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Lessons from Utility Conservation Programs

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  • Franz Wirl

Abstract

This paper considers the design, incentives and effectiveness of U.S. demand side management (DSM) programs and tries to explain why this ambitious, almost unanimously embraced initiative failed. Problems on the demand side result from consumers' private information that implies that substantial principal-agent slippage must accompany any conservation incentive the utility offers to the consumer. Moreover, the regulatory incentives induce the American utility to select inefficient programs. Therefore, the utility has little to gain from deterring such strategic reactions and cheating by consumers. As a consequence, the reported conservation exists largely on paper but not in reality. This ex-post assessment is important for two reasons. First, European countries (Scandinavia, Germany, Austria and others) have been eager to repeat this American regulatory 'success'. Second, the problems addressed in this paper would apply to another round of conservation programs induced by the concern about global warming.

Suggested Citation

  • Franz Wirl, 2000. "Lessons from Utility Conservation Programs," The Energy Journal, International Association for Energy Economics, vol. 0(Number 1), pages 87-108.
  • Handle: RePEc:aen:journl:2000v21-01-a04
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    Citations

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    Cited by:

    1. Gillingham, Kenneth & Newell, Richard G. & Palmer, Karen L., 2004. "Retrospective Examination of Demand-Side Energy Efficiency Policies," Discussion Papers 10477, Resources for the Future.
    2. Dahlke, Steven & Prorok, Matt, 2018. "Consumer savings, price, and emissions impacts of increasing demand response in the Midcontinent electricity market," OSF Preprints d83bu, Center for Open Science.
    3. Diffney, Seán & Lyons, Seán & Malaguzzi Valeri, Laura, 2013. "Evaluation of the effect of the Power of One campaign on natural gas consumption," Energy Policy, Elsevier, vol. 62(C), pages 978-988.
    4. Dulleck, Uwe & Kaufmann, Sylvia, 2004. "Do customer information programs reduce household electricity demand?--the Irish program," Energy Policy, Elsevier, vol. 32(8), pages 1025-1032, June.
    5. Aalbers, R.F.T. & Vollebergh, H.R.J. & de Groot, H.L.F., 2011. "Reducing Rents from Energy Technology Adoption Programs by Exploiting Observable Information," Discussion Paper 2011-109, Tilburg University, Center for Economic Research.
    6. Grösche Peter & Schmidt Christoph M. & Vance Colin, 2013. "Identifying Free-riding in Home Renovation Programs Using Revealed Preference Data," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), De Gruyter, vol. 233(5-6), pages 600-618, October.
    7. Wilson, Elizabeth J. & Plummer, Joseph & Fischlein, Miriam & Smith, Timothy M., 2008. "Implementing energy efficiency: Challenges and opportunities for rural electric co-operatives and small municipal utilities," Energy Policy, Elsevier, vol. 36(9), pages 3383-3397, September.
    8. Gebreegziabher, Zenebe & van Kooten, G. Cornelis & van Soest, Daan P., 2017. "Technological innovation and dispersion: Environmental benefits and the adoption of improved biomass cookstoves in Tigrai, northern Ethiopia," Energy Economics, Elsevier, vol. 67(C), pages 337-345.
    9. Aalbers, R.F.T. & Vollebergh, H.R.J. & de Groot, H.L.F., 2011. "Reducing Rents from Energy Technology Adoption Programs by Exploiting Observable Information," Discussion Paper 2011-109, Tilburg University, Center for Economic Research.
    10. Frondel, Manuel & Schmidt, Christoph M., 2005. "Evaluating environmental programs: The perspective of modern evaluation research," Ecological Economics, Elsevier, vol. 55(4), pages 515-526, December.
    11. Arjan Ruijs & Herman Vollebergh, 2013. "Lessons from 15 Years of Experience with the Dutch Tax Allowance for Energy Investments for Firms," Working Papers 2013.56, Fondazione Eni Enrico Mattei.
    12. Daan P. van Soest & Herman R.J. Vollebergh, 2011. "Energy Investment Behaviour: Firm Heterogeneity and Subsidy Design," Chapters, in: Raymond J.G.M. Florax & Henri L.F. de Groot & Peter Mulder (ed.),Improving Energy Efficiency through Technology, chapter 9, Edward Elgar Publishing.
    13. Arguedas, Carmen & van Soest, Daan P., 2009. "On reducing the windfall profits in environmental subsidy programs," Journal of Environmental Economics and Management, Elsevier, vol. 58(2), pages 192-205, September.
    14. Shiljkut, Vladimir M. & Rajakovic, Nikola Lj., 2015. "Demand response capacity estimation in various supply areas," Energy, Elsevier, vol. 92(P3), pages 476-486.
    15. Diffney, Seán & Lyons, Seán & Malaguzzi Valeri, Laura, 2013. "Evaluation of the effect of the Power of One campaign on natural gas consumption," Energy Policy, Elsevier, vol. 62(C), pages 978-988.

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    JEL classification:

    • F0 - International Economics - - General

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