What goes up doesn’t always come down.
Ahmad Faruqui, Ryan Hledik, and Wade Davis are economists in the San Francisco office of The Brattle Group. Comments can be directed to Ahmad.Faruqui@Brattle.com.
In an earlier paper, one of us showed that inclining block rates (IBRs) could be used to promote energy efficiency by reducing energy consumption. That paper1 simulated the effect on energy consumption of moving from a flat rate to each of four different two-tiered IBRs. For all four of the rates that I (Ahmad Faruqui) had examined in that earlier paper, aggregate consumption went down. I had found also that the steeper the rise between the tiers, the more was the amount of energy conservation. Subsequent to the paper's circulation, some analysts concluded that the paper had arrived at a general conclusion: that IBRs were synonymous with energy conservation.
In this paper, which I have coauthored with two of my colleagues, we put that proposition to the test by running a reverse simulation.