REPP's first Research Report reviews original research by energy consultant Ed Holt on the willingness of small business owners to buy green electricity. In 1996, Mr. Holt and an associate visited and interviewed twenty-four Michigan merchants participating in Traverse City Light & Power's "green pricing" program. Voluntary subscribers to this innovative program pay an 18% premium to receive electricity generated by a 650-kilowatt wind turbine. Most of those interviewed participate for environmental reasons-because, in the words of one interviewee, "renewable energy makes sense." For all except one, cost was not a significant factor in the decision to participate.

Mr. Holt examines a utility-run green pricing program in a traditional, regulated utility system. Yet, his research indicates the role of green power in a restructured, market-oriented electric sector. In particular, Mr. Holt's analysis suggests the need for new hybrids combining market and policy mechanisms. Neither voluntary decisions made in a free market nor public policy if relied on exclusively seem capable of providing adequate environmental protection.

On the one hand, Mr Holt's report describes an intriguing avenue for green marketing. Although Traverse City is to some extent an atypical town, Mr. Holt's research there indicates that small businesses can play a crucial role in opening a national market for clean energy. Like residential customers, small commercial consumers may buy green power as a matter of individual conscience. However, they receive an extra benefit from their decision: the opportunity to market their companies as environmentally friendly. Green power suppliers may find that this double incentive makes small merchants an ideal base from which to build the market.

Mr. Holt's report also suggests that green marketing may have limited potential. While decades of surveys indicate that Americans want clean power (see Energy and the Environment: The Public View, REPP Issue Brief #3), industrial and large commercial power users consume most of the nation's electricity. There may indeed be ways to market green power to large corporations, but they presumably will not purchase clean energy for personal reasons, as may some small business owners. For this reason, public policy mechanisms that set minimum environmental standards (e.g., the Clean Air Act and renewable portfolio standards) will remain necessary safety nets for public welfare.

Ultimately, it would be politically unwise for the renewable energy industry and environmentalists to rely solely on conventional public policy for support. It would also be commercially and environmentally unambitious, given renewable energy's meager success within the established regulatory framework. To succeed, clean power advocates must integrate policy and market approaches. Mr. Holt's research into small merchants' motivations suggests a key strategy for building the green electricity market.

REPP thanks Mr. Holt for his insightful research and Editor Susan Conbere for her valuable contributions to this project.

Adam Serchuk June 1, 1997

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