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Energy Efficiency Policy Puzzles

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  • Timothy J. Brennan

Abstract

Promoting energy efficiency (EE) has become a leading policy response to greenhouse gas emissions, energy dependence, and the cost of new generators and transmission lines. Such policies present numerous puzzles. Electricity prices below marginal production costs could warrant EE policies if EE and energy are substitutes, but they will not be substitutes if the energy price is sufficiently high. Using EE savings to meet renewable energy requirements can dramatically increase the marginal cost of electricity. Rejecting “rationality†of consumer energy choices raises doubts regarding cost-benefit analysis when demand curves may not reveal willingness to pay. Decoupling to guarantee constant profit regardless of use contradicts findings that incentive-based mechanisms outperform cost-of-service regulation. Regulators may implement EE policies to exercise buyer-side market power against generators, increasing consumer welfare but reducing overall economic performance. Encouraging utilities to take over potentially competitive EE contradicts policies to separate competitive from monopoly enterprises. http://dx.doi.org/10.5547/01956574.34.2.1

Suggested Citation

  • Timothy J. Brennan, 2013. "Energy Efficiency Policy Puzzles," The Energy Journal, , vol. 34(2), pages 1-26, April.
    • Handle: RePEc:sae:enejou:v:34:y:2013:i:2:p:1-26
    DOI: 10.5547/01956574.34.2.1
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    Cited by:

    1. Wirl, Franz, 2015. "White certificates — Energy efficiency programs under private information of consumers," Energy Economics, Elsevier, vol. 49(C), pages 507-515.
    2. Mauritzen, Johannes, 2015. "How price spikes can help overcome the energy efficiency gap," Economics Letters, Elsevier, vol. 134(C), pages 114-117.
    3. Stojanovski, Ognen & Leslie, Gordon W. & Wolak, Frank A. & Huerta Wong, Juan Enrique & Thurber, Mark C., 2020. "Increasing the energy cognizance of electricity consumers in Mexico: Results from a field experiment," Journal of Environmental Economics and Management, Elsevier, vol. 102(C).
    4. Severin Borenstein, 2014. "A Microeconomic Framework for Evaluating Energy Efficiency Rebound and Some Implications," The Energy Journal, International Association for Energy Economics, vol. 0(Number 1).

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