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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.

Suggested Citation

  • Gillingham, Kenneth, 2009. "Economic efficiency of solar hot water policy in New Zealand," Energy Policy, Elsevier, vol. 37(9), pages 3336-3347, September.
  • Handle: RePEc:eee:enepol:v:37:y:2009:i:9:p:3336-3347
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    References listed on IDEAS

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    Cited by:

    1. Naspolini, Helena F. & Rüther, Ricardo, 2012. "Assessing the technical and economic viability of low-cost domestic solar hot water systems (DSHWS) in low-income residential dwellings in Brazil," Renewable Energy, Elsevier, vol. 48(C), pages 92-99.
    2. Yurtsev, Arif & Jenkins, Glenn P., 2016. "Cost-effectiveness analysis of alternative water heater systems operating with unreliable water supplies," Renewable and Sustainable Energy Reviews, Elsevier, vol. 54(C), pages 174-183.
    3. Ma, Ben & Song, Guojun & Smardon, Richard C. & Chen, Jing, 2014. "Diffusion of solar water heaters in regional China: Economic feasibility and policy effectiveness evaluation," Energy Policy, Elsevier, vol. 72(C), pages 23-34.
    4. Arif Yurtsev & Glenn P Jenkins, 2016. "An economic analysis of policies for promoting economically efficient water heater systems operating under seasonal climatic conditions," Energy & Environment, , vol. 27(2), pages 227-240, March.
    5. Wasi, Nada & Carson, Richard T., 2013. "The influence of rebate programs on the demand for water heaters: The case of New South Wales," Energy Economics, Elsevier, vol. 40(C), pages 645-656.
    6. 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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    Keywords

    Solar Greenhouse gases Electricity;

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