Determining the efficiency of residential electricity consumption
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Determining the efficiency of residential electricity consumption Mark A. Andor1 · David H. Bernstein2 · Stephan Sommer1 Received: 2 March 2020 / Accepted: 20 October 2020 © The Author(s) 2020
Abstract Increasing energy efficiency is a key global policy goal for climate protection. An important step toward an optimal reduction of energy consumption is the identification of energy saving potentials in different sectors and the best strategies for increasing efficiency. This paper analyzes these potentials in the household sector by estimating the degree of inefficiency in the use of electricity and its determinants. Using stochastic frontier analysis and disaggregated household data, we estimate an input requirement function and inefficiency on a sample of 2000 German households. Our results suggest that the mean inefficiency amounts to around 20%, indicating a notable potential for energy savings. Moreover, we find that household size and income are among the main determinants of individual inefficiency. This information can be used to increase the cost-efficiency of programs aimed to enhance energy efficiency. Keywords Household electricity consumption · Stochastic frontier analysis · Technical efficiency JEL Classification D1 · Q4 · Q5
1 Introduction Global energy consumption is projected to grow by 25% until 2040, implying rising greenhouse gas (GHG) emissions (IEA 2019, p. 35). To mitigate GHG emissions,
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Stephan Sommer [email protected] Mark A. Andor [email protected] David H. Bernstein [email protected]
1
RWI – Leibniz Institute for Economic Research, Essen, Germany
2
University of Miami, Coral Gables, USA
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M. A. Andor et al.
fostering energy efficiency has become a major political goal in many countries. For instance, the European Union (EU) started to set energy efficiency targets in 2006, enacting an action plan that aimed at reducing the consumption of primary energy by 20% by 2020 compared to 1990 levels. Specifically, EU member states were required to set individual reduction targets and report on these regularly. More recently, a new target for 2030 was stipulated, which aims at reducing energy use by 32.5% (EU 2020) relative to a business as usual scenario. In addition, the EU has launched several initiatives to fulfill these targets, including, for instance, standards for energy-using products (Houde and Spurlock 2016), regulations for buildings (Frondel et al. 2020), and mandatory energy labels for electric appliances (Andor et al. 2020; Houde 2018). In order to develop cost-efficient strategies for energy saving, it is helpful to estimate the saving potentials in the different sectors. If there is a substantial potential for energy savings in a sector, the question arises as to how energy efficiency can be optimally increased. A low rate of energy efficiency in the residential sector may have two different causes: First, consumers might hesitate to purchase energy-efficient technologies, even though they pay off. For this so-called energy-efficiency-gap (Jaffe
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