Sometimes a beautiful data set occurs in the wild, begging to be analyzed. When a Swedish housing company decided to switch around half of its apartments so that tenants paid for their electricity, it created a natural, controlled experiment. Three economists—Mikael Elinder, Sebastian Escobar, and Ingel Petré—were all over it.

The data they collected helped to illuminate a somewhat murky question about how people respond to economic incentives. Elinder and his colleagues found that most people didn’t actually change their behavior much, but the top 20 percent of electricity hogs reduced their consumption so much that the total electricity usage across the buildings dropped by 24 percent. The implication is that when electricity was included in rent, the cost of these freeloaders was invisible to them. Once they had to pay for power themselves, it was good for the planet—and for everyone else’s pockets.

Split incentives

When tenants pay their own apartment’s electricity costs, they have an incentive to keep an eye on their energy consumption, but landlords have little incentive to keep their apartments energy-efficient. When electricity is included in rent, it’s the landlords who have an incentive to improve energy efficiency in their apartments, but tenants can use energy with abandon and not have to pay the costs.

So it’s difficult to figure out which of the two options results in better energy efficiency. There has been some evidence suggesting that individual meters are better, but that data is based on small studies, and there have been some contradictory results. Good information on the subject is necessary to set policies—and some policymakers have already steamed ahead without great evidence.

Enter the Swedish housing company, with around 1,800 apartments in two different areas of Stockholm. All the apartments started out with bulk meters, each measuring the electricity usage of around 80 apartments and joint areas like laundry rooms and stairwells. Electricity was included in rent. In one area, the apartments were switched over to apartment-level electricity metering and billing in 2007, when the data set begins. These apartments still had the bulk meters in place, in addition to the individual ones.

In 2011, another 800 bulk-metered apartments had individual meters installed, and their rent was reduced accordingly. Elinder and colleagues could compare the readings from the bulk meters across both groups of apartments and see how the new individual meters changed things.

Immediate changes

As soon as the tenants were notified of the scheme change in June 2011, the bulk meters showed signs of lower energy usage, dropping by around six percent. Once the meters were installed in November/December, usage dropped another 12 percent. The authors suggest that the tenants probably weren’t yet bothering with behavioral changes like switching off unused appliances but that they were starting to switch to energy-saving appliances and lightbulbs.

After the first bills arrived in March 2012, average usage dropped by another 6 percent, to a total reduction in the area of 24 percent. This drop covers the total electricity use across all the buildings, though, including the common areas. Since the usage in laundry rooms and stairwells wasn’t under the control of the tenants (and thus probably stayed the same) the drop in usage within the apartments was probably bigger. The researchers estimate that it was actually more like a 36 percent drop—around the equivalent of three constantly burning 60W light bulbs in each 750-square-foot apartment.

The change stuck around, too. The reduced rate persisted from March 2012, when the first bills arrived, all the way to 2015, when the data ended. “We can be rather confident in interpreting the effect of this policy change as permanent,” the authors write.

No more free ride

Also available was some limited data from individual meters, although only from 2012. This data allowed Elinder and colleagues to look at how individual apartments compared to others and to rank the groups from highest to lowest power use. They found that the top 10 percent of energy users had a gigantic drop in usage, but for the other 90 percent, the drop was much smaller, often statistically insignificant. Half of the total reduction came just from this top 10 percent, and two-thirds came from the top 20 percent of energy users.

So although the overall drop in consumption was substantial, most people didn’t actually change their behavior that much. The discovery suggests we might not see an effect in certain kinds of studies because the typical person doesn’t really change in response to this incentive. Future experiments trying to replicate these findings should take this data into account.

Could the paper make a difference on a global scale? That’s difficult to say. The study took place in Sweden, where energy efficiency is already deeply engrained in the culture (that may explain why only a minority of individuals were energy hogs). Similar studies in other countries could help sort out how exceptional these results are.

It’s tough to say exactly how many apartments worldwide don’t have individual meters, but there are ways to estimate. With the caveat that this information is based on quite a few assumptions and estimates, the researchers suggest that if all apartments in all OECD countries were metered, the total energy savings could be equivalent to around five percent of the current annual consumption of the United States.

The landlord in the study reported that the $270,000 cost of installing the individual meters was easily recouped in not having to pay the energy bills, even after accounting for the reduced rents. So both landlords and tenants win, and freeloaders are the only losers. If the effect is comparable in different populations, this could be a really popular and easy way to reduce a noticeable chunk of residential energy consumption across the world.

PNAS, 2016. DOI: 10.1073/pnas.1615290114 (About DOIs).