Modeling the Economics of Greenhouse Gas Mitigation Summary of a Workshop (2011) / Chapter Skim
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Paradigms of Energy Efficiency's Cost and Their Policy Implications: Déjà Vu All Over Again--Mark Jaccard
Paradigms of Energy Efficiency's Cost and Their Policy Implications: Déjà Vu All Over Again--Mark Jaccard
Pages 42-51
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From page 42... ...
In conclu sion, I return to the general question of how energy efficiency analysis might best aid policy makers seeking to rapidly reduce GHG emissions at the lowest possible cost to society. The Paradigm of Profitable Energy Efficiency For over three decades there has been an ongoing and at times aggressive debate on the potential for win-win investments that would improve both energy and economic efficiencyin other words, opportunities for profitable energy efficiency.
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From page 43... ...
Third, if rates do not reflect the full cost of delivering electricity from new supplies (many utilities charge prices reflecting average costs rather than the costs of new supply) then those efficiency investments whose life-cycle costs are less than the cost of new supply are also profitable, albeit this time from a social rather than a private perspective.
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From page 44... ...
An estimate is made of the average emissions of existing equipment stocks for that service, which then provides the basis for estimating the GHG emissions that could be abated by converting all stocks to the low- or zero-emission alternative. These are again graphed in ascending order of costcost being defined as the incrementally higher life-cycle cost of switching to the lower-emission alternativeto produce a GHG abatement cost curve.
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From page 45... ...
It is possible that society could accelerate this natural rate of stock turnover, but then the cost would be not just the incremental capital cost of a more efficient device, but also some part of the full cost of the existing equipment, since that device was otherwise slated to operate for several more years. When technologists estimate the potential for profitable energy efficiency, they are not usually referring to costly expenditures that prematurely retire exist ing equipment and structures.
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From page 46... ...
If the cost of new supply is higher than the average cost, then there could be energy efficiency investments that are not profitable when compared to average costs but are profitable when compared to the incremental costs of producing and delivering new energy supply. Although such an investment is not profitable for a private company or household (given the regulated, average-cost tariffs they face)
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From page 47... ...
Thus, single point estimates based on the most favorable financial costs of efficient devices will exaggerate the total benefits of the economy-wide adoption of such devices. Implications for Energy-Economy Modeling Figures C.1 and C.2 show how bottom-up energy efficiency cost curve analysis has been used to provide estimates of the profitable amount of energy efficiency and GHG abatement.
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From page 48... ...
Likewise, changing the GHG emissions produced by the electricity sector will change the emissions that are saved by more efficient fridges, and thus the costs of GHG abatement by this action. The response of most energy researchers to this problem has been to abandon conventional cost curves in favor of an integrated energyeconomy model that treats all actions (efficiency, GHG abatement)
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From page 49... ...
. Figure C.5 overlays the results of a CIMS hybrid model simulation of a rising price for GHG emissions in the United States, producing a marginal abatement cost curve, with the McKinsey bottom-up cost curve that was depicted in Figure C.2both of these for what could be achieved by the year 2030.
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From page 50... ...
Their results suggest that energy efficiency subsidy and information programs have not achieved all the predicted energy efficiency gains and that, as a consequence, the cost of achieving energy efficiency in this way is higher than assumed. It should be noted, moreover, that these utility cost estimates would already have been higher than the pure bottom-up cost estimates from studies such as that of McKinsey because utility predictions of DSM effects try to incorporate the intangible costs that may cause firms and households to forego energy efficient options.
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From page 51... ...
Bottom-up cost curve analysis by technolo gists suggests an extremely large and profitable potential, which implicitly suggests that information and subsidies alone may reduce emissions substantially. Top-down marginal abatement cost curve analysis by economists sug gests the opposite, implying the need for strong emissions pricing and/or regulations.
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