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The Economics of Energy Market Transformation Programs

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  • Richard Duke
  • Daniel M. Kammen

Abstract

This paper evaluates three energy-sector market transformation programs: the U.S. Environmental Protection Agency's Green Lights program to promote on-grid efficient lighting; the World Bank Group's new Photovoltaic Market Transformation Initiative; and the federal grain ethanol subsidy. We develop a benefit-cost model that uses experience curves to estimate unit cost reductions as a function of cumulative production. Accounting for dynamic feedback between the demand response and price reductions from production experience raises the benefit-cost ratio (BCR) of the first two programs substantially. The BCR of the ethanol program, however, is approximately zero, illustrating a technology for which subsidization was not justified. Our results support a broader role for market transformation programs to commercialize new environmentally attractive technologies, but the ethanol experience suggests moderately funding a broad portfolio composed of technologies that meet strict selection criteria.

Suggested Citation

  • Richard Duke & Daniel M. Kammen, 1999. "The Economics of Energy Market Transformation Programs," The Energy Journal, International Association for Energy Economics, vol. 0(Number 4), pages 15-64.
    • Handle: RePEc:aen:journl:1999v20-04-a02
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    Cited by:

    1. Ghanadan, Rebecca & Koomey, Jonathan G., 2005. "Using energy scenarios to explore alternative energy pathways in California," Energy Policy, Elsevier, vol. 33(9), pages 1117-1142, June.
    2. Nachtigall, Daniel & Rübbelke, Dirk, 2016. "The green paradox and learning-by-doing in the renewable energy sector," Resource and Energy Economics, Elsevier, vol. 43(C), pages 74-92.
    3. Horne, Matt & Jaccard, Mark & Tiedemann, Ken, 2005. "Improving behavioral realism in hybrid energy-economy models using discrete choice studies of personal transportation decisions," Energy Economics, Elsevier, vol. 27(1), pages 59-77, January.
    4. Kavlak, Goksin & McNerney, James & Trancik, Jessika E., 2018. "Evaluating the causes of cost reduction in photovoltaic modules," Energy Policy, Elsevier, vol. 123(C), pages 700-710.
    5. Duke, Richard D. & Jacobson, Arne & Kammen, Daniel M., 2002. "Photovoltaic module quality in the Kenyan solar home systems market," Energy Policy, Elsevier, vol. 30(6), pages 477-499, May.
    6. Reinhard Haas & Marlene Sayer & Amela Ajanovic & Hans Auer, 2023. "Technological learning: Lessons learned on energy technologies," Wiley Interdisciplinary Reviews: Energy and Environment, Wiley Blackwell, vol. 12(2), March.
    7. Hakan Çelıkkol & Fatma Köse, 2015. "SWOT analysis of Turkish Energy Market in the context of Electricity Market in the context of electricity market," Copernican Journal of Finance & Accounting, Uniwersytet Mikolaja Kopernika, vol. 4(2), pages 27-41.
    8. Sawhney, Aparna & Kahn, Matthew E., 2012. "Understanding cross-national trends in high-tech renewable power equipment exports to the United States," Energy Policy, Elsevier, vol. 46(C), pages 308-318.
    9. Spencer, Simon & Bredin, Don & Conlon, Thomas, 2018. "Energy and agricultural commodities revealed through hedging characteristics: Evidence from developing and mature markets," Journal of Commodity Markets, Elsevier, vol. 9(C), pages 1-20.
    10. Fábio Ricardo Procópio de Araújo & Marcio Giannini Pereira & Marcos Aurélio Vasconcelos Freitas & Neilton Fidelis da Silva & Eduardo Janser de Azevedo Dantas, 2021. "Bigger Is Not Always Better: Review of Small Wind in Brazil," Energies, MDPI, vol. 14(4), pages 1-26, February.
    11. Fox, Jacob & Axsen, Jonn & Jaccard, Mark, 2017. "Picking Winners: Modelling the Costs of Technology-specific Climate Policy in the U.S. Passenger Vehicle Sector," Ecological Economics, Elsevier, vol. 137(C), pages 133-147.
    12. Gregory F. Nemet, 2006. "How well does Learning-by-doing Explain Cost Reductions in a Carbon-free Energy Technology?," Working Papers 2006.143, Fondazione Eni Enrico Mattei.
    13. Payne, Adam & Duke, Richard & Williams, Robert H., 2001. "Accelerating residential PV expansion: supply analysis for competitive electricity markets," Energy Policy, Elsevier, vol. 29(10), pages 787-800, August.
    14. D. Kline & L. Vimmerstedt & R. Benioff, 2004. "Clean energy technology transfer: A review of programs under the UNFCCC," Mitigation and Adaptation Strategies for Global Change, Springer, vol. 9(1), pages 1-35, March.
    15. Martin Junginger & Wilfried van Sark & André Faaij (ed.), 2010. "Technological Learning in the Energy Sector," Books, Edward Elgar Publishing, number 13741.

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    JEL classification:

    • F0 - International Economics - - General

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