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The Policy Implications of Energy-Efficiency Cost Curves

Energy-efficiency cost curves show the required expenditures for achieving any specific reductions in energy use from the baseline level. When they are applied in a policy setting, the assumptions underlying these schedules need to be carefully evaluated if one is to derive useful conclusions. This paper begins by adopting the cost curve and underlying assumptions used in a previous and highly visible study of the economic potential for energy-efficiency improvements. Adjustments are made to the cost curve to incorporate demographic, economic and market effects that are often included in many energy-economy models. Energy efficiency tends to be more costly with the adjusted than with the original cost curves, due primarily to limits on adoption and to policy program costs. It is hoped that the exposition will allow policymakers more insight into why different results are obtained with alternative behavioral assumptions, even if the technology costs and performances are the same with both approaches.

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Energy Specializations: Energy Efficiency; Energy and the Environment – Policy and Regulation

JEL Codes: Q41: Energy: Demand and Supply; Prices, Q40: Energy: General

DOI: 10.5547/ISSN0195-6574-EJ-Vol32-SI1-2

Published in Volume 32, Special Issue of the bi-monthly journal of the IAEE's Energy Economics Education Foundation.