Cost-Effectiveness of Electricity Energy Efficiency Programs

Resources for the Future DP 09-48-REV

46 Pages Posted: 16 Feb 2010 Last revised: 4 Nov 2014

See all articles by Toshi H. Arimura

Toshi H. Arimura

Waseda University - School of Political Science and Economics

Shanjun Li

Cornell University - School of Applied Economics and Management

Richard G. Newell

Duke University - Nicholas School of Environment; National Bureau of Economic Research (NBER); Resources for the Future

Karen L. Palmer

Resources for the Future

Multiple version iconThere are 2 versions of this paper

Date Written: April 27, 2011

Abstract

We analyze the cost-effectiveness of electric utility ratepayer-funded programs to promote demand-side management (DSM) and energy efficiency (EE) investments. We specify a model that relates electricity demand to previous EE DSM spending, energy prices, income, weather, and other demand factors. In contrast to previous studies, we allow EE DSM spending to have a potential long-term demand effect and explicitly address possible endogeneity in spending. We find that current period EE DSM expenditures reduce electricity demand and that this effect persists for a number of years. Our findings suggest that ratepayer-funded DSM expenditures between 1992 and 2006 produced a central estimate of 0.9 percent savings in electricity consumption over that time period and 1.8 percent savings over all years. These energy savings came at an expected average cost to utilities of roughly 5 cents per kWh saved when future savings are discounted at a 5 percent rate.

Keywords: energy efficiency, demand-side management, electricity demand

JEL Classification: Q38, Q41

Suggested Citation

Arimura, Toshihide H. and Li, Shanjun and Newell, Richard G. and Palmer, Karen, Cost-Effectiveness of Electricity Energy Efficiency Programs (April 27, 2011). Resources for the Future DP 09-48-REV. Available at SSRN: https://ssrn.com/abstract=1552133 or http://dx.doi.org/10.2139/ssrn.1552133

Toshihide H. Arimura

Waseda University - School of Political Science and Economics ( email )

1-6-1 Nishi-Waseda
Shinjuku-ku, Tokyo 169-8050, Tokyo 169-8050
Japan

Shanjun Li

Cornell University - School of Applied Economics and Management ( email )

248 Warren Hall
Ithaca, NY 14853
United States

Richard G. Newell

Duke University - Nicholas School of Environment ( email )

Box 90228
Durham, NC 27708-0328
United States
919-681-8865 (Phone)

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Resources for the Future ( email )

1616 P Street, NW
Washington, DC 20036
United States

Karen Palmer (Contact Author)

Resources for the Future ( email )

1616 P Street, NW
Washington, DC 20036
United States

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