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Motivating energy suppliers to promote energy conservation

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  • Leon Chu
  • David Sappington

Abstract

We examine the design of regulatory policy to induce electric utilities to deliver the surplus-maximizing level of energy efficiency services, $$e^{*}$$ . The rebound effect (whereby increased energy efficiency stimulates the demand for energy) typically renders revenue decoupling insufficient in this regard. The additional financial incentive required to induce $$e^{*}$$ is shown to vary with such factors as the prevailing price of energy, the magnitude of the rebound effect, the extent of observable energy efficiency investments, and the utility’s objective. Copyright Springer Science+Business Media New York 2013

Suggested Citation

  • Leon Chu & David Sappington, 2013. "Motivating energy suppliers to promote energy conservation," Journal of Regulatory Economics, Springer, vol. 43(3), pages 229-247, June.
    • Handle: RePEc:kap:regeco:v:43:y:2013:i:3:p:229-247
    DOI: 10.1007/s11149-013-9215-x
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    References listed on IDEAS

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    1. Carter, Sheryl, 2001. "Breaking The Consumption Habit: Ratemaking for Efficient Resource Decisions," The Electricity Journal, Elsevier, vol. 14(10), pages 66-74, December.
    2. Wirl, Franz, 1995. "Impact of Regulation on Demand Side Conservation Programs," Journal of Regulatory Economics, Springer, vol. 7(1), pages 43-62, January.
    3. Brennan, Timothy J., 2010. "Optimal energy efficiency policies and regulatory demand-side management tests: How well do they match?," Energy Policy, Elsevier, vol. 38(8), pages 3874-3885, August.
    4. Lewis, Tracy R & Sappington, David E M, 1992. "Incentives for Conservation and Quality-Improvement by Public Utilities," American Economic Review, American Economic Association, vol. 82(5), pages 1321-1340, December.
    5. Timothy Brennan, 2010. "Decoupling in electric utilities," Journal of Regulatory Economics, Springer, vol. 38(1), pages 49-69, August.
    6. Eto, J. & Stoft, S. & Kito, S., 1998. "DSM shareholder incentives: recent designs and economic theory," Utilities Policy, Elsevier, vol. 7(1), pages 47-62, March.
    7. Leon Chu & David Sappington, 2012. "Designing optimal gain sharing plans to promote energy conservation," Journal of Regulatory Economics, Springer, vol. 42(2), pages 115-134, October.
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    Citations

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    Cited by:

    1. David P. Brown & David E. M. Sappington, 2017. "Optimal policies to promote efficient distributed generation of electricity," Journal of Regulatory Economics, Springer, vol. 52(2), pages 159-188, October.
    2. Flavio Menezes & Joisa Dutra & Xuemei Zheng, 2013. "Energy Efficiency and Price Regulation," Discussion Papers Series 495, School of Economics, University of Queensland, Australia.
    3. Arlan Brucal & Nori Tarui, 2018. "Revenue Decoupling for Electric Utilities: Impacts on Prices and Welfare," Working Papers 201814, University of Hawaii at Manoa, Department of Economics.
    4. Laura Abrardi & Carlo Cambini, 2014. "Tariff Regulation with Energy Efficiency Goals," IEFE Working Papers 65, IEFE, Center for Research on Energy and Environmental Economics and Policy, Universita' Bocconi, Milano, Italy.
    5. Michelfelder, Richard A. & Ahern, Pauline & D'Ascendis, Dylan, 2019. "Decoupling impact and public utility conservation investment," Energy Policy, Elsevier, vol. 130(C), pages 311-319.
    6. Abrardi, Laura & Cambini, Carlo, 2015. "Tariff regulation with energy efficiency goals," Energy Economics, Elsevier, vol. 49(C), pages 122-131.
    7. Datta, Souvik, 2019. "Decoupling and demand-side management: Evidence from the US electric industry," Energy Policy, Elsevier, vol. 132(C), pages 175-184.
    8. Wirl, Franz, 2015. "White certificates — Energy efficiency programs under private information of consumers," Energy Economics, Elsevier, vol. 49(C), pages 507-515.
    9. Laura Abrardi, 2019. "Behavioral barriers and the energy efficiency gap: a survey of the literature," Economia e Politica Industriale: Journal of Industrial and Business Economics, Springer;Associazione Amici di Economia e Politica Industriale, vol. 46(1), pages 25-43, March.
    10. Richard A. Michelfelder, 2015. "Electric utility regulation and investment in green energy resources," Journal of Sustainable Finance & Investment, Taylor & Francis Journals, vol. 5(1-2), pages 48-64, April.
    11. Michael Crew & Rami Kahlon, 2014. "Guaranteed return regulation: a case study of regulation of water in California," Journal of Regulatory Economics, Springer, vol. 46(1), pages 112-121, August.
    12. Nori Tarui, 2017. "Electric utility regulation under enhanced renewable energy integration and distributed generation," Environmental Economics and Policy Studies, Springer;Society for Environmental Economics and Policy Studies - SEEPS, vol. 19(3), pages 503-518, July.
    13. Gerlach, Heiko & Zheng, Xuemei, 2018. "Preferences for green electricity, investment and regulatory incentives," Energy Economics, Elsevier, vol. 69(C), pages 430-441.
    14. Joisa Dutra, Flavio M. Menezes, and Xuemei Zheng, 2016. "Price Regulation and the Incentives to Pursue Energy Efficiency by Minimizing Network Losses," The Energy Journal, International Association for Energy Economics, vol. 0(Number 4).
    15. Arlan Brucal & Nori Tarui, 2018. "Revenue Decoupling for Electric Utilities: Impacts on Prices and Welfare," Working Papers 201814, University of Hawaii at Manoa, Department of Economics.
    16. Abrardi, Laura & Cambini, Carlo, 2019. "Incentivizing self-control effort," Journal of Economic Behavior & Organization, Elsevier, vol. 164(C), pages 13-30.

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    More about this item

    Keywords

    Energy efficiency; Energy conservation; Incentive regulation; D82; L50; Q40;
    All these keywords.

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • L50 - Industrial Organization - - Regulation and Industrial Policy - - - General
    • Q40 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - General

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