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Cost-Effectiveness of Electricity Energy Efficiency Programs

Author

Listed:
  • Toshi H. Arimura
  • Shanjun Li
  • Richard G. Newell
  • Karen Palmer

Abstract

We analyze the cost-effectiveness of electric utility ratepayer-funded programs to promote demand-side management (DSM) and energy efficiency (EE) investments. We specify a model that relates electricity demand to previous EE DSM spending, energy prices, income, weather, and other demand factors. In contrast to previous studies, we allow EE DSM spending to have a potential long-term demand effect and explicitly address possible endogeneity in spending. We find that current period EE DSM expenditures reduce electricity demand and that this effect persists for a number of years. Our findings suggest that ratepayer funded DSM expenditures between 1992 and 2006 produced a central estimate of 0.9 percent savings in electricity consumption over that time period and a 1.8 percent savings over all years. These energy savings came at an expected average cost to utilities of roughly 5 cents per kWh saved when future savings are discounted at a 5 percent rate.

Suggested Citation

  • Toshi H. Arimura & Shanjun Li & Richard G. Newell & Karen Palmer, 2011. "Cost-Effectiveness of Electricity Energy Efficiency Programs," NBER Working Papers 17556, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:17556
    Note: EEE PE
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    References listed on IDEAS

    as
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    More about this item

    JEL classification:

    • H76 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Other Expenditure Categories
    • L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities
    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices
    • Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy

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