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.