IDEAS home Printed from https://ideas.repec.org/p/lmu/muenar/84730.html
   My bibliography  Save this paper

Power markets in transition: Decarbonization, energy efficiency, and short-term demand response

Author

Listed:
  • Mier, Mathias
  • Weissbart, Christoph

Abstract

Energy efficiency and short-term demand response are key issues in the decarbonization of power markets. However, their interaction and combined impact on market prices as well as on the supply side, is yet to be understood. We develop a framework to implement short-term demand response and investments in energy efficiency in detailed partial equilibrium power market models. We quantify our results using the EU-REGEN model for the European power market. Under an 80% emission reduction target, energy efficiency contributes only 11% of carbon emission reductions. Intermittent renewable energies such as wind and solar power account for the major share of 53%. In comparison to a scenario without short-term demand response and energy efficiency investments, 70 GW gas power is decommissioned immediately and 180 GW less gas capacity is needed in 2050, which underlines the need for immediate action by policy makers to avoid locking the EU power market into an inefficient path.

Suggested Citation

  • Mier, Mathias & Weissbart, Christoph, 2020. "Power markets in transition: Decarbonization, energy efficiency, and short-term demand response," Munich Reprints in Economics 84730, University of Munich, Department of Economics.
    • Handle: RePEc:lmu:muenar:84730
    as

    Download full text from publisher

    To our knowledge, this item is not available for download. To find whether it is available, there are three options:
    1. Check below whether another version of this item is available online.
    2. Check on the provider's web page whether it is in fact available.
    3. Perform a search for a similarly titled item that would be available.

    Other versions of this item:

    References listed on IDEAS

    as
    1. Hillard G. Huntington, 2011. "The Policy Implications of Energy-Efficiency Cost Curves," The Energy Journal, International Association for Energy Economics, vol. 0(Special I).
    2. Huntington, Hillard G. & Barrios, James J. & Arora, Vipin, 2019. "Review of key international demand elasticities for major industrializing economies," Energy Policy, Elsevier, vol. 133(C).
    3. Daron Acemoglu & Philippe Aghion & Leonardo Bursztyn & David Hemous, 2012. "The Environment and Directed Technical Change," American Economic Review, American Economic Association, vol. 102(1), pages 131-166, February.
    4. Paul Joskow & Jean Tirole, 2006. "Retail electricity competition," RAND Journal of Economics, RAND Corporation, vol. 37(4), pages 799-815, December.
    5. Andreas Schröder & Friedrich Kunz & Jan Meiss & Roman Mendelevitch & Christian von Hirschhausen, 2013. "Current and Prospective Costs of Electricity Generation until 2050," Data Documentation 68, DIW Berlin, German Institute for Economic Research.
    6. Zerrahn, Alexander & Schill, Wolf-Peter, 2015. "On the representation of demand-side management in power system models," Energy, Elsevier, vol. 84(C), pages 840-845.
    7. Cedric De Jonghe & Benjamin F. Hobbs & Ronnie Belmans, 2011. "Integrating Short-term Demand Response Into Long-Term Investment Planning," Working Papers EPRG 1113, Energy Policy Research Group, Cambridge Judge Business School, University of Cambridge.
    8. Kenneth Gillingham & Matthew J. Kotchen & David S. Rapson & Gernot Wagner, 2013. "The rebound effect is overplayed," Nature, Nature, vol. 493(7433), pages 475-476, January.
    9. A. Greening, Lorna & Greene, David L. & Difiglio, Carmen, 2000. "Energy efficiency and consumption -- the rebound effect -- a survey," Energy Policy, Elsevier, vol. 28(6-7), pages 389-401, June.
    10. Paul Joskow & Jean Tirole, 2007. "Reliability and competitive electricity markets," RAND Journal of Economics, RAND Corporation, vol. 38(1), pages 60-84, March.
    11. Severin Borenstein & Stephen Holland, 2005. "On the Efficiency of Competitive Electricity Markets with Time-Invariant Retail Prices," RAND Journal of Economics, The RAND Corporation, vol. 36(3), pages 469-493, Autumn.
    12. Abrell, Jan & Rausch, Sebastian, 2016. "Cross-country electricity trade, renewable energy and European transmission infrastructure policy," Journal of Environmental Economics and Management, Elsevier, vol. 79(C), pages 87-113.
    13. van den Bijgaart, Inge & Gerlagh, Reyer & Liski, Matti, 2016. "A simple formula for the social cost of carbon," Journal of Environmental Economics and Management, Elsevier, vol. 77(C), pages 75-94.
    14. Christian Gambardella & Michael Pahle & Wolf-Peter Schill, 2016. "Do Benefits from Dynamic Tariffing Rise? Welfare Effects of Real-Time Pricing under Carbon-Tax-Induced Variable Renewable Energy Supply," Discussion Papers of DIW Berlin 1621, DIW Berlin, German Institute for Economic Research.
    15. De Jonghe, C. & Hobbs, B. F. & Belmans, R., 2011. "Integrating short-term demand response into long-term investment planning," Cambridge Working Papers in Economics 1132, Faculty of Economics, University of Cambridge.
    16. Malte Meinshausen & Nicolai Meinshausen & William Hare & Sarah C. B. Raper & Katja Frieler & Reto Knutti & David J. Frame & Myles R. Allen, 2009. "Greenhouse-gas emission targets for limiting global warming to 2 °C," Nature, Nature, vol. 458(7242), pages 1158-1162, April.
    17. Meredith Fowlie & Michael Greenstone & Catherine Wolfram, 2018. "Do Energy Efficiency Investments Deliver? Evidence from the Weatherization Assistance Program," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 133(3), pages 1597-1644.
    18. Mikhail Golosov & John Hassler & Per Krusell & Aleh Tsyvinski, 2014. "Optimal Taxes on Fossil Fuel in General Equilibrium," Econometrica, Econometric Society, vol. 82(1), pages 41-88, January.
    19. Lemoine, Derek, 2020. "General equilibrium rebound from energy efficiency innovation," European Economic Review, Elsevier, vol. 125(C).
    20. Böhringer, Christoph & Rivers, Nicholas, 2021. "The energy efficiency rebound effect in general equilibrium," Journal of Environmental Economics and Management, Elsevier, vol. 109(C).
    21. Wei, Taoyuan & Liu, Yang, 2017. "Estimation of global rebound effect caused by energy efficiency improvement," Energy Economics, Elsevier, vol. 66(C), pages 27-34.
    22. David Anthoff & Richard Tol, 2013. "The uncertainty about the social cost of carbon: A decomposition analysis using fund," Climatic Change, Springer, vol. 117(3), pages 515-530, April.
    23. Klaus Eisenack & Mathias Mier, 2019. "Peak-load pricing with different types of dispatchability," Journal of Regulatory Economics, Springer, vol. 56(2), pages 105-124, December.
    24. Lamont, Alan D., 2008. "Assessing the long-term system value of intermittent electric generation technologies," Energy Economics, Elsevier, vol. 30(3), pages 1208-1231, May.
    25. Göransson, Lisa & Goop, Joel & Unger, Thomas & Odenberger, Mikael & Johnsson, Filip, 2014. "Linkages between demand-side management and congestion in the European electricity transmission system," Energy, Elsevier, vol. 69(C), pages 860-872.
    26. Carsten Helm & Mathias Mier, 2018. "Subsidising Renewables but Taxing Storage? Second-Best Policies with Imperfect Pricing," Working Papers V-413-18, University of Oldenburg, Department of Economics, revised Oct 2018.
    27. Ang, B.W. & Su, Bin, 2016. "Carbon emission intensity in electricity production: A global analysis," Energy Policy, Elsevier, vol. 94(C), pages 56-63.
    28. Fischer, Carolyn & Newell, Richard G., 2008. "Environmental and technology policies for climate mitigation," Journal of Environmental Economics and Management, Elsevier, vol. 55(2), pages 142-162, March.
    29. Kenneth Gillingham & David Rapson & Gernot Wagner, 2016. "The Rebound Effect and Energy Efficiency Policy," Review of Environmental Economics and Policy, Association of Environmental and Resource Economists, vol. 10(1), pages 68-88.
    30. Richard S.J. Tol, 2011. "The Social Cost of Carbon," Annual Review of Resource Economics, Annual Reviews, vol. 3(1), pages 419-443, October.
    31. Helm, Carsten & Mier, Mathias, 2019. "On the efficient market diffusion of intermittent renewable energies," Energy Economics, Elsevier, vol. 80(C), pages 812-830.
    32. Christoph Böhringer & Knut Rosendahl, 2010. "Green promotes the dirtiest: on the interaction between black and green quotas in energy markets," Journal of Regulatory Economics, Springer, vol. 37(3), pages 316-325, June.
    33. David Anthoff & Richard Tol, 2013. "Erratum to: The uncertainty about the social cost of carbon: A decomposition analysis using fund," Climatic Change, Springer, vol. 121(2), pages 413-413, November.
    34. Geoffrey J. Blanford, James H. Merrick, and David Young, 2014. "A Clean Energy Standard Analysis with the US-REGEN Model," The Energy Journal, International Association for Energy Economics, vol. 0(Special I).
    35. Pindyck, Robert S., 2019. "The social cost of carbon revisited," Journal of Environmental Economics and Management, Elsevier, vol. 94(C), pages 140-160.
    36. Green, Richard & Léautier, Thomas-Olivier, 2015. "Do costs fall faster than revenues? Dynamics of renewables entry into electricity markets," TSE Working Papers 15-591, Toulouse School of Economics (TSE).
    37. Crew, Michael A & Fernando, Chitru S & Kleindorfer, Paul R, 1995. "The Theory of Peak-Load Pricing: A Survey," Journal of Regulatory Economics, Springer, vol. 8(3), pages 215-248, November.
    38. Torriti, Jacopo & Hassan, Mohamed G. & Leach, Matthew, 2010. "Demand response experience in Europe: Policies, programmes and implementation," Energy, Elsevier, vol. 35(4), pages 1575-1583.
    39. Hunt Allcott & Michael Greenstone, 2017. "Measuring the Welfare Effects of Residential Energy Efficiency Programs," NBER Working Papers 23386, National Bureau of Economic Research, Inc.
    40. Takayama, T. & Hashimoto, H. & Uri, N. D., 1984. "Spatial and temporal price and allocation modeling: Some extensions," Socio-Economic Planning Sciences, Elsevier, vol. 18(4), pages 227-234.
    41. Jaffe, Adam B. & Stavins, Robert N., 1994. "The energy-efficiency gap What does it mean?," Energy Policy, Elsevier, vol. 22(10), pages 804-810, October.
    42. Ahmad Faruqui & Sanem Sergici, 2010. "Household response to dynamic pricing of electricity: a survey of 15 experiments," Journal of Regulatory Economics, Springer, vol. 38(2), pages 193-225, October.
    43. Kenneth Gillingham & Karen Palmer, 2014. "Bridging the Energy Efficiency Gap: Policy Insights from Economic Theory and Empirical Evidence," Review of Environmental Economics and Policy, Association of Environmental and Resource Economists, vol. 8(1), pages 18-38, January.
    44. Amory B. Lovins, 1988. "Energy Saving from the Adoption of More Efficient Appliances: Another View," The Energy Journal, International Association for Energy Economics, vol. 0(Number 2), pages 155-170.
    45. Labandeira, Xavier & Labeaga, José M. & López-Otero, Xiral, 2017. "A meta-analysis on the price elasticity of energy demand," Energy Policy, Elsevier, vol. 102(C), pages 549-568.
    46. Thomas Taylor & Peter Schwarz & James Cochell, 2005. "24/7 Hourly Response to Electricity Real-Time Pricing with up to Eight Summers of Experience," Journal of Regulatory Economics, Springer, vol. 27(3), pages 235-262, January.
    47. Paul Joskow & Jean Tirole, 2006. "Retail electricity competition," RAND Journal of Economics, The RAND Corporation, vol. 37(4), pages 799-815, December.
    48. Hunt Allcott & Michael Greenstone, 2017. "Measuring the Welfare Effects of Residential Energy Efficiency Programs," NBER Working Papers 23386, National Bureau of Economic Research, Inc.
    49. Savvidis, Georgios & Siala, Kais & Weissbart, Christoph & Schmidt, Lukas & Borggrefe, Frieder & Kumar, Subhash & Pittel, Karen & Madlener, Reinhard & Hufendiek, Kai, 2019. "The gap between energy policy challenges and model capabilities," Energy Policy, Elsevier, vol. 125(C), pages 503-520.
    50. Sorrell, Steve, 2009. "Jevons' Paradox revisited: The evidence for backfire from improved energy efficiency," Energy Policy, Elsevier, vol. 37(4), pages 1456-1469, April.
    51. O׳Connell, Niamh & Pinson, Pierre & Madsen, Henrik & O׳Malley, Mark, 2014. "Benefits and challenges of electrical demand response: A critical review," Renewable and Sustainable Energy Reviews, Elsevier, vol. 39(C), pages 686-699.
    52. Richter, Jan, 2011. "DIMENSION - A Dispatch and Investment Model for European Electricity Markets," EWI Working Papers 2011-3, Energiewirtschaftliches Institut an der Universitaet zu Koeln (EWI).
    53. Nathan W. Chan & Kenneth Gillingham, 2015. "The Microeconomic Theory of the Rebound Effect and Its Welfare Implications," Journal of the Association of Environmental and Resource Economists, University of Chicago Press, vol. 2(1), pages 133-159.
    54. Lind, Arne & Rosenberg, Eva & Seljom, Pernille & Espegren, Kari & Fidje, Audun & Lindberg, Karen, 2013. "Analysis of the EU renewable energy directive by a techno-economic optimisation model," Energy Policy, Elsevier, vol. 60(C), pages 364-377.
    55. Katharine Ricke & Laurent Drouet & Ken Caldeira & Massimo Tavoni, 2018. "Country-level social cost of carbon," Nature Climate Change, Nature, vol. 8(10), pages 895-900, October.
    56. William Nordhaus, 2014. "Estimates of the Social Cost of Carbon: Concepts and Results from the DICE-2013R Model and Alternative Approaches," Journal of the Association of Environmental and Resource Economists, University of Chicago Press, vol. 1(1), pages 000.
    57. Wang, Zhaohua & Han, Bai & Lu, Milin, 2016. "Measurement of energy rebound effect in households: Evidence from residential electricity consumption in Beijing, China," Renewable and Sustainable Energy Reviews, Elsevier, vol. 58(C), pages 852-861.
    58. J. Daniel Khazzoom, 1980. "Economic Implications of Mandated Efficiency in Standards for Household Appliances," The Energy Journal, International Association for Energy Economics, vol. 0(Number 4), pages 21-40.
    59. Christoph Weissbart, 2018. "Decarbonization of Power Markets under Stability and Fairness: Do They Influence Efficiency?," ifo Working Paper Series 270, ifo Institute - Leibniz Institute for Economic Research at the University of Munich.
    60. Jamil, Faisal & Ahmad, Eatzaz, 2011. "Income and price elasticities of electricity demand: Aggregate and sector-wise analyses," Energy Policy, Elsevier, vol. 39(9), pages 5519-5527, September.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Saunders, Harry D. & Roy, Joyashree & Azevedo, Inês M.L. & Chakravarty, Debalina & Dasgupta, Shyamasree & De La Rue Du Can, Stephane & Druckman, Angela & Fouquet, Roger & Grubb, Michael & Lin, Boqiang, 2021. "Energy efficiency: what has research delivered in the last 40 years?," LSE Research Online Documents on Economics 114344, London School of Economics and Political Science, LSE Library.
    2. Richard S.J. Tol, 2021. "Estimates of the social cost of carbon have not changed over time," Working Paper Series 0821, Department of Economics, University of Sussex Business School.
    3. Rocha, Felipe Freitas da & Almeida, Edmar Luiz Fagundes de, 2021. "A general equilibrium model of macroeconomic rebound effect: A broader view," Energy Economics, Elsevier, vol. 98(C).
    4. Colmenares, Gloria & Löschel, Andreas & Madlener, Reinhard, 2019. "The rebound effect and its representation in energy and climate models," CAWM Discussion Papers 106, University of Münster, Münster Center for Economic Policy (MEP).
    5. Richard S. J. Tol, 2021. "Estimates of the social cost of carbon have increased over time," Papers 2105.03656, arXiv.org, revised Aug 2022.
    6. Mathias Mier, 2018. "Policy Implications of a World with Renewables, Limited Dispatchability, and Fixed Load," Working Papers V-412-18, University of Oldenburg, Department of Economics, revised Jul 2018.
    7. Böhringer, Christoph & Rivers, Nicholas, 2021. "The energy efficiency rebound effect in general equilibrium," Journal of Environmental Economics and Management, Elsevier, vol. 109(C).
    8. van den Bijgaart, Inge, 2016. "Essays in environmental economics and policy," Other publications TiSEM 298bee2a-cb08-4173-9fe1-8, Tilburg University, School of Economics and Management.
    9. Jing Liang & Yueming Qiu & Bo Xing, 2021. "Social Versus Private Benefits of Energy Efficiency Under Time-of-Use and Increasing Block Pricing," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 78(1), pages 43-75, January.
    10. Casey, Gregory, "undated". "Energy Efficiency and Directed Technical Change: Implications for Climate Change Mitigation," 2017 Annual Meeting, July 30-August 1, Chicago, Illinois 259959, Agricultural and Applied Economics Association.
    11. Christian Gambardella & Michael Pahle & Wolf-Peter Schill, 2016. "Do Benefits from Dynamic Tariffing Rise? Welfare Effects of Real-Time Pricing under Carbon-Tax-Induced Variable Renewable Energy Supply," Discussion Papers of DIW Berlin 1621, DIW Berlin, German Institute for Economic Research.
    12. Lemoine, Derek, 2020. "General equilibrium rebound from energy efficiency innovation," European Economic Review, Elsevier, vol. 125(C).
    13. Mier, Mathias, 2021. "Efficient pricing of electricity revisited," Energy Economics, Elsevier, vol. 104(C).
    14. Benjamin Volland, 2016. "Efficiency in Domestic Space Heating: An Estimation of the Direct Rebound Effect for Domestic Heating in the U.S," IRENE Working Papers 16-01, IRENE Institute of Economic Research.
    15. Chang, Juin-Jen & Wang, Wei-Neng & Shieh, Jhy-Yuan, 2018. "Environmental rebounds/backfires: Macroeconomic implications for the promotion of environmentally-friendly products," Journal of Environmental Economics and Management, Elsevier, vol. 88(C), pages 35-68.
    16. Klaus Eisenack & Mathias Mier, 2019. "Peak-load pricing with different types of dispatchability," Journal of Regulatory Economics, Springer, vol. 56(2), pages 105-124, December.
    17. Lang, Ghislaine & Lanz, Bruno, 2022. "Climate policy without a price signal: Evidence on the implicit carbon price of energy efficiency in buildings," Journal of Environmental Economics and Management, Elsevier, vol. 111(C).
    18. Tugba Somuncu & Christopher Hannum, 2018. "The Rebound Effect of Energy Efficiency Policy in the Presence of Energy Theft," Energies, MDPI, vol. 11(12), pages 1-28, December.
    19. Richard S J Tol, 2018. "The Economic Impacts of Climate Change," Review of Environmental Economics and Policy, Association of Environmental and Resource Economists, vol. 12(1), pages 4-25.
    20. Helm, Carsten & Mier, Mathias, 2021. "Steering the energy transition in a world of intermittent electricity supply: Optimal subsidies and taxes for renewables and storage," Journal of Environmental Economics and Management, Elsevier, vol. 109(C).

    More about this item

    JEL classification:

    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities
    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices
    • Q51 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Valuation of Environmental Effects

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:lmu:muenar:84730. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Tamilla Benkelberg (email available below). General contact details of provider: https://edirc.repec.org/data/vfmunde.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.