Social Versus Private Benefits of Energy Efficiency Under Time-of-Use and Increasing Block Pricing
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Social Versus Private Benefits of Energy Efficiency Under Time‑of‑Use and Increasing Block Pricing Jing Liang1 · Yueming Qiu2 · Bo Xing3 Accepted: 2 November 2020 © Springer Nature B.V. 2020
Abstract Many energy policies are implemented to subsidize the adoption of energy efficiency. However, when private benefits from energy efficiency exceed the social benefits, there is an incentive for the consumers to over-invest in energy efficiency; otherwise, there is an incentive to under-invest. This study adds to this discussion by providing an empirical estimation of the electricity savings and social benefits after energy efficiency retrofits for consumers on time-of-use (TOU) and increasing block pricing, respectively. We aim to examine how social versus private savings from a given energy efficiency measure may be different depending on different pricing plans. This study applies hourly electricity data for about 16,000 residential consumers during 2013–2017 in Arizona. We show that for the TOU consumers, the private savings from energy-efficient AC retrofits are greater than the social savings by 61%, while the increasing block rate consumers’ private savings exceed the social savings by 46%, when other market failures are not considered (e.g., principalagent problem and imperfect information). Different rate plans impose different marginal electricity prices which influence the incentives to invest in energy efficiency as well as electricity consumption behaviors that can influence both the private and social savings from energy efficiency. The result indicates that there should be potentially different levels of policy interventions towards energy efficiency for consumers on different pricing. Additionally, we also find that energy efficiency makes the electricity demand more elastic to price changes. Keywords Energy efficiency · Time-of-use · Increasing block rate · Private benefits · Social benefits · Price elasticity
1 Introduction It is believed that there is an “energy efficiency gap”—the failure to invest in seemingly cost-effective energy efficiency technologies (Allcott and Greenstone 2012; Gillingham and Palmer 2014). Motivated by this concern, many policies and energy efficiency programs are implemented to encourage the adoption of energy efficiency by households. * Yueming Qiu [email protected] Extended author information available on the last page of the article
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The justifications for these policies are two folds. First, the negative externalities such as carbon emissions and environmental pollution are not internalized into the electricity prices paid by consumers (Fowlie et al. 2018). Therefore, there are social benefits associated with promoting energy efficiency. Second, there are various market failures, such as the principal-agent problems (Gillingham et al. 2012), imperfect information, and learning effects (Velthuijsen 1993; Jaffe and Stavins 1994; Gillingham and Palmer 2014; Fowlie et al. 2018). These market failures induce suboptimal investment de
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