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Carbon Mitigation Costs for the Commercial Sector: Discrete-Continuous Choice Analysis of Multifuel Energy Demand

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  • Pizer, William

    (Resources for the Future)

  • Newell, Richard

    (Resources for the Future)

Abstract

We estimate a carbon mitigation cost curve for the U.S. commercial sector based on econometric estimation of the responsiveness of fuel demand and equipment choices to energy price changes. The model econometrically estimates fuel demand conditional on fuel choice, which is characterized by a multinomial logit model. Separate estimation of end uses (e.g., heating, cooking) using the 1995 Commercial Buildings Energy Consumption Survey allows for exceptionally detailed estimation of price responsiveness disaggregated by end use and fuel type. We then construct aggregate long-run elasticities, by fuel type, through a series of simulations; own-price elasticities range from –0.9 for district heat services to –2.9 for fuel oil. The simulations form the basis of a marginal cost curve for carbon mitigation, which suggests that a price of $20 per ton of carbon would result in an 8% reduction in commercial carbon emissions, and a price of $100 per ton would result in a 28% reduction.

Suggested Citation

  • Pizer, William & Newell, Richard, 2005. "Carbon Mitigation Costs for the Commercial Sector: Discrete-Continuous Choice Analysis of Multifuel Energy Demand," RFF Working Paper Series dp-05-13, Resources for the Future.
    • Handle: RePEc:rff:dpaper:dp-05-13
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    References listed on IDEAS

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    Cited by:

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    3. Xavier Labandeira & José M. Labeaga & Xiral López-Otero, 2011. "Energy Demand for Heating in Spain: An Empirical Analysis with Policy Purposes," Working Papers 06-2011, Economics for Energy.

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    More about this item

    Keywords

    commercial energy demand; carbon policy; climate change; discrete choice;
    All these keywords.

    JEL classification:

    • Q28 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Government Policy
    • Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy
    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices
    • C35 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Discrete Regression and Qualitative Choice Models; Discrete Regressors; Proportions
    • C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Statistical Simulation Methods: General

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