Environmental Valuation & Cost-Benefit News

Abstract: The history of Daylight Saving Time (DST) has been long and controversial. Throughout its implementation during World Wars I and II, the oil embargo of the 1970s, and more regular practice today, the primary rationale for DST has always been to promote energy conservation. Nevertheless, there is surprisingly little evidence that DST actually saves energy. This paper takes advantage of a natural experiment in the state of Indiana to provide the first empirical estimates of DST effects on electricity consumption in the United States since the mid-1970s.

Focusing on residential electricity demand, Matthew J. Kotchen and Laura E. Grant conduct the first-ever study that uses micro-data on households. The dataset consists of more than 7 million observations on monthly billing data for nearly all households in southern Indiana for three years. Our main finding is that—contrary to the policy’s intent—DST increases residential electricity demand. Estimates of the overall increase range from 1 to 4 percent, but we find that the effect is not constant throughout the DST period. There is some evidence of electricity savings during the spring, but the effect lessens, changes sign, and appears to cause the greatest increase in consumption near the end of the DST period in the fall. These findings are consistent with simulation results that point to a tradeoff between reducing demand for lighting and increasing demand for heating and cooling. Based on the dates of DST practice before the 2007 extensions, we estimate a cost of increased electricity bills to Indiana households of $8.6 million per year. We also estimate social costs of increased pollution emissions that range from $1.6 to $5.3 million per year.

See also
Of Canon Fire and Daylight Savings Time by Maura J. Casey The New York Times
http://www.nytimes.com/2008/03/08/opinion/08sat4.html

by Matthew J. Kotchen 1 and Laura E. Grant 2
1. University of California (UC) Santa Barbara and National Bureau of Economic Research (NBER); kotchen@bren.ucsb.edu
2. Graduate Student, UC Santa Barbara; lgrant@bren.ucsb.edu
This draft: February 5, 2008 (very preliminary and comments welcome)
Full Paper Available Free of Charge at:
http://www2.bren.ucsb.edu/~kotchen/links/DSTpaper.pdf