IDEAS home Printed from https://ideas.repec.org/p/was/dpaper/2501.html
   My bibliography  Save this paper

Impact of Demand-side Energy Efficiency on the Electricity Balancing Market and Environmental Policy

Author

Listed:
  • Yukihide Kurakawa

    (Kanazawa Seiryo University.)

  • Makoto Tanaka

    (National Graduate Institute for Policy Studies.)

Abstract

This paper shows how demand-side energy use efficiency affects demand response (DR) and total CO2 emissions. The marginal cost of DR corresponds to the marginal utility of electricity consumption. Thus, improved energy efficiency increases the marginal cost of DR and increases thermal power generation in balancing markets. We analyze a model consisting of a day-ahead and balancing market and examine CO2 emissions from each market. Improved energy efficiency decreases emissions from the day-ahead market while increasing emissions from the balancing market. The analysis reveals that improved energy efficiency could increase total emissions when the emission factor of the marginal plant in the day-ahead market is sufficiently small. Raising the carbon tax rate as energy efficiency improves will be necessary to deter such perverse effects, expanding the use of DR in the balancing market.

Suggested Citation

  • Yukihide Kurakawa & Makoto Tanaka, 2025. "Impact of Demand-side Energy Efficiency on the Electricity Balancing Market and Environmental Policy," RIEEM Discussion Paper Series 2501, Research Institute for Environmental Economics and Management, Waseda University.
    • Handle: RePEc:was:dpaper:2501
    as

    Download full text from publisher

    File URL: https://prj-rieem.w.waseda.jp/dp/dp2501.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Toshi H. Arimura, Shanjun Li, Richard G. Newell, and Karen Palmer, 2012. "Cost-Effectiveness of Electricity Energy Efficiency Programs," The Energy Journal, International Association for Energy Economics, vol. 0(Number 2).
    2. van der Veen, Reinier A.C. & Hakvoort, Rudi A., 2016. "The electricity balancing market: Exploring the design challenge," Utilities Policy, Elsevier, vol. 43(PB), pages 186-194.
    3. Abrardi, Laura & Cambini, Carlo, 2015. "Tariff regulation with energy efficiency goals," Energy Economics, Elsevier, vol. 49(C), pages 122-131.
    4. Sorrell, Steve, 2009. "Jevons' Paradox revisited: The evidence for backfire from improved energy efficiency," Energy Policy, Elsevier, vol. 37(4), pages 1456-1469, April.
    5. Leon Chu & David Sappington, 2012. "Designing optimal gain sharing plans to promote energy conservation," Journal of Regulatory Economics, Springer, vol. 42(2), pages 115-134, October.
    6. Hung-po Chao & Mario DePillis, 2013. "Incentive effects of paying demand response in wholesale electricity markets," Journal of Regulatory Economics, Springer, vol. 43(3), pages 265-283, June.
    7. Datta, Souvik, 2019. "Decoupling and demand-side management: Evidence from the US electric industry," Energy Policy, Elsevier, vol. 132(C), pages 175-184.
    8. Leon Chu & David Sappington, 2013. "Motivating energy suppliers to promote energy conservation," Journal of Regulatory Economics, Springer, vol. 43(3), pages 229-247, June.
    9. Qadrdan, Meysam & Ameli, Hossein & Strbac, Goran & Jenkins, Nicholas, 2017. "Efficacy of options to address balancing challenges: Integrated gas and electricity perspectives," Applied Energy, Elsevier, vol. 190(C), pages 181-190.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Datta, Souvik, 2019. "Decoupling and demand-side management: Evidence from the US electric industry," Energy Policy, Elsevier, vol. 132(C), pages 175-184.
    2. Joisa Dutra, Flavio M. Menezes, and Xuemei Zheng, 2016. "Price Regulation and the Incentives to Pursue Energy Efficiency by Minimizing Network Losses," The Energy Journal, International Association for Energy Economics, vol. 0(Number 4).
    3. Wirl, Franz, 2015. "White certificates — Energy efficiency programs under private information of consumers," Energy Economics, Elsevier, vol. 49(C), pages 507-515.
    4. Abrardi, Laura & Cambini, Carlo, 2015. "Tariff regulation with energy efficiency goals," Energy Economics, Elsevier, vol. 49(C), pages 122-131.
    5. Laura Abrardi, 2019. "Behavioral barriers and the energy efficiency gap: a survey of the literature," Economia e Politica Industriale: Journal of Industrial and Business Economics, Springer;Associazione Amici di Economia e Politica Industriale, vol. 46(1), pages 25-43, March.
    6. Arlan Brucal & Nori Tarui, 2018. "Revenue Decoupling for Electric Utilities: Impacts on Prices and Welfare," Working Papers 201814, University of Hawaii at Manoa, Department of Economics.
    7. Franz Wirl, 2019. "Incentivizing Energy Efficiency under Private Information: The Social Optimum," The Energy Journal, International Association for Energy Economics, vol. 0(Number 6).
    8. Flavio Menezes & Joisa Dutra & Xuemei Zheng, 2013. "Energy Efficiency and Price Regulation," Discussion Papers Series 495, School of Economics, University of Queensland, Australia.
    9. Gerlach, Heiko & Zheng, Xuemei, 2018. "Preferences for green electricity, investment and regulatory incentives," Energy Economics, Elsevier, vol. 69(C), pages 430-441.
    10. Nori Tarui, 2017. "Electric utility regulation under enhanced renewable energy integration and distributed generation," Environmental Economics and Policy Studies, Springer;Society for Environmental Economics and Policy Studies - SEEPS, vol. 19(3), pages 503-518, July.
    11. Laura Abrardi & Carlo Cambini, 2014. "Tariff Regulation with Energy Efficiency Goals," IEFE Working Papers 65, IEFE, Center for Research on Energy and Environmental Economics and Policy, Universita' Bocconi, Milano, Italy.
    12. Horowitz, Marvin J. & Bertoldi, Paolo, 2015. "A harmonized calculation model for transforming EU bottom-up energy efficiency indicators into empirical estimates of policy impacts," Energy Economics, Elsevier, vol. 51(C), pages 135-148.
    13. Sayegh, M.A. & Danielewicz, J. & Nannou, T. & Miniewicz, M. & Jadwiszczak, P. & Piekarska, K. & Jouhara, H., 2017. "Trends of European research and development in district heating technologies," Renewable and Sustainable Energy Reviews, Elsevier, vol. 68(P2), pages 1183-1192.
    14. Chi, Lixun & Su, Huai & Zio, Enrico & Zhang, Jinjun & Li, Xueyi & Zhang, Li & Fan, Lin & Zhou, Jing & Bai, Hua, 2020. "Integrated Deterministic and Probabilistic Safety Analysis of Integrated Energy Systems with bi-directional conversion," Energy, Elsevier, vol. 212(C).
    15. Kolb, Sebastian & Plankenbühler, Thomas & Frank, Jonas & Dettelbacher, Johannes & Ludwig, Ralf & Karl, Jürgen & Dillig, Marius, 2021. "Scenarios for the integration of renewable gases into the German natural gas market – A simulation-based optimisation approach," Renewable and Sustainable Energy Reviews, Elsevier, vol. 139(C).
    16. Liu, Qian & Li, Wanjun & Zhao, Zhen & Jian, Gan, 2024. "Optimal operation of coordinated multi-carrier energy hubs for integrated electricity and gas networks," Energy, Elsevier, vol. 288(C).
    17. Steffen Dalsgaard, 2022. "Can IT Resolve the Climate Crisis? Sketching the Role of an Anthropology of Digital Technology," Sustainability, MDPI, vol. 14(10), pages 1-17, May.
    18. Catalin VRABIE, 2024. "Guvernarea electronică 3.0: Un model AI de soluționare automatizată a petițiilor," Smart Cities International Conference (SCIC) Proceedings, Smart-EDU Hub, Faculty of Public Administration, National University of Political Studies & Public Administration, vol. 12, pages 9-28, september.
    19. Lange, Steffen & Pohl, Johanna & Santarius, Tilman, 2020. "Digitalization and energy consumption. Does ICT reduce energy demand?," Ecological Economics, Elsevier, vol. 176(C).
    20. Maccarrone, Giovanni & Marini, Marco A. & Tarola, Ornella, "undated". "Shop Until You Drop: the Unexpected Effects of Anticonsumerism and Environmentalism," FEEM Working Papers 330384, Fondazione Eni Enrico Mattei (FEEM).

    More about this item

    Keywords

    ;
    ;
    ;
    ;
    ;

    JEL classification:

    • D02 - Microeconomics - - General - - - Institutions: Design, Formation, Operations, and Impact
    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:was:dpaper:2501. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Takuro Miyamoto (email available below). General contact details of provider: https://prj-rieem.w.waseda.jp/en/discussion_papers .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.