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Economic efficiency of solar hot water policy in New Zealand

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  • Gillingham, Kenneth

Abstract

New Zealand has recently followed the path of several other countries in promoting solar hot water (SHW) systems in the effort to reduce greenhouse gas emissions, yet the economic efficiency of large-scale policies to encourage SHW remains a pressing question for policymakers. This paper develops an economic framework to examine policies to promote SHW in New Zealand, including the current information, training, and subsidy policy. The economic framework points to environmental, energy security, and average-cost electricity retail pricing market failures as motivation for SHW policy, with the global climate change externality the most important of these. The results indicate that domestic SHW systems are close to being financially attractive from a consumer perspective, but a more substantial subsidy policy would be necessary for SHW to appeal to a wider audience. Such a policy is far more likely to have positive net benefits than a policy of mandating SHW on all homes or all new homes in New Zealand, and could be justified on economic efficiency grounds under reasonable assumptions. However, this result reverses under an economy-wide carbon trading system that internalizes the environmental externality.

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Bibliographic Info

Article provided by Elsevier in its journal Energy Policy.

Volume (Year): 37 (2009)
Issue (Month): 9 (September)
Pages: 3336-3347

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Handle: RePEc:eee:enepol:v:37:y:2009:i:9:p:3336-3347

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Web page: http://www.elsevier.com/locate/enpol

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Keywords: Solar Greenhouse gases Electricity;

References

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  1. Arthur van Benthem & Kenneth Gillingham & James Sweeney, 2008. "Learning-by-Doing and the Optimal Solar Policy in California," The Energy Journal, International Association for Energy Economics, vol. 0(Number 3), pages 131-152.
  2. Paul L. Joskow & Jean Tirole, 2004. "Retail Electricity Competition," NBER Working Papers 10473, National Bureau of Economic Research, Inc.
  3. Joskow, Paul L & Tirole, Jean, 2007. "Reliability and Competitive Electricity Markets," CEPR Discussion Papers 6121, C.E.P.R. Discussion Papers.
  4. Nemet, Gregory F., 2006. "Beyond the learning curve: factors influencing cost reductions in photovoltaics," Energy Policy, Elsevier, vol. 34(17), pages 3218-3232, November.
  5. Palmer, Karen & Newell, Richard & Gillingham, Kenneth, 2004. "Retrospective Examination of Demand-side Energy-efficiency Policies," Discussion Papers dp-04-19, Resources For the Future.
  6. Loschel, Andreas, 2002. "Technological change in economic models of environmental policy: a survey," Ecological Economics, Elsevier, vol. 43(2-3), pages 105-126, December.
  7. Roulleau, T. & Lloyd, C.R., 2008. "International policy issues regarding solar water heating, with a focus on New Zealand," Energy Policy, Elsevier, vol. 36(6), pages 1843-1857, June.
  8. Tooraj Jamasb, 2007. "Technical Change Theory and Learning Curves: Patterns of Progress in Electricity Generation Technologies," The Energy Journal, International Association for Energy Economics, vol. 0(Number 3), pages 51-72.
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Cited by:
  1. Wasi, Nada & Carson, Richard T., 2011. "The Influence of Rebate Programs on the Demand for Water Heaters: The Case of New South Wales," 2011 Conference (55th), February 8-11, 2011, Melbourne, Australia 100731, Australian Agricultural and Resource Economics Society.
  2. Baskaran, Ramesh & Managi, Shunsuke & Bendig, Mirko, 2013. "A public perspective on the adoption of microgeneration technologies in New Zealand: A multivariate probit approach," Energy Policy, Elsevier, vol. 58(C), pages 177-188.

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