Market barriers to energy efficiency: A critical reappraisal of the rationale for public policies to promote energy efficiency

Golove, William; Eto, Joseph H.

doi:10.2172/270751

Cited by 217 publications

(188 citation statements)

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“…In practice, consumers and homeowners have often been observed to pass up opportunities to make energy-efficiency investments. Possible explanations for the so-called "energy paradox" (Jaffe and Stavins, 1994) include liquidity constraints, limited information, uncertainty about future energy prices (Hassett and Metcalf, 1993), high rates of intertemporal preferences, disbelief in engineering estimates of the cost savings themselves (Metcalf and Hassett, 1999), and institutional disincentives (see Golove and Eto, 1996). 2 Financing costs from investments to electricity transmission and distribution infrastructure, volatility and rising scarcity in feedstocks such as coal, propane, natural gas, and petroleum, and the establishment of a price on carbon, are all possible mechanisms which would increase the price of energy [Basheda et al (2006)].…”

Section: Introductionmentioning

confidence: 99%

Residential consumption of gas and electricity in the U.S.: The role of prices and income

2011

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SummaryWe study residential demand for electricity and gas, working with nationwide householdlevel data that cover recent years, namely [1997][1998][1999][2000][2001][2002][2003][2004][2005][2006][2007]. Our dataset is a mixed panel/multiyear cross-sections of dwellings/households in the 50 largest metropolitan areas in the United States as of 2008. To our knowledge, this is the most comprehensive set of data for examining household residential energy usage at the national level, containing the broadest geographical coverage, and with the longest longitudinal component (up to 6 observations per dwelling). We estimate static and dynamic models of electricity and gas demand. We find strong household response to energy prices, both in the short and long term. From the static models, we get estimates of the own price elasticity of electricity demand in the -0.860 to -0.667 range, while the own price elasticity of gas demand is -0.693 to -0.566. These results are robust to a variety of checks. Contrary to earlier literature (Metcalf and Hassett, 1999;Reiss and White, 2005), we find no evidence of significantly different elasticities across households with electric and gas heat. The price elasticity of electricity demand declines with income, but the magnitude of this effect is small. These results are in sharp contrast to much of the literature on residential energy consumption in the United States, and with the figures used in current government agency practice. Our results suggest that there might be greater potential for policies which affect energy price than may have been previously appreciated. Keywords AbstractWe study residential demand for electricity and gas, working with nationwide household-level data that cover recent years, namely 1997-2007. Our dataset is a mixed panel/multi-year crosssections of dwellings/households in the 50 largest metropolitan areas in the United States as of 2008. To our knowledge, this is the most comprehensive set of data for examining household residential energy usage at the national level, containing the broadest geographical coverage, and with the longest longitudinal component (up to 6 observations per dwelling).We estimate static and dynamic models of electricity and gas demand. We find strong household response to energy prices, both in the short and long term. From the static models, we get estimates of the own price elasticity of electricity demand in the -0.860 to -0.667 range, while the own price elasticity of gas demand is -0.693 to -0.566. These results are robust to a variety of checks. Contrary to earlier literature (Metcalf and Hassett, 1999;Reiss and White, 2005), we find no evidence of significantly different elasticities across households with electric and gas heat. The price elasticity of electricity demand declines with income, but the magnitude of this effect is small.These results are in sharp contrast to much of the literature on residential energy consumption in the United States, and with the figures used in current government agency practice. Our resu...

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Section: Introductionmentioning

confidence: 99%

Residential consumption of gas and electricity in the U.S.: The role of prices and income

2011

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“…In addition, in order to estimate total electricity savings from such devices, one needs to estimate the number of such devices that would penetrate the market over a defined time frame. The estimation or the use of assumed values, where data are lacking, which is typically the case, has been a source of controversy in the CCE calculation over many years (Golove and Eto, 1996). A typical supply schedule begins with zero cost that rises to denote an increase in marginal cost of supplying an increasingly scarce commodity.…”

Section: Methodsmentioning

confidence: 99%

“…Earlier reports have enumerated lists of several factors (barriers) affecting the penetration of energy efficient devices by customer class or tariff category, region and/or sector (Reddy, 1991;Koomey and Brown, 1994;Golove and Eto, 1996;Eto, Prahl, and Schlegel, 1997;Sathaye and Bouille et al, 2001). These include lack of information, lack of access to capital, misplaced incentives, flaws in market structure, performance uncertainties, decisions influenced by custom and habits, inseparability of features, heterogeneity of consumers, hidden costs, transaction costs, bounded rationality, product unavailability, externalities, imperfect competition, etc.…”

Section: Factors Potentials and Transaction Costsmentioning

confidence: 99%

“…Broadly, transaction costs can encompass several of the factors described above related to the cost of acquiring, assessing, and using information (Golove and Eto, 1996). Here we are using "transaction costs" in a narrower sense -the costs related to participation in an emissions trading or energy efficiency program requiring certification of savings.…”

Section: Appendix: Transaction Costsmentioning

confidence: 99%

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Market failures, consumer preferences, and transaction costs inenergy efficiency purchase decisions

Sathaye¹,

Murtishaw²

2004

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Several factors limit the energy savings potential and increase the costs of energyefficient technologies to consumers. These factors may usefully be placed into two categories; one category is what economists would define as market failures and the other is related to consumer preferences. This paper provides a conceptual framework for understanding the roles of these factors, and develops a methodology to quantify their effects on costs and potentials of two energy efficient end uses -residential lighting and clothes washers. It notes the significant roles played by the high implicit cost of obtaining information about the benefits of the two technologies and the apparent inability to process and utilize information. For compact fluorescent lamps, this report finds a conservative estimate of the cost of conserved energy of 3.1 cents per kWh. For clothes washers, including water savings reduces the cost of conserved energy from 13.6 cents to 4.3 cents per equivalent kWh. Despite these benefits, market share remains low. About 18 million tons of CO 2 could be saved cost effectively from 2005 sales of these two technologies alone. The paper also notes that trading of carbon emissions will incur transaction costs that will range from less than 10 cents per metric ton of CO 2 for larger size projects and programs to a few dollars per metric ton of carbon for the smaller ones. Executive SummaryTwo general approaches have been used for the assessment of energy demand and supply -the so-called "bottom-up" and "top-down" approaches. The bottom-up approach focuses on individual technologies for delivering energy services, such as household durable goods and industrial process technologies. The top-down method assumes a general equilibrium or macroeconomic perspective, wherein costs are defined in terms of changes in economic output, income, or GDP, typically from the imposition of energy or emissions taxes.The bottom-up approach assumes that various factors prevent consumers from taking actions that would be in their private self-interest, that is, would result in the provision of energy services at lower cost. These factors include lack of information about energy efficiency opportunities, lack of access to capital to finance energy efficiency investment, misplaced incentives which separate responsibilities for making capital investments and paying operating costs, hidden costs, transaction costs, bounded rationality, and product unavailability.The thrust of this work thus focuses on the development of a bottom-up approach that (1) accounts for all costs of a mitigation option, including non-energy and transaction costs, and (2) allows for representation of the impact of each factor on a cost component and/or the penetration level of a mitigation option. We focus on energy efficiency options and the representation of their marginal cost curves, typically referred to as cost of conserved energy (CCE) curves, using the costs and benefits faced by consumers.We illustrate the use of our factors approach by demonstr...

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“…8 Information in the broadest sense: not only publications and analytical tools, but also pilot programs, demonstrations, and program and policy analysis, where needed. 9 Examples of barriers in the buildings sector include: (1) lack of information on actual energy use of major appliances, (2) lack of supply of high energy-efficiency equipment from manufacturers, and (3) lack of available financing for investing in energyefficiency measures (Golove and Eto 1996).…”

Section: Rationale For Federal Government Assistancementioning

confidence: 99%

Energy Efficiency in Buildings as an Air Quality Compliance Approach: Opportunities for the U.S. Department of Energy

Vine¹

2002

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Market barriers to energy efficiency: A critical reappraisal of the rationale for public policies to promote energy efficiency

Cited by 217 publications

References 46 publications

Residential consumption of gas and electricity in the U.S.: The role of prices and income

Residential consumption of gas and electricity in the U.S.: The role of prices and income

Market failures, consumer preferences, and transaction costs inenergy efficiency purchase decisions

Energy Efficiency in Buildings as an Air Quality Compliance Approach: Opportunities for the U.S. Department of Energy

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