Cost-Effectiveness of Electricity Energy Efficiency Programs

45 Pages Posted: 29 Oct 2011 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: October 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 a 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.

Suggested Citation

Arimura, Toshihide H. and Li, Shanjun and Newell, Richard G. and Palmer, Karen, Cost-Effectiveness of Electricity Energy Efficiency Programs (October 2011). NBER Working Paper No. w17556. Available at SSRN: https://ssrn.com/abstract=1950973

Toshihide H. Arimura (Contact Author)

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 )

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Resources for the Future ( email )

1616 P Street, NW
Washington, DC 20036
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Karen Palmer

Resources for the Future ( email )

1616 P Street, NW
Washington, DC 20036
United States

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