Energy Efficiency and Emissions Intensity Standards

Daniel Steinberg, Harrison Fell, Daniel Kaffine

Research output: Contribution to journalArticlepeer-review

4 Scopus Citations

Abstract

We investigate the role of energy efficiency in rate-based emissions intensity standards, a particularly policy-relevant consideration given that the Environmental Protection Agency’s Clean Power Plan allows crediting of electricity savings as a means of complying with state-specific emissions standards. We show that with perfectly inelastic energy services demand, crediting efficiency measures can recover the first-best allocation. However, when demand for energy services exhibits some elasticity, crediting energy efficiency can no longer recover first-best. While crediting removes the relative distortion between energy generation and energy efficiency, it distorts the absolute level of energy services. Building on these results, we derive the conditions determining the second-best intensity standard and crediting rule. Simulations calibrated to the electricity sector in Texas find that while some form of crediting is generally welfare-improving, the proposed one-for-one crediting of energy savings is unlikely to achieve efficient outcomes.

Original languageAmerican English
Pages (from-to)S201-S226
JournalJournal of the Association of Environmental and Resource Economists
Volume4
Issue numberS1
DOIs
StatePublished - 1 Sep 2017

Bibliographical note

Publisher Copyright:
© 2017 by The Association of Environmental and Resource Economists. All rights reserved.

NREL Publication Number

  • NREL/JA-6A20-65270

Keywords

  • Emissions standards
  • Emissions tax
  • Energy efficiency

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