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Energy Journal Issue

The Energy Journal
Volume 32, Special Issue

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The Policy Implications of Energy-Efficiency Cost Curves

Hillard G. Huntington

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

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.

Energy and Emissions in the Building Sector: A Comparison of Three Policies and Their Combinations

Owen Comstock and Erin Boedecker

DOI: 10.5547/ISSN0195-6574-EJ-Vol32-SI1-3View Abstract

Standards, subsidies, and carbon taxes are among the measures often considered to reduce energy consumption and carbon dioxide (CO2) emissions in the buildings sector. Using a modeling system developed by the U.S. Energy Information Administration, residential and commercial sector standards and subsidies were each modeled with and without a carbon tax to determine if a multi-policy approach would be redundant. A separate case examining a carbon tax was also completed for comparison. Between the two equipment-based policies, subsidies achieved more energy and CO2 emissions reductions at less cost to consumers, as incremental investment costs were shifted to the government. When either of the equipment-based policies was combined with a carbon tax, their energy-and carbon-reducing effects were more additive than redundant.

Modeling Efficiency Standards and a Carbon Tax: Simulations for the U.S. using a Hybrid Approach

Rose Murphy and Mark Jaccard

DOI: 10.5547/ISSN0195-6574-EJ-Vol32-SI1-4View Abstract

Analysts using a bottom-up approach have argued that a large potential exists for improving energy efficiency profitably or at a low cost, while top-down modelers tend to find that it is more expensive to meet energy conservation and greenhouse gas (GHG) reduction goals. Hybrid energy-economy models have been developed that combine characteristics of these divergent approaches in order to help resolve disputes about costs, and test a range of policy approaches. Ideally, such models are technologically explicit, take into account the behavior of businesses and consumers, and incorporate macroeconomic feedbacks. In this study, we use a hybrid model to simulate the impact of end-use energy efficiency standards and an economy-wide carbon tax on GHG emissions and energy consumption in the U.S. to the year 2050. Our results indicate that policies must target abatement opportunities beyond end-use energy efficiency in order to achieve deep GHG emissions reductions in a cost-effective manner.

The Value of Advanced End-Use Energy Technologies in Meeting U.S. Climate Policy Goals

Page Kyle, Leon Clarke, Steven J. Smith, Son Kim, Mayda Nathan, and Marshall Wise

DOI: 10.5547/ISSN0195-6574-EJ-Vol32-SI1-5View Abstract

This study, a contribution to the EMF 25 scenarios on the role of energy efficiency in climate change mitigation, explores the value of technological improvement in the buildings, industry, and transportation sectors in meeting 2050 CO2 emissions mitigation targets in the United States. Six scenarios of future end-use technology evolution are analyzed without any future emissions mitigation policy, and with two linear emissions constraints that begin in 2012 and achieve 50% and 80% reductions from 1990 CO2 emissions levels in 2050.The scenarios show that end-use technologies are important for reducing near-term energy demand and CO2 emissions, and advanced transportation technologies in particular are important for allowing the energy system as a whole to achieve deep emissions reductions in a cost-effective manner. Total discounted economic costs of meeting the emissions constraints are reduced by up to 53% by advanced end-use technologies, and similar cost reductions are observed when the policies allow inter-temporal shifting in the emissions pathways (i.e., banking and borrowing). The scenarios highlight the importance of end-use technologies that facilitate electrification and decrease the direct use of hydrocarbon fuels through efficiency improvement, but we stress that end-use technology advancement should be complementary to technology advancement in energy supply.

Impact of Relative Fuel Prices on CO2 Emission Policies

Nick Macaluso and Robin White

DOI: 10.5547/ISSN0195-6574-EJ-Vol32-SI1-6View Abstract

The multi-sector end-use energy model E3MC was used to analyze the energy and greenhouse gas emissions impact of adding a carbon tax to efficiency improvement standards for the residential sector in Canada and the USA. Compared to standards alone, the addition of the tax led to further residential emission reductions in Canada, but attenuated the residential emission reductions in the USA. Examination of the relative residential electricity:natural gas prices demonstrated that the different country impacts were due to an increase in relative prices in the USA, but a decrease in relative prices in Canada that led to opposite shifts in preference for electricity over natural gas in the residential sector. Markedly different impacts of the carbon tax on electricity prices was due to the predominance of hydroelectric power in Canada and coal-fired electric generation in the USA.

Subsidizing Household Capital: How Does Energy Efficiency Policy Compare to a Carbon Tax?

Warwick J. McKibbin, Adele C. Morris, and Peter J. Wilcoxen

DOI: 10.5547/ISSN0195-6574-EJ-Vol32-SI1-7View Abstract

This study uses a general equilibrium model to compare environmental and economic outcomes of two policies: (1) a tax credit of 10 percent of the price of household capital that is 20 percent more energy efficient than its unsubsidized counterpart, assuming half of new household investment qualifies for the credit; and (2) a tax starting at $30 ($2007) per metric ton of CO2 rising five percent annually. By 2040, the carbon tax and tax credit reduce emissions by about 601.5 percent, respectively. Assuming other countries impose no carbon price, we find that although the carbon tax reduces U.S. GDP, it improves U.S. household welfare because it reduces world fuel prices, strengthens U.S. terms of trade, and makes imports cheaper. The revenue neutral tax credit reduces welfare but boosts U.S. GDP growth slightly at first. Both policies have similar impacts on the federal budget, but of opposite signs.

Subsidies, Standards and Energy Efficiency

Jan Imhof

DOI: 10.5547/ISSN0195-6574-EJ-Vol32-SI1-8View Abstract

Carbon taxes have been shown to be the most cost-effective instrument for carbon abatement in a second-best world characterized by non-energy-related market failures such as pre-existing taxes. We show, however, that both subsidies for energy efficiency improvements and fuel standards can be good policy instruments in a third-best world in which consumers underinvest in energy service capital. In this framework, subsidies and standards can both reduce emissions and increase welfare. We show additionally that still further emission reductions are attainable by combining these instruments with a CO2 tax. Two versions of a CGE model for Switzerland are used to compare five policy proposals. First, we examine the transitional impacts of the different policies using the dynamic CEPE model. The same policies are then implemented within a static representation of the model, which includes a bottom-up representation of light-duty vehicles and allows a more detailed examination of the role of fuel standards and subsidies for energy-efficient vehicles.

Policy Effectiveness in Energy Conservation and Emission Reduction

Mei Yuan, Sugandha Tuladhar, Paul Bernstein, and Lee Lane

DOI: 10.5547/ISSN0195-6574-EJ-Vol32-SI1-9View Abstract

In an effort to compare the effectiveness of possible policy options to tackle a range of energy and environmental issues, we employ an integrated assessment model which couples a technology-rich bottom-up model of the U.S. electricity sector with a fully dynamic forward-looking general equilibrium model of the U.S. economy. The model provides a unique and consistent modeling framework for energy and environmental policy analysis. The results from the model show that a carbon tax would be the most cost-effective tool for lowering carbon dioxide emissions, and an energy tax would most cost-effectively lower total energy consumption. Though energy efficiency standards are found to be the least cost-effective at reducing energy usage or mitigating carbon emissions, their appeal is likely to rest on assumptions about specific market failures or on political factors.

Energy Demand Analytics Using Coupled Technological and Economic Models

Samuel G. Steckley, Douglas S. Meade, Carol Shay Lenox, Kenneth C. Hoffman, David H. Reid, and Bradley C. H. Schoener

DOI: 10.5547/ISSN0195-6574-EJ-Vol32-SI1-10View Abstract

Impacts of a range of policy scenarios on end-use energy demand are examined using a coupling of MARKAL, an energy system model with extensive supply and end-use technological detail, and Inforum LIFT, a large-scale model of the U.S. economy with inter-industry, government, and consumer behavioral dynamics. Responses in end-use energy demand are the result of energy efficiency improvements, fuel switching, and indirect economy-wide impacts. Carbon emissions reductions attributed to end-use demand response are analyzed and compared to carbon emissions reductions attributed to changes in the electric sector. Scenarios with the greatest impacts are a carbon tax case, resulting in a shift away from coal generation in the electric sector, and a normative case using a 7% discount rate for end-use technology investment decisions, resulting in increased adoption of energy efficient technology. In the course of addressing the specific EMF 25 scenarios and specified assumptions, a number of interesting issues were identified for follow-on analyses.

Strategies for Mitigating Climate Change Through Energy Efficiency: the RFF Haiku Electricity Market Model

Anthony Paul, Matt Woerman, and Karen Palmer

DOI: 10.5547/ISSN0195-6574-EJ-Vol32-SI1-11View Abstract

This analysis uses the RFF Haiku electricity market model to analyze several of the policies under consideration for EMF-25: an energy (electricity) tax, a carbon tax, a subsidy to energy efficiency and a combination of the last two policies. Reported results include the effects of these policies on electricity demand, electricity price, and emissions of CO2 from the electricity sector. This analysis also reports a partial equilibrium measure of the net economic benefits of each policy that accounts for the economic benefits of CO2 emissions reductions and the electricity market economic surplus costs of each of the policies. The findings suggest that policies that increase electricity prices can actually increase total economic surplus in electricity markets in some parts of the country. This result hinges on electricity market regulation and the price impact of the policy. Given the scale of the policies modeled here and for mid-range estimates of the social costs of CO2 emissions, the carbon tax policy produces the largest increase in net economic surplus.

Comparing and Combining Energy Saving Policies: Will Proposed Residential Sector Policies Meet French Official Targets?

Louis-Gaëtan Giraudet, Céline Guivarch, and Philippe Quirion

DOI: 10.5547/ISSN0195-6574-EJ-Vol32-SI1-12View Abstract

This paper assesses the impact of French policies for residential space-heating energy consumption, both enacted (tax credits for the purchase of energy efficient durables, soft loans for retrofitting actions, stringent building codes) and anticipated (carbon tax, retrofitting obligation). It uses a hybrid energy-economy model incorporating specific features of energy conservation, notably the rebound effect and some "barriers" to energy efficiency such as split incentives and imperfect information. Forward-looking simulations show that (i) stand-alone policies improve the energy efficiency of the building stock but, with the exception of carbon tax, generate a rebound effect; (ii) interactions among instruments are roughly additive; (iii) a combination of all policies fails to meet Government conservation targets.

An Assessment Study of Energy Efficiency Policy Measures for Japanese Commercial Sector

Masahito Takahashi and Hiroshi Asano

DOI: 10.5547/ISSN0195-6574-EJ-Vol32-SI1-13View Abstract

Building sector is the highest growing sector in energy demand in Japan at present. There is a strong need to reduce this sectoral energy demand to achieve the national carbon emission target. This study focuses on Japanese commercial sector and shows model analysis results of energy efficiency policy impacts on the sectoral carbon emission trajectory, using CRIEPI's bottom-up energy model. The policy cases we analyzed are consistent with those of other EMF25 model teams. The results indicate that, the introduction of low carbon tax has little impact on the sectoral final energy demand and carbon emission trajectory and, on the other hand, enhanced energy efficiency standard and reduced equipment cost of products are very effective on reducing the sectoral energy demand.