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Energy Efficiency Policy Puzzles

Timothy J. Brennan

Year: 2013
Volume: Volume 34
Number: Number 2
DOI: 10.5547/01956574.34.2.1
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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-ofservice 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.



The Effects of Electric Utility Decoupling on Energy Efficiency

Jenya Kahn-Lang

Year: 2016
Volume: Volume 37
Number: Number 4
DOI: 10.5547/01956574.37.4.jkah
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Abstract:
Most economists agree that revenue decoupling eliminates utilities' incentives to encourage overconsumption of energy, but critics argue that decoupled utilities have no incentive to promote energy efficiency. This paper models the repeated game between regulator and utility and shows that decoupled utilities have greater equilibrium utility demand-side management (DSM) investment in the presence of DSM-related shareholder incentives. It then shows empirically that decoupling is historically associated with significant residential electricity consumption reductions, augmented DSM spending levels, and increased DSM investment efficacy. Keywords: Decoupling, Demand-side management, Energy efficiency, Electric utility regulation



Does Global Value Chain Participation Decouple Chinese Development from CO2 Emissions? A Structural Decomposition Analysis

Hui Wang, Chen Pan, B.W. Ang, and Peng Zhou

Year: 2021
Volume: Volume 42
Number: Number 2
DOI: 10.5547/01956574.42.2.hwan
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Abstract:
Decoupling economic activities and CO2 emissions is central to achieving the climate goals of China. The country�s participation in global value chains has profound impacts on its economy as well as CO2 emissions. Assessing the impacts is fundamental to identifying strategies to decouple China�s development from emissions. To this end, we adopt the multi-region structural decomposition analysis technique to quantify the global value chain determinants of China�s CO2 emission intensity from both the production and consumption perspectives. It is found that China�s decoupling from emissions in 2007�2012 was driven mainly by global value chains. Nonetheless the decoupling slowed down after the global financial crisis. In particular, the value chains within China played a more important role in greening Chinese economy. Despite the considerable improvement in 2007�2012, global value chains remained the primary obstacle to environmental sustainability of China. More detailed results with policy implications are presented.



The Rationale for Reforming Utility Business Models

Daniel J. Kopin and Richard G. Vanden Bergh

Year: 2023
Volume: Volume 44
Number: Number 3
DOI: 10.5547/01956574.44.2.dkop
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Abstract:
Economic models assume public utility commissions reform utility business models with revenue decoupling mechanisms primarily to remove the disincentive for demand-side management investment, which is expected to enhance social welfare. This paper tests that widespread assumption. We find some but limited support for commission responsiveness to avoided environmental costs. Instead, we find commission responsiveness to avoided political costs resulting from high prices of residential electricity compared to the regional average and high levels of partisan competition in the state legislature. Beyond questioning the primacy of the public interest rationale for regulation, our results give reason to reevaluate economic models of utility business model reform that do not explicitly consider commission interests in minimizing political risks.





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