Rebates Versus Rewards

Rebate schemes are a way of encouraging householders (and organisations) to make investments in particular sustainable technologies. Rebates for water tanks is a common example. To claim a rebate a householder first checks to see what rebates are available. They purchase the item and make a claim for the rebate. The claim is checked and the rebate given to the purchaser.

There are many difficulties with rebates:

  • Rebates are expensive to administer because each rebate is processed manually. It is difficult to obtain costings but reported staffing figures for the Queensland water rebate indicate that the costs of administering a large rebate system is of the order of 20% of the funds distributed. Rebate schemes have to be advertised and promoted.
  • Rebate schemes are inflexible because it is necessary to specify in detail eligibility and amounts.
  • Setting an appropriate level for a rebate is difficult.
  • Rebates are socially divisive because many people cannot apply for a rebate because of their circumstance – for example they have installed a tank when the rebate did not apply or they have no use for a tank as they live in an apartment.
  • Rebates require proactive behaviour on the part of householders. They have to be told that rebates are available, they then have to investigate, and they then have to get the installation done.
  • Rebates distort markets because suppliers knowing there are rebates may increase prices. The money for rebates is always limited and sooner or later the rebate money will cease and so expenditure tend to be lumpy.
  • People will often choose to invest because of the rebate rather than because it is the most efficient way to use their money.

Another way to encourage investment is through Rewards. Like all Rewards schemes people “earn” their Rewards for some action they take. For Water it may be that their per head consumption is low. Having earned Rewards there are designated merchants and supplies or services where the Rewards can be spent. If a household has no particular use they can make of the Rewards they can sell them to someone else at a discount to their face value. When a goods or service is purchased it is paid for in full through Rewards. If a buyer does not have enough Rewards to cover the cost then they add to the their Rewards account then purchase the goods.

Rewards systems solve or alleviate most of the problems inherent in Rebates.

  • Rewards are socially equitable because people “earn them” and they are available to all. In the case of water people can earn Rewards by consuming less.
  • The government administrative costs are essentially zero. Compliance is achieved by the Rewards organisation monitoring the transactions of approved merchants. In the long term it is estimated that the Rewards administration will be around 5% of money distributed.
  • Rewards are flexible because merchants will want to become approved and will propose many innovative ways to achieve sustainability.
  • Rewards systems are continuous and are easily adjusted by changing the amount of money distributed through the scheme.
  • Rewards can be transferred to community organisations, like schools, to spend on community projects.
  • Rewards create genuine markets in sustainable technologies and do not distort the market. Because it is a market and because people have a choice then they will be more careful with expenditure and so spending will be economically efficient.
  • Rewards can be used for household, community or system infrastructure. For example there is no reason why the Water Authority cannot – for example – issue water bonds that can be paid in part through Rewards. That is, Rewards can be used to fund system infrastructure like the building of dams or system recycling.
  • The psychology of Rewards is different from Rebates. Rewards are given. To take advantage of them the householder has to act. This means that many more people will actively seek to spend on sustainability infrastructure as they can only take advantage of their Rewards by spending or transferring them.
  • Rewards provide a rich source of statistics that can be used to discover the most effective use of infrastructure spending.

Money for Rewards can come from any source. Governments can distribute taxes, businesses can use rewards for promotional purposes (e.g. a hardware store could issue Rewards instead of discounts), high consumers of water can pay extra for their extra water and this can be distributed to others as Rewards.

It has been estimated that a Rewards program will be at least twice as economically efficient as a rebate scheme to achieve reduced consumption of mains water. If a government wishes to encourage the population to reduce mains consumption it is going to cost the community $X through rebates. Using Rewards the cost to the community to achieve the same reduction will be at most $X/2.

GER Outline

Global Energy Rewards

Global Energy Rewards

GER gives energy consumers rewards if they reduce their emissions of green house gases by reducing their energy consumption below a set level per head or if they reduce their consumption from previous levels. Consumers who use more than their allocated level pay more for their energy, which in turn funds the Energy Rewards.

GERs are electronic tokens that are transferable and can be sold, but may only be redeemed (ie spent) on designated projects that will assist in the reduction of greenhouse gases. These could range from the purchase of energy saving devices for the home through to direct investment in sustainable technology development.

The system helps to change consumer behaviour by encouraging people to consume less; by discouraging consumers from using more than their allocation because of higher prices; plus it increases energy investment by requiring that the extra funds generated be spent on sustainability measures.

GER will give billions of consumers funds that may only be spent on projects that help to reduce greenhouse gases. The amount of funds will vary between countries but it can be set at whatever level is required to fund the infrastructure needed to reduce greenhouse gases and it can be set at whatever level each country deems desirable.

GER requires no global agreements but does need governments to facilitate the system. A government imposes a surcharge on all greenhouse gas producing technologies. It also legislates that this money must be returned to consumers via a rewards program. How the money will be returned will be the role of the GER which could be controlled by an elected board where the electors are all consumers who join in the GER system. All monies collected in a country can be spent within that country, so it requires no transfer of funds between nations. As the system enhances efficiency and productivity of energy for each country that adopts it, GER is likely to find wide acceptance.

The system will create a market for greenhouse-reducing technologies which will all compete for funds for their project. Projects have to sell themselves on economic as well as greenhouse reducing ability to potentially billions of customers. It can be expected that the methods that reduce greenhouse gases for the least cost will be the systems that will get the most investment funds.

The generation of funds will contribute to the reduction in greenhouse gases because people only earn rewards if they reduce their energy consumption. Also high consumers of energy will be encouraged to reduce their energy consumption because of higher prices.

The concept behind GER is being trialled for water at the not for profit

Economic Assertions for Rewards vs Permit Trading

Increasingly, trading schemes are advocated as the economic tool of choice to allocate public goods efficiently and to alleviate public bads. Two well known schemes are Carbon Permits for reducing greenhouse gases and Water Permits to allocate water. These schemes work by creating artificial commodities to represent the problem being solved such as the limited supply of water and the high level of greenhouse gas emissions. For water, a cap is set for the consumption of water from sources such as rain and ground water. The cap is then apportioned between members of society and the allocations can be traded. For greenhouse gases a cap is set on emissions which are represented by carbon permits (the allocations allowing people to emit greenhouse gases). These permits can be generated by different activities that either reduce the amount of carbon emissions or that produce energy or other products which are emission-free.

A Rewards scheme works in a different way. People are paid to reduce their consumption, with payment coming from a surcharge on those who use excess water or whose activities emit greenhouse gases. Rewards may only be spent (or redeemed) on ways to solve the problem being addressed.

A measure of economic efficiency for both Permit Trading schemes and Rewards schemes is the total amount society pays to achieve the desired result. For water it is the total cost paid by the community to remove the need for water restrictions. For greenhouse gases the measure is the total cost to reduce greenhouse gas emissions to the desired level.

It is asserted that a Rewards scheme is at least twice as economically efficient as a Permit Trading scheme, as measured by the total amount of money needed to achieve a desired result.

Rewards schemes are the more economically efficient method because:

  • They pay people to help achieve the desired result. That is, there is a direct economic benefit to the consumer from reduced consumption.

  • They change behaviour through both higher costs and through incentives.

  • They foster and enhance trading systems for technologies that help solve the problems being addressed.

  • They deal in real products that are not subject to manipulation and to abuse which may in turn cause economic inefficiencies.

  • They ensure that money collected over and above the cost of production is spent addressing the problem being solved.

  • They cost less to administer.

It is asserted that a Rewards scheme will require less than half the amount of money to be spent to solve the problem being addressed, compared with a Permit Trading scheme. For example, if society wishes to reduce carbon emissions to 20% of the current level then a Rewards scheme will produce that reduction for less than one half of the cost of a Permit Trading scheme. Furthermore, if an urban community wishes to remove the need for water restrictions then a Rewards scheme will achieve the desired result for one half of the cost of a Permit Trading scheme.

Sustainable River Flows

Letter to Editor Canberra Times – published 20th May 2007
Canberra may not need water restrictions if less water had been released for environmental flows and a change in the environmental flows policy may remove the need for the ACT to build more dams and recycle drinking water.

Reports on environmental flows from storages say that environmental flows are meant to maintain the aquatic ecosystem in the river system below the dams. For Canberra water storages this would apply to the Murrumbidgee below the Cotter junction and the Cotter and Molonglo below the dams. As we are told that 60% of the water used by Canberra is recycled into the Murrumbidgee then there is no need for extra environmental flows for the health of the Murrumbidgee aquatic ecosystem. This means that the environmental flows needed are for the Molonglo and the Cotter. It is reported in the Canberra Times that in 2007 the environmental flows are going to be 3.5 gigaliters. This would appear to be enough to maintain the ecosystems in the Molonglo and the Cotter. If we had released 3.5 gigalitres yearly since 2001 then on the numbers reported in the CT on 17th May our dams would be at 75% and perhaps we may only be thinking about stage 2 restrictions.

There may be other reasons for releasing large quantities of water from our storages but it unlikely that maintaining the health of the aquatic ecosystem is one of them. Given this why hasn’t the government asked Actew to include reducing environmental flows in its Water2Water options.

The Numbers Tell the Story

Letter to Canberra Times – published 15th May

We always have to be wary of statistics but the case for Keating’s work place agreements versus Howard’s work choices is clear. Keating’s policy of workers bargaining with employers over wage gains for productivity improvements created a boost for productivity while Howard’s work choices has lead to lower productivity. The statistics prove it. Keating introduced work place agreements in 1993 and for the following years until they were repealed the nation enjoyed substantial boosts in productivity. Immediately Howard started to talk about Work Choices in 2004 productivity started dropping until now the nation is going backward in terms of productivity.

The reason is obvious. Productivity is measured by the output per hour worked. Employers now have the upper hand with respect to bargaining and because they can increase profits by reducing wages and conditions they will tend to forget about productivity as the way to increase profits. It is too easy to reduce wages while it is hard to get productivity gains.

A cost effective approach towards sus…

A cost effective approach towards sustainable transport

Most journeys within Canberra are made by car. A large proportion of those journeys are made by cars that have one adult passenger. This document proposes a method to increase the average number of passengers per car for common trips for shopping, work-related journeys, and travel to local events.

The total cost of car travel to the Canberra community is estimated at over $1.7 billion dollars per year (total number of trips times 100 cents per kilometre)*. Therefore if we can increase the average number of people in cars by just 5 per cent, the cost savings to the community will be in the order of $85 million per year. If we can further increase the average number of people from 1.5 to 2 persons per trip, the savings would increase to $425 million per year. The initial cost of the system to achieve a 5% increase in passenger numbers is estimated at $2M per year resulting in a 40 times return on investment for the whole community. As the proportion increases so the return on investment increases.

A voluntary system of rewards

It is proposed that car drivers be given incentives in the form of Transport Rewards as payment for taking passengers in their car. The system will be voluntary both for the drivers and the passengers, and is designed to cover all insurance costs associated with carrying passengers. The allocation of Transport Rewards will be electronic and will require people to identify themselves typically with their mobile phones when making a trip.

Each driver will receive Rewards from their passengers of value $5 for taking a passenger between districts, and $2 for transportation provided within a district. Each passenger pays the driver the full amount from their own rewards but also receives half the reward amount as a further reward for future trips if they themselves are registered to take passengers in their car and they are not members of the same household. Participating drivers will be encouraged to consider taking additional passengers on regular routes – such as travel to work, school, going to the gym or when shopping – as well as making special one-off arrangements to take additional travellers to major events such as the Canberra Show or a football match.

The Rewards are redeemable electronic vouchers that can be used for bus and taxi trips, or applied to the purchase and maintenance of bicycles and other forms of low energy transport. Rewards paid into bus trips may be returned to the pool of Rewards. Rewards can be converted from Transport Rewards to Energy Rewards for use for the purchase of sustainable Energy infrastructure.

Rewards will be funded from a $100 surcharge applied to all private vehicle registrations each year. This money will be distributed to anyone who lives in the ACT and who registers to participate either as a driver or as a passenger or both. The amount distributed will depend on the number of people joining and the amount used each year but are only earned when taking passengers or when riding as a passenger. Rewards are transferrable and can be sold to others.

If participants are found to abuse the system either as a driver or as a passenger they will be banned from Transport Rewards for a period of time depending on the severity of the abuse.

In its early years of operation the system will cost 10 per cent of turnover to operate, or an estimated $2 million per year. This is an estimated 40 to 1 return on investment brought about by the higher passenger numbers on an average car trip.

Trialling Transport Rewards

To seed fund a trial of the system will cost $200,000 but these funds can be returned from system charges once it is operational.

The system can be trialled and made operational within six months. It will be particularly effective for pooling work cars, car pooling for children going to school, and for use by elderly people and others without cars to go shopping and on other local trips. Moreover, it lends itself to being extended, should the government choose to provide additional funding to encourage specific groups or activities. For example, it would be a simple matter to offer additional Rewards to schools where children walk or ride to school. Rewards can be given to commuters who can prove they cycle to work.

Transport Rewards will result in a cut to the number of car trips within the ACT each year by encouraging and rewarding individual action, at the same time as fostering community involvement to resolve the problem of long-term transport sustainability. Targetted expenditure of rewards earned will assist in developing long term energy sustainability.

* Notes regarding statistics

It is very difficult to estimate the true cost per kilometre. See for a comprehensive review. Studies reported here estimate the total cost to the community at over $1 per kilometre.

The number of car trips per year (800) of average 8kms is taken from WA figures

Canberra adult population involved with trips is estimated at 250000.

The number of registered cars in the ACT is estimated at 210,000.