Penalizing Consumers for Saving Electricity

In response to climate change, many electric utilities introduce pricing schemes to induce their customers to consume less electricity. When a significant portion of the consumer population finds it more costly to economize electricity, one would expect utilities to offer incentives in return for lower usage of electricity. The model put forward in this paper enhances understanding of why a typical electric utility may instead prefer to increase prices, in so doing discriminating against environmentally conscious customers. This result holds even when the utility is charged for its greenhouse gas emissions. But in this case the price increase is sufficiently small to induce energy savings also from customers for whom there is a net cost in doing so.