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Economics of Energy & Environmental Policy
Volume 5, Number 2

Running Randomized Field Experiments for Energy Efficiency Programs: A Practitioner’s Guide

Raina Gandhi, Christopher R. Knittel, Paula Pedro,and Catherine Wolfram

DOI: http://dx.doi.org/10.5547/2160-5890.5.2.rgan
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Researchers and professional evaluators are increasingly turning to randomized field experiments to evaluate energy efficiency programs and policies. This article provides a brief overview of several experimental methods and discusses their application to energy efficiency programs. We highlight experimental designs, such as randomized encouragement and recruit-and-deny, that are particularly well suited for situations where participation cannot be enforced. The article then discusses several implementation issues that can arise and characterizes applications that are a good fit for a randomized experiment. We also address the most common objections to field experiments, and share the best practices to consider when designing and implementing a field experiment in this space.

The Impact of Behavioral Science Experiments on Energy Policy

Robert Hahn and Robert Metcalfe

DOI: http://dx.doi.org/10.5547/2160-5890.5.2.rhah
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One of the most exciting areas of research today is the use of experiments informed by behavioral science to understand how to change energy consumption decisions of consumers. This article provides a survey and synthesis of experiments and focuses on general principles that can be gleaned from these experiments to date. We identify four general insights from the literature. First, the "law of demand" is typically satisfied in experimental settings, but responsiveness to energy price changes can vary dramatically in different contexts. Second, information provision can help promote reductions in energy use, but it does not always work. Third, the use of social norms can change energy use. Finally, the economic welfare impacts of behavioral interventions aimed at promoting either energy conservation or energy efficiency are not well understood, but initial research suggests that some people want nudges and some do not. The essay also identifies a number of areas for future research.

An ex-ante evaluation of the EU Energy Efficiency Directive - Article 7

Jan Rosenow, Cor Leguijt, Zsuzsanna Pato, Nick Eyre, and Tina Fawcet

DOI: http://dx.doi.org/10.5547/2160-5890.5.2.jros
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The European Union's Energy Efficiency Directive calls for EU Member States to put in place ambitious energy efficiency policies and requires them to establish energy saving targets. One of the most important Articles of the Directive is Article 7, which required Member States to implement Energy Efficiency Obligations and/or alternative policy instruments in order to reach a reduction in final energy use of 1.5% per year. This paper assesses how Article 7 has been applied by Member States and what the implications are. Analysing the plans of all 28 Member States we evaluate how Article 7 is implemented across the EU. This includes an analysis of the types of policies used, the distribution of the anticipated savings across the different policy instruments, and whether or not the way Article 7 is applied in reality meets the requirements set by the Directive. Our analysis shows that Member States take very different approaches with some using up to 112 policy measures and others just one. We also identify areas of concern particularly related to the delivery of the energy savings with respect to the Article 7 requirements, the calculation methods, and the monitoring and verification regimes adopted by Member States. We model to what extent the projected savings are likely to materialise and whether or not they will be sufficient to meet the target put forward by Article 7. In our paper we also make suggestions for modifying the Energy Efficiency Directive in order to address some of the problems we encountered.

Minimum Energy Efficiency Standards for Appliances: Old and New Economic Rationales

Sébastien Houde and C. Anna Spurlock

DOI: http://dx.doi.org/10.5547/2160-5890.5.2.shou
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We revisit Hausman and Joskow (1982)'s economic rationales for appliance minimum energy efficiency standards. In addition to the four market failures they argued could justify appliance standards - energy prices below marginal social cost, consumers underestimating energy prices, consumer discount rates above social discount rates, and principal-agent problems - we discuss two additional market failures that are relevant and potentially economically important in this context: market power and innovation market failures. We highlight puzzles uncovered by recent empirical results, and suggest directions future research should take to better understand the normative implications of appliance standards.

Promoting Large and Closing Small in China’s Coal Power Sector 2006–2013: A CO2 Mitigation Assessment Based on a Vintage Structure

Shuwei Zhang and Xuying Qin

DOI: http://dx.doi.org/10.5547/2160-5890.5.2.szha
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In the period 2006-2013, China's power sector adopted a policy which aimed to add large scale units (larger than 600 MW) and decommission small, old (but still technically functioning) and inefficient power plants in order to accelerate energy saving and mitigate emissions. The early-retirement (ER) of nearly 90 GW of capacity and massive new coal power installation in this period significantly altered the pattern of the coal power generation assets. In this paper, it will be shown that the existing structure of coal power installations was built and based on stock, stock efficiency and assumptions on the yearly distribution of early retirement units. With regard to this structure, we measure the effects of large-scale closure on the aggregated age of power generating plants, efficiency and cumulative CO2 emission. It shows that 0.1 billion tons of CO2 reductions can be obtained as a result of this policy for the period 2006-2050, compared to the counter-factual case, i.e. with no ER during 2006-2013. Instead, 1.2 billion more emissions are to occur if coal power additions are completely banned from 2020 as a stringent coal control policy. The substantial difference is fundamentally induced by the slow turnover nature of long-lived power assets and the younger coal plants in the ER case, which would run for a longer time and result in more emissions. It is necessary to take account of how to avoid the "new lock-in effects" of ER action intended to unlock existing infrastructures in the context of required climate change mitigation. The early phase-out of inefficient equipment is not necessarily a "green investment".

Is the Grass Greener on the Other Side?

Linda T. M. Bui

DOI: http://dx.doi.org/10.5547/2160-5890.5.2.lbui
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I investigate whether households face reduced access to energy efficient goods in low income and minority neighborhoods. Using data from 27,000 zip codes, I uncover empirical regularities in access to three categories of ENERGYSTAR@ goods: light bulbs, electronics, and appliances. I find that (1) lower income neighborhoods experience reduced access to ENERGYSTAR@ goods; and that (2) for light bulbs and household appliances, more diverse neighborhoods have greater access to energy efficient goods than more homogeneous neighborhoods, regardless of race. The opposite holds true for household electronics. This is the first study of this issue.

Time for Tough Love: Towards Gradual Risk Transfer to Renewables in Germany

M. Pahle and H. Schweizerhof

DOI: http://dx.doi.org/10.5547/2160-5890.5.2.mpah
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After more than a decade of supporting renewable energies (RE) through feed-in tariffs, Germany has set out to integrate RE into the power market. This requires RE investors to carry market risks, in particular the power price risk. But under the current financial structure higher risks would negatively impact the bankability of new projects, which could endanger the achievement of Germany's RE targets. The need to maintain a non-disruptive investment environment suggests a gradual risk transfer towards market integration in the spirit of what Ball (2012) calls "giving RE tough love". In this paper we will spell out how this could be done: in the first step we discuss the general case for market risks and find that past policy reforms have only marginally imposed risks on RE. Hence more ambitious steps are needed, for which we outline two elements in the second step: (a) a support framework that creates incentives for RE projects to increasingly take risks based on a "cascading risk auction", and (b) design options for power purchase agreements (PPAs) aimed to incentivize new products for risk management. This approach can inform the upcoming 2017 reform in Germany - and also other countries pursuing similar reforms.

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