Incentivizing Energy Efficiency: Explaining Local Commitment to Energy Efficiency in Cities with Municipal-Owned Utilities

Abstract

Municipal-owned utilities perform an important role in local government efforts to implement energy-efficiency strategies and practices. Utility ownership provides unique opportunities for local governments to involve citizens in “green” initiatives. This paper seeks to understand why some governments with municipal-owned utilities invest resources on energy-efficiency strategies while others do not. We investigate this question by examining the use of energy-efficiency initiatives by municipal-owned utilities in American local government. We argue that spending on energy-efficiency strategies is affected by (1) cost considerations, (2) city political and fiscal conditions, and (3) citizen pressures. With data collected for the 145 municipal-owned utilities in cities with populations over 25,000, we test these relationships with a Heckman Selection Model. We find that the decision to adopt an energy-efficiency program is associated with siting difficulties and available generation capacity. The level of energy-efficiency expenditures is associated with a jurisdiction’s form of government and the availability of local retail partners. The implications of these findings for theory and practice are discussed in conclusion.

Keywords: Energy Efficiency; Demand-side Management; Municipal-Owned Utilities

JEL Classification: Q48