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Toppling Energy Illusions

Economist Catherine Wolfram, PhD ’96, puts assumptions about energy use to the test.
February 22, 2017

On a cloudy September afternoon in 2014, Catherine Wolfram stood with a Kenyan woman and about 15 of her relatives and neighbors outside the woman’s house in a small village outside Malaba. The assembled crowd watched as electricians extended cables from a nearby utility pole to the two-room structure. The homeowner, who is participating in a study Wolfram is conducting on the benefits of providing free or subsidized grid connections, was elated as she screwed in a lightbulb and watched it come on. “She was so thrilled she gave me a chicken,” recalls Wolfram, an economist at the Haas School of Business at the University of California, Berkeley.

As magical as that was, what’s more important than moments like these is what comes after. Wolfram, who studies how people use electricity and how it can change lives for poor people, wants to know whether the woman in her study and others will be economically empowered by having access to electricity, and if so, precisely how. She and her colleagues are conducting the Kenyan study to ask some basic but hard-to-answer questions. Will the newly connected residents see improvements in their health? Will they have more access to information? Will their children do better in school with electric light to study by at night? In short, how will people use electricity and how will it change their lives?

Research on energy use and economic development takes Wolfram around the world to quantify the effects of energy on people’s lives. She also travels around the United States to study the real costs of efficiency upgrades and examine how people might be swayed to save energy. Like most energy economists, Wolfram deals in complex computer models to understand and predict how people use electricity. But she believes that economists can’t just stay at their desks and expect to do groundbreaking work. “Our models are only as good as the inputs,” she says. The only way to make them better is to ask people what they actually want and need, and do experiments in the field.

The Evidence-Based Analyst
Wolfram’s on-the-ground research often puts her in the position of toppling well-intentioned assumptions about energy use and costs that simply aren’t borne out by reality.

“You frequently hear that people are either on the grid or off-grid. What we’ve seen in western Kenya is that many households are under grid.”

One common misconception is that off-grid solar is the best way to supply power to people living without electricity. Not so. This September at the annual conference of the Society of Environmental Journalists in Sacramento, California, Wolfram calmly held her ground in response to the indignant response of some proponents of that technology. Off-grid solar doesn’t make sense in many places, Wolfram said. For example, these systems don’t provide enough oomph to power simple appliances such as 1,500-watt irons. More important, many people live very close to existing electrical infrastructure—their problem is not that they’re far from the grid, it’s that they just can’t afford to get wired.

“You frequently hear that people are either on the grid or off-grid. What we’ve seen in western Kenya is that many households are under grid,” she explained. Wolfram means that literally: electrical distribution lines run directly over the homes of people who are living without electricity. In this region, where per capita income is $800, it costs $400 to connect to the grid; only 5 percent of households have made the investment.

Just about everyone who does empirical research in the Economic Analysis and Policy Group at Haas seeks Wolfram out for this sort of direct, evidence-based analysis. And she’s always willing to help others, whether it’s a grad student or a woman in Malaba, says her Haas colleague and fellow MIT alum Severin Borenstein, PhD ’83. “She’s someone everybody talks to about their research,” he says. He adds that she’s good at digging through complex data analysis and getting to the core issues.

Wolfram pursues her own research the same way she approaches exercise—with uncommon determination, says ­Borenstein. “If you’re out on the street and she runs by, it looks like someone’s chasing her,” he says. “She runs—she does not jog.”

She came to MIT with the same sort of full-speed-ahead resolve. After completing her undergrad degree at Harvard in 1989, Wolfram worked as a rate analyst at the Massachusetts Department of Public Utilities. She was always interested in math and in doing something useful with it—and the economics of electricity fit that drive perfectly. After a few years at the department, Wolfram decided to get her PhD, and she says she knew exactly what she wanted to study (electricity markets) and with whom (Paul Joskow and Nancy Rose). She arrived at MIT in the fall of 1992 and dove in. “She finished her PhD fast—in four years,” says Joskow, now an MIT professor emeritus and president of the Sloan Foundation.

Wolfram had good instincts in her choice of topics. She was ahead of a second wave of economists studying energy markets, which had previously attracted a surge of interest in the 1970s. And she was one of the first to examine the privatization of electricity markets—in her PhD, she studied the effects of Margaret Thatcher’s privatization policies in the U.K. Around the time she graduated, in 1996, California restructured its energy markets on a similar model, eventually leading to massive increases in energy bills, the Enron scandal of 2001, and the recall of that state’s governor in 2003.

Berkeley, MIT, and the University of Chicago, says Wolfram, are now the best places to study energy economics—and there is much collaboration and exchange among the three, especially through the E2e energy efficiency research center, which she leads with Christopher Knittel of MIT and Michael Greenstone, formerly a professor of environmental economics at MIT and now at the University of Chicago. E2e does research on what energy economists call the efficiency gap. There’s a disparity between cost-effective energy use and actual usage—the difference between what’s possible and what consumers actually do. The center examines what this gap looks like and how it can be closed.

In 2015, for example, Wolfram and colleagues reported disappointing results from a study of the Weatherization Assistance Program. Through this program, the Department of Energy gives grants to states, territories, and reservations to provide low-income households with efficiency upgrades such as insulation and new furnaces. Part of the rationale for the program is that energy savings will pay for the costs of such investments. In the study’s randomized control trial, one-quarter of 30,000 households in Michigan were encouraged to invest in energy efficiency, with help from WAP.

A woman whose home was connected to the grid as part of a study Wolfram is conducting in Kenya thanks her with a chicken.

Some nonrandomized studies of efficiency programs have found that people who get upgrades end up using even more energy, a so-called rebound effect. The researchers did not see that perverse result. But they also determined that the costs of the upgrades were twice the savings over the lifetime of the equipment. Wolfram suspects that reality fails to match expectations because the engineers who developed current energy savings models didn’t properly account for human behavior.

Presenting this research has been difficult, she says, because “energy efficiency is the one thing that’s gotten bipartisan support.” Upgrades like these did help save money, and helped save energy and reduce emissions as well—just not nearly as much as policymakers and others had hoped.

Energy in Emerging Economies
In recent years, Wolfram has focused much of her attention on the developing world, where energy use is growing rapidly. “If you’re interested in climate change, that’s where all the growth is going to happen,” she says. Wolfram is one of the first economists to bring energy-market expertise to studies of developing economies, says Borenstein.

Wolfram says studying how people use energy in the developing world is key to monitoring and predicting the effect of the expanding middle class on the global climate. She cautions that efficiency won’t offset the world’s dramatic increase in consumption. “If you acquire a fridge when you didn’t have one before, you go from 0 to 400 kilowatt-hours,” she told the Society of Environmental Journalists; making that fridge twice as efficient won’t solve the problem. Examining corruption and theft is also illuminating. In the Indian state of Bihar, she and her collaborators are studying stolen electricity and looking at the extent to which technologies like smart meters might help keep energy affordable by preventing people from using it without paying for it.

“If you’re interested in climate change, the developing world is where all the growth is going to happen.”

Access to electricity is also expected to be key to economic empowerment for the poor. Governments, charitable foundations, and researchers including Wolfram have high hopes for the promise of connecting people to the electrical grid, she says. At the macro scale, economists know that energy use per capita is positively correlated with gross domestic product per capita. So the expectation is that connecting people who previously had no access to electricity will also improve their individual livelihoods.

However, it’s not clear what will really happen for individual households and women like the one in Malaba. Wolfram hopes to see evidence that connecting to the grid will be economically empowering—especially for women. If they can, for example, use time-saving electrical appliances for their household chores, they might be freed to get out of the house and into the workforce, in turn bringing more money into their households and further improving their standard of living.

Recipients of free and subsidized grid connections in the Kenyan study were selected randomly, which allows Wolfram’s team to do controlled studies comparing outcomes in households that did and did not get a grid connection. After 18 months, improvements linked to grid connection in most areas have been “depressingly zero,” she says. So far, math and reading scores of kids living in these households haven’t improved relative to those living in houses that didn’t get connected, and adults haven’t shown an improvement in political awareness (which might happen if a connected household starts watching the TV news). However, these numbers could turn around over time. And there are complicating factors as well: perhaps, for example, those given a free connection didn’t have the money to purchase electrical appliances. So far, the benefits have been greatest in households that had to pay $200 for the connection.

There is some good news. Household happiness has increased a bit. And there is some evidence that women in the study are better off. “We do see female participation in the labor force go up—which could be the start of an economic transformation,” Wolfram says.

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