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Social Benefits of Financial Investment Support in Energy Conservation Policy

Abstract:
This paper examines the costs and benefits of a Norwegian energy conservation program that provided financial support for investments in energy efficiency. Participants in the program included industry, commerce, public services and households. Evaluation of the program shows that about 70% of the participants were "free riders' who would have invested in efficiency improvements even in the absence of the program. The economic efficiency was further reduced by economic distortions caused by taxes needed to finance the program. However, the energy savings did give environmental benefits through reduced atmospheric emissions, although this effect was somewhat diluted through a "conservation rebound," where the actual reduction in energy consumption was less than the theoretical savings. The energy conservation program is also highly sensitive to assumptions about the economic lifetime of the investments.

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Energy Specializations: Energy Investment and Finance – Project Finance; Energy Efficiency; Renewables – Policy and Regulation; Energy and the Environment – Policy and Regulation

JEL Codes: Q41: Energy: Demand and Supply; Prices, Q21: Renewable Resources and Conservation: Demand and Supply; Prices, Q20: Renewable Resources and Conservation: General, Q42: Alternative Energy Sources, Q54: Climate; Natural Disasters and Their Management; Global Warming, Q38: Nonrenewable Resources and Conservation: Government Policy

Keywords: Energy conservation, energy policy, Investment, Norway, Free riders

DOI: 10.5547/ISSN0195-6574-EJ-Vol17-No2-5


Published in Volume17, Number 2 of The Quarterly Journal of the IAEE's Energy Economics Education Foundation.