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The Economics of Energy Market Transformation Programs

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  • Richard Duke
  • Daniel M. Kammen

Abstract

This paper evaluates three energy-sector market transformation programs: the U.S. Environmental Protection Agency's Green Lights program to promote on-grid efficient lighting; the World Bank Group's new Photovoltaic Market Transformation Initiative; and the federal grain ethanol subsidy. We develop a benefit-cost model that uses experience curves to estimate unit cost reductions as a function of cumulative production. Accounting for dynamic feedback between the demand response and price reductions from production experience raises the benefit-cost ratio (BCR) of the first two programs substantially. The BCR of the ethanol program, however, is approximately zero, illustrating a technology for which subsidization was not justified. Our results support a broader role for market transformation programs to commercialize new environmentally attractive technologies, but the ethanol experience suggests moderately funding a broad portfolio composed of technologies that meet strict selection criteria.

Suggested Citation

  • Richard Duke & Daniel M. Kammen, 1999. "The Economics of Energy Market Transformation Programs," The Energy Journal, , vol. 20(4), pages 15-64, October.
    • Handle: RePEc:sae:enejou:v:20:y:1999:i:4:p:15-64
    DOI: 10.5547/ISSN0195-6574-EJ-Vol20-No4-2
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    References listed on IDEAS

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    2. Alfred E. Kahn, 1988. "The Economics of Regulation: Principles and Institutions," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262610523, April.
    3. Bass, Frank M, 1980. "The Relationship between Diffusion Rates, Experience Curves, and Demand Elasticities for Consumer Durable Technological Innovations," The Journal of Business, University of Chicago Press, vol. 53(3), pages 51-67, July.
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