Pay-As-You-Go Pays for the Environment

Pay-as-you-go (PAYG) is emerging as a winning consumption model for the environment. It does so in two ways. First, by charging for incremental use, PAYG discourages overconsumption often associated with flat rate pricing. Second, it incentivizes shared use of resources during peak periods in order to avoid excess investments in capacity that would otherwise be underutilized for much of the time.

In recent years, several PAYG models have emerged that are having a positive impact on the environment. For example, smart grid initiatives provide consumers with tiered pricing models that incentivize them to reduce or shift energy use during peak periods. Additionally, PAYG models in cloud computing allow consumers the flexibility to add computing capacity in real-time, while avoiding the need to overinvest in server capacity utilized only during peak periods.

This month, another consumption model got a big boost when the California Insurance Commission approved the launch of PAYG car insurance in the country’s largest car market. Beginning in February, 2011, California residents will be able to purchase insurance from State Farm and the Automobile Club of Southern California and pay based on how much – and how safely – they drive. The less they drive, the less they pay.

Such a model is enabled through the tracking of personal driving data. Consumers self-report miles driven (and validate periodically through inspection) or do so automatically through an active OnStar system or small telematics device that plugs into a diagnostic port under the dashboard. Insurance companies then effectively create personalized rates based on actual car use.

Potential benefits for the environment from PAYG are significant: The State of California estimates that subscribers may reduce miles driven by 10% or more, saving consumers money while reducing accidents, congestion and air pollution.

A wide variety of companies are now in a position to consider testing PAYG models with their customers, especially those that are price sensitive, tend to use a product less than the average or demand additional services during peak periods. While consumers may focus on saving money, the real benefits may be saved for the environment.


19 thoughts on “Pay-As-You-Go Pays for the Environment

  1. Its a great approach. The example of the smart grid shows, that with little effort maximal effect can be reached. There are a lot of unknown and undetected possibilities for such PAYG models, please go on with this!!!

  2. PAYG auto insurance? How much I drive, has no baring on how safe I drive. This appears to be a revenue generating ploy, at least as it pertains to car insurance. Those of us that “need” to drive more will be penalized. From an environmental perspective, give me better MPG or no G at all, not an insurance incentive I can’t use!
    I’d also venture that statistics show, drivers that spend the least amount of time on the road by percentage, actualy cause more accidents. Anyone have to avoid one of those “Sunday” drivers lately?

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