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Reviving manufacturing with a federal cogeneration policy

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  • Brown, Marilyn A.
  • Cox, Matt
  • Baer, Paul

Abstract

Improving the energy economics of manufacturing is essential to revitalizing the industrial base of advanced economies. This paper evaluates ex-ante a federal policy option aimed at promoting industrial cogeneration—the production of heat and electricity in a single energy-efficient process. Detailed analysis using the National Energy Modeling System (NEMS) and spreadsheet calculations suggest that industrial cogeneration could meet 18% of U.S. electricity requirements by 2035, compared with its current 8.9% market share. Substituting less efficient utility-scale power plants with cogeneration systems would produce numerous economic and environmental benefits, but would also create an assortment of losers and winners. Multiple perspectives to benefit/cost analysis are therefore valuable. Our results indicate that the federal cogeneration policy would be highly favorable to manufacturers and the public sector, cutting energy bills, generating billions of dollars in electricity sales, making producers more competitive, and reducing pollution. Most traditional utilities, on the other hand, would lose revenues unless their rate recovery procedures are adjusted to prevent the loss of profits due to customer owned generation and the erosion of utility sales. From a public policy perspective, deadweight losses would be introduced by market-distorting federal incentives (ranging annually from $30 to $150 million), but these losses are much smaller than the estimated net social benefits of the federal cogeneration policy.

Suggested Citation

  • Brown, Marilyn A. & Cox, Matt & Baer, Paul, 2013. "Reviving manufacturing with a federal cogeneration policy," Energy Policy, Elsevier, vol. 52(C), pages 264-276.
    • Handle: RePEc:eee:enepol:v:52:y:2013:i:c:p:264-276
    DOI: 10.1016/j.enpol.2012.08.070
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    References listed on IDEAS

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    Cited by:

    1. Comodi, Gabriele & Rossi, Mosè, 2016. "Energy versus economic effectiveness in CHP (combined heat and power) applications: Investigation on the critical role of commodities price, taxation and power grid mix efficiency," Energy, Elsevier, vol. 109(C), pages 124-136.
    2. Kenneth Gillingham & Marten Ovaere & Stephanie Weber, 2021. "Carbon Policy and the Emissions Implications of Electric Vehicles," CESifo Working Paper Series 8974, CESifo.
    3. Baer, Paul & Brown, Marilyn A. & Kim, Gyungwon, 2015. "The job generation impacts of expanding industrial cogeneration," Ecological Economics, Elsevier, vol. 110(C), pages 141-153.
    4. Brown, Marilyn A. & Herrera, Valentina Sanmiguel, 2021. "Combined heat and power as a platform for clean energy systems," Applied Energy, Elsevier, vol. 304(C).

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