Markets function best when participants receive credible and comprehensible information. Unfortunately, advocates of restructuring the American electric system sometimes neglect this principle. Most observers expect deregulation to offer electricity users more opportunities to choose among competing suppliers. But consumer choice will not lower total social costs-the ostensible goal of deregulation-if poor information prevents consumers from including the environmental consequences of energy use in their purchasing decisions. In the following REPP Issue Brief, Ed Holt argues that because the environmental cost of using energy is high, steps must be taken to ensure that the emerging electricity marketplace supplies adequate information.

Mr. Holt advances two approaches to facilitate the provision of information in a more market-oriented electric system. He proposes requiring that all energy merchants in retail markets disclose the source of the electricity they sell, and he advises that some commercial or non-profit institution should certify the green power products offered by those merchants. Mr. Holt's analysis suggests to us that these actions will improve market efficiency, benefit the environment, and increase individual liberty by allowing consumers to base their decisions on a broad range of criteria.

In our view, Mr. Holt's approach is sound and workable, and his overview provides valuable insight into issues that are receiving more focused analysis. At a December 1996 meeting on these issues sponsored by the Energy Foundation with assistance from REPP, several participants emphasized that much of the raw data necessary to allow assessment of the environmental cost of delivered electricity is available today. (Software developed for the restructured California system will be able to track emissions as well.) Likewise, while wholesale electricity purchases are complicated, power producers track financial obligations to their apparent satisfaction; it therefore should be possible to inform consumers about the fuel source of the retail power they buy. While the task will not be trivial, claims that obtaining and providing information is technically impossible or economically onerous do not hold water.

Perhaps the most important point is that these provisions are not esoteric environmental gimmicks, but normal-in fact, essential-elements of an active consumer market. Disclosure of fuel source is no different than such right-to-know regimes as labeling the content of packaged food. Certification of power sold as "green" addresses the same truth-in-advertising concerns as the Federal Trade Commission's definitions of "low-fat," "organic," and the like. The FTC has already issued guidelines concerning claims of superior environmental performance. We look forward to the integration of disclosure and certification provisions into upcoming energy policy packages, such as California Energy Commission recommendations (due in March 1997) regarding the restructuring of that state's electric system, and federal restructuring legislation due to be debated early this year.

Disclosure and certification alone cannot ensure that a market-oriented energy regime would be environmentally sound: consumers not only must be informed, but educated about the effect of their purchasing decisions. Some consumers still may make selfish choices; for that reason, some analysts remain wary of restructuring. Mr. Holt argues convincingly that if the market-oriented system becomes a reality, it is imperative that consumers be able to base their decisions on accurate, accessible information.

REPP thanks Mr. Holt for preparing this timely analysis, and Susan Conbere for editing of this document.

Adam Serchuk & Alan Miller, January 15, 1997

Abstract Executive Summary Article