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Tariff regulation with energy efficiency goals

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  • Abrardi, Laura
  • Cambini, Carlo

Abstract

We study the optimal tariff structure that could induce a regulated utility to promote energy efficiency by its customers given that it is privately informed about the effectiveness of its effort on demand reduction. The regulator should optimally offer a menu of incentive compatible two-part tariffs. If the firm's energy efficiency activities have a high impact on demand reduction, the consumer should pay a high fixed fee but a low per unit price, approximating the tariff structure to a decoupling policy, which strengthens the firm's incentives to pursue energy conservation. Instead, if the firm's effort to adopt energy efficiency actions is scarcely effective, the tariff is characterized by a low fixed fee but a high price per unit of energy consumed, thus shifting the incentives for energy conservation on consumers. The optimal tariff structure also depends on the cost of the consumer's effort (in case the consumer can also adopt energy efficiency measures) and on the degree of substitutability between the consumer's and the firm's efforts.

Suggested Citation

  • Abrardi, Laura & Cambini, Carlo, 2015. "Tariff regulation with energy efficiency goals," Energy Economics, Elsevier, vol. 49(C), pages 122-131.
    • Handle: RePEc:eee:eneeco:v:49:y:2015:i:c:p:122-131
    DOI: 10.1016/j.eneco.2015.01.017
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    Cited by:

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    8. Ziemele, Jelena & Gravelsins, Armands & Blumberga, Andra & Blumberga, Dagnija, 2017. "Sustainability of heat energy tariff in district heating system: Statistic and dynamic methodologies," Energy, Elsevier, vol. 137(C), pages 834-845.
    9. Chang, Chun-Ping & Wen, Jun & Zheng, Mingbo & Dong, Minyi & Hao, Yu, 2018. "Is higher government efficiency conducive to improving energy use efficiency? Evidence from OECD countries," Economic Modelling, Elsevier, vol. 72(C), pages 65-77.
    10. Datta, Souvik, 2019. "Decoupling and demand-side management: Evidence from the US electric industry," Energy Policy, Elsevier, vol. 132(C), pages 175-184.
    11. Nie, Pu-Yan & Wang, Chan & Yang, Yon-Cong, 2017. "Comparison of energy efficiency subsidies under market power," Energy Policy, Elsevier, vol. 110(C), pages 144-149.
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    13. Safarzadeh, Soroush & Hafezalkotob, Ashkan & Jafari, Hamed, 2022. "Energy supply chain empowerment through tradable green and white certificates: A pathway to sustainable energy generation," Applied Energy, Elsevier, vol. 323(C).
    14. Zheng-Xin Wang & Dan-Dan Li & Hong-Hao Zheng, 2018. "The External Performance Appraisal of China Energy Regulation: An Empirical Study Using a TOPSIS Method Based on Entropy Weight and Mahalanobis Distance," IJERPH, MDPI, vol. 15(2), pages 1-18, January.
    15. Svetlana Revinova & Konstantin Gomonov, 2023. "A Comparative Analysis of Government Policies to Promote Energy Efficiency in the US, China, and India," International Journal of Energy Economics and Policy, Econjournals, vol. 13(1), pages 291-306, January.
    16. Rogério Diogne de Souza e Silva & Rosana Cavalcante de Oliveira & Maria Emília de Lima Tostes, 2017. "Analysis of the Brazilian Energy Efficiency Program for Electricity Distribution Systems," Energies, MDPI, vol. 10(9), pages 1-19, September.

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    More about this item

    Keywords

    Energy efficiency; Demand-side regulation; Decoupling; Price-cap;
    All these keywords.

    JEL classification:

    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation

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