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The Power of Peer Pressure in Combatting Climate Change

[Editor's Note: Marc Gunther also conducted a podcast interview with Daniel Yates, the co-founder and CEO of OPower. You can listen to their conversation, and read a transcript, on "How a Kindergarten Mentality Can Drive Widespread Energy Efficiency."]

We can solve the climate crisis with the right tools -- solar panels, wind turbines, electric car batteries, No. 10 envelopes and smiley faces.

Envelopes? Smiley faces?

Yep. A startup called OPower has learned that by mailing utility customers personalized reports on their energy consumption -- and then by comparing them with their neighbors -- people can be persuaded to save energy, reduce emissions and help fight global warming.

Energy hogs learn that they are most wasteful than the Joneses. Energy misers get smiley faces in the mail, and they want more.

Turns out we never escaped high school–we’re always influenced by what other people are doing.

“If I tell you that you’ve spent $1200 on heating this year, you don’t know what that means,” says Dan Yates, the company’s co-founder and CEO. “But if we tell you that you spent $500 more than your neighbor, that tells you something.”

{related_content}I recently met Dan Yates at OPower’s offices in Arlington, Va., just outside of Washington. Yates is just 32, but OPower is his second startup. He sold his first, an educational software firm called Edusoft, to Houghton Mifflin for $20 million in 2004. He made enough money to spend a year traveling with his then-girlfriend, now wife, from the Artic Circle in Alaska to the southernmost tip of South Africa.

That trip turned him into an environmentalist, he says. Yates then started OPower with Alex Laskey, a friend from Harvard, who had worked in advertising and politics. Dr. Robert Cialdini, a renowned social psychologist who has spent his life studying ways to shape human behavior, is an investor in OPower and the company’s chief scientist, albeit not on a full-time basis. The company’s biggest investor is New Enterprise Associates, a venture capital firm.

How’s the company doing? So far, so good. Customers who get the peer-to-peer companies cut their energy consumption by 1.2 percent to 2.8 percent, on average, studies have found.

“Peer comparison reports can create significant net costs and carbon savings, benefiting both individual households and the environment,” said a report by Yale Law professor Ian Ayres and two students.

A couple of percentage points may not sound like much but it’s enough to interest utility companies, who are

OPower’s customers. Because regulators in about 20 states reward utilities for helping their customers become more efficient, utility companies can make money by using OPower. The company’s reports are currently being used by 24 utilities that distribute them to between 1 million and 2 million customers.

“If we could get across the country, we could have the emissions impact of the entire wind and solar industry,” said Yates.

Efficiency, it’s often said, is the cheapest form of renewable power. According to Michael Sachse, OPower’s senior director of regulatory affairs and general counsel (and another Harvard man), the company spends about 3 cents to save a kilowatt hour of electricity. Building a new coal plant to generate that same kilowatt would cost 5-6 cents, wind would cost 10-12 cents and solar can be 25 cents to 30 cents.

As Cialdini told David Roberts of Grist, social psychology is:

the least capital-intensive way of making change…Technology costs a lot. Incentive programs cost a lot (and as soon as they are discontinued, the behavior flops back). Legislation, legal constraints, taxes, penalties of one sort or another–those are costly in terms of social capital, which organizations and governments are loathe to spend these days.

What you have with social psychology is a set of procedures that are essentially costless to enact, but product levels of change that are comparable to those other mechanisms.

While there’s nothing high tech about sending energy usage reports to customers by mail, OPower is actually a sophisticated operation. It uses advanced software, customer data analytics, direct-mail techniques as well as the insights of behavioral economics to persuade people to change. Executives have been hired from Amazon (whose personalized software is key to its success) and Capital One (which built a huge credit-card business through direct mail). “We’re constantly experimenting,” Yates said.

Eventually, by combining OPower’s data analysis with smart grid technology, utilities will be able to help people decide whether to conserve energy and save money by replacing an inefficient refrigerator, unplugging a big-screen TV or turning the air conditioning down at night. If we understood the costs of our energy consumption habits as well as we understand the costs of buying food at the supermarket, we’d consume differently. Senior Contributor Marc Gunther maintains a blog at

Top image CC licensed by Flickr user a2gemma.
Inset image courtesy of OPower.




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