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The Economics of Conserved-Energy "Supply" Curves

This paper develops the theoretical underpinnings of conservation "supply" curves (CSCs), and in doing so uncovers several problems with current procedures for their construction. The CSC is shown to be derivable from a production isoquant, and not to be a true supply curve. The traditional algorithm for constructing a CSC from discrete measures is shown to be suboptimal, contrary to prior claims. Omitting conservation measures from consideration can lead to systematic, excessive conservation. The CSC concept is extended from, constant-service to constant-utility measures, and an improved approximation is, suggested for the cost of conserved energy (CCE) of measures that cause rebound. The appendix provides a formula for CCE that is simple yet more general than the one currently in use, but shows that even with this, generalization, CSCs cannot be constructed for a world with fluctuating energy prices.

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Energy Specializations: Energy Access – Sustainable Development and Distributed Energy; Energy Modeling – Energy Data, Modeling, and Policy Analysis; Energy Efficiency

JEL Codes:
Q01 - Sustainable Development
E61 - Policy Objectives; Policy Designs and Consistency; Policy Coordination
Q55 - Environmental Economics: Technological Innovation

Keywords: Conservation supply curves, energy prices, electricity demand, rebound effect, energy efficiency

DOI: 10.5547/ISSN0195-6574-EJ-Vol16-No4-5

Published in Volume16, Number 4 of The Quarterly Journal of the IAEE's Energy Economics Education Foundation.