Does Renewable Energy Renew Energy Efficiency?

Abstract

 Since 2015, global progress in improving energy efficiency (EE) has been lagging behind the targets set by the UN Sustainable Development Goals, in part due to the behavioral barriers to improving EE. The rising renewable energy (RE) adoption may impact EE improvement by raising or lowering the barriers to EE. The well-documented RE rebound effect may hinder EE improvement, while RE adoption may also heighten overall awareness of energy usage, thereby driving EE improvement. This paper examines whether and how RE adoption influences EE improvement. We leverage data from 183 sites of an multinational industrial conglomerate from 2015 to 2020 to estimate the impact of changes in RE usage and acquisition methods (e.g., sourcing off-site or generating on-site) on EE improvement. We find that using RE to satisfy an additional 10% of a site’s energy demand caused an additional 2.8% improvement in EE. However, the impact varies significantly depending on the acquisition approach. While sourcing off-site RE led to EE improvement, installing on-site RE generation had either no or a negative effect. To understand the mechanism behind these findings, we surveyed site managers and conducted further analysis by leveraging variations in on-site generation costs. Our results indicate that the rebound effect prevailed when sites adopted RE with low ongoing cost. For corporations expanding RE usage, we offer evidence of additional EE benefits, but capitalizing on these benefits requires careful consideration of the RE acquisition approach. For policymakers, we provide guidance on prioritizing certain approaches to accelerate the progress toward net-zero.

Keywords: energy efficiency, renewable energy, power purchase agreement, on-site energy generation, sustainability

JEL Classification: Q42, Q41, Q48, Q20, D22, L60, O13, M14, D90, D91