savings, and overall consumer spending on other goods increase as households spend the rest.  And there is evidence to suggest that spending on other goods and services is more valuable to the economy than spending on utilities: according to the American Council for an Energy-Efficient Economy, “one dollar of avoided utility bill costs has 2.24 times the effect on domestic employment and wages compared to one dollar spent on utility bills”, mostly since such a large portion of expenditures on energy services ends up overseas.  Since states generally have a higher sales tax than a utility tax rate, they would recoup the costs of the subsidy programs off the spread between tax rates.

Reducing the cost of utility bills for consumers would have another desirable effect, addressing one of the nation’s most hotly contested topics: income inequality.  Since utility costs are fairly uniform across socioeconomic status, low-income households spend a far bigger proportion of their income on utilities than most – a hefty 17%, as compared to the 4% that the average American household spends.  Subsidy programs that reduce utility costs would help improve economic parity by leaving low-income families with more disposable income.  I won’t recommend a specific value for the subsidy, as that will vary state to state (those with more extreme climates than average can afford to offer more, as their consumers will save more and they will earn back the cost quicker).  But every single state in the nation stands to benefit from these types of policies – and the reduction in carbon emissions is just icing on the cake.

States Should Expand Subsidy Programs for Smart Thermostats

Smart thermostats are devices that allow a household to optimize the use of their heating and cooling utilities by scheduling the process, turning the temperature up or down at key times, like in the morning and around dinnertime, and letting the system relax when users are asleep or out of the house.  Programmable thermostats have been around for a while, but new brands like Nest make the process far easier for users, using monitors or smartphone GPS data to detect when users are home or not and create a customized schedule that can react to sudden changes.  It’s a household product that makes too much sense to not be utilized: Nest estimates that they save the average household $173 a year on utility bills, but homes in more extreme climates or those with less efficient heating systems, such as those that use heating oil, stand to save far more.  One user’s analysis of his change in utility bills from blog Get Grok, controlled for temperature changes, demonstrated that by using all of the Nest’s features, he was able to reduce his bill by a whopping $305 in a mere four months.

With a price tag of just $250, the average household’s savings would pay for a Nest or a similar product in just a year and a half, and many households like the one in the example above would clearly earn back the upfront cost in practically no time.  With that in mind, states should expand their rebate programs that can be applied to smart thermostats – the aggregate savings from consumers making the switch would ripple through the economy within just a few years, translating to more spending on other goods and services.  There are currently a couple dozen rebate programs available for smart thermostats, in the range of $10-100, as compiled by a post on the Nest community page, but I think states should consider expanding those programs, especially those with households that spend more than average on heating and cooling.  By making such programs more popular amongst consumers (by making them more easily accessible and more attractive by increasing the subsidy), states would see consumer savings get a slight bump as households hold on to a portion of their utility bill savings, and overall consumer spending increase as households spend the rest.  Since states generally have a higher sales tax rate than utility tax rate, they would recoup their subsidy costs off the spread between tax rates.  And there is evidence to suggest that spending on other goods and services would be more valuable to the economy than spending on utilities – according to the American Council for an Energy-Efficient Economy, “one dollar of avoided utility bill costs has 2.24 times the effect on domestic employment and wages compared to one dollar spent on utility bills”.  Subsidy programs that reduce household utility bills would also carry the benefit of improving economic parity, as low-income families spend a far bigger portion of their income on utilities than most, since utility bills are fairly uniform across socioeconomic status.