Making Costs Explicit

Kevin Drum writes about Google’s PowerMeter project, a nifty web application that will tell San Diego Gas & Electric customers (and in the future, presumably customers of more firms) exactly how much electricity they’re using. Kevin observes that “The simple act of making people aware of their electricity usage can probably generate a surprising amount of conservation.” I tend to agree, and I think it’s something the behavior economics lovers in the White House should find appealing. Here’s another idea of Kevin’s:

And relatively speaking, it’s cheap. This kind of thing could help in other areas too. Here’s a cheap and simple idea, for example: place the estimated 5-year cost of gasoline on the sticker of every new car. EPA could easily come up with a formula based on average car use and recent gasoline prices, and it would almost certainly make fuel-efficient cars more attractive if people saw the savings of buying one right in front of their faces when they were comparing cars. More like this, please.

I have a related idea, that’s smart but politically toxic. It would be a good idea for the federal government to set an explicit target for gasoline prices over a ten-year period. The idea would be to have gasoline prices slope gently upward. When market prices deviate from the gentle upward slope, federal gas taxes would automatically adjust—going either up or down to compensate. That way a whole range of economic actors—homebuilders, city planners, car companies, retailers, customers, etc.—could plan sensibly. It would also make it easier to do the kind of EPA estimates Kevin is talking about. What we do right now—where on Monday and Wednesday politicians call for more fuel efficient vehicles and then on Tuesday and Thursday they call for cheaper gas—is confusing and counterproductive.