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Relative Effectiveness of Energy Efficiency Programs versus Market Based Climate Policies in the Chemical Industry

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  • Gale A. Boyd
  • Jonathan M. Lee

Abstract

This paper addresses the relative effectiveness of market vs program based climate policies. We compute the carbon price resulting in an equivalent reduction in energy from programs that eliminate the efficiency gap. A reduced-form stochastic frontier energy demand analysis of plant level electricity and fuel data, from energy-intensive chemical sectors, jointly estimates the distribution of energy efficiency and underlying price elasticities. The analysis controls for plant level price endogeneity and heterogeneity to obtain a decomposition of efficiency into persistent (PE) and time-varying (TVE) components. Total inefficiency is relatively small and price elasticities are relatively high. If all plants performed at the 90th percentile of their efficiency distribution, the reduction in energy is between 4% and 13%. A modest carbon price of between $9.48/ton and $14.01/ton CO2 would achieve reductions in energy use equivalent to all manufacturing plants making improvements to close the efficiency gap.

Suggested Citation

  • Gale A. Boyd & Jonathan M. Lee, 2018. "Relative Effectiveness of Energy Efficiency Programs versus Market Based Climate Policies in the Chemical Industry," Working Papers 18-16, Center for Economic Studies, U.S. Census Bureau.
    • Handle: RePEc:cen:wpaper:18-16
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    References listed on IDEAS

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    Cited by:

    1. Lee, Jonathan M. & Howard, Gregory, 2021. "The impact of technical efficiency, innovation, and climate policy on the economic viability of renewable electricity generation," Energy Economics, Elsevier, vol. 100(C).
    2. Gale Boyd & Matt Doolin, 2020. "The Energy Efficiency Gap and Energy Price Responsiveness in Food Processing," Working Papers 20-18, Center for Economic Studies, U.S. Census Bureau.
    3. Xu, Bin & Lin, Boqiang, 2020. "Investigating drivers of CO2 emission in China’s heavy industry: A quantile regression analysis," Energy, Elsevier, vol. 206(C).

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    More about this item

    Keywords

    Energy efficiency; price elasticities; manufacturing; stochastic frontier; plant-level data;
    All these keywords.

    JEL classification:

    • F0 - International Economics - - General

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