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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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    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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