EFFECTIVENESS OF ENERGY EFFICIENCY INCENTIVE PROGRAMS

Abstract

This work addresses the effectiveness of energy efficiency (EE) incentive programs in reducing electricity consumption and assisting states in meeting their energy policy goals. EE programs provide financial incentives to encourage consumers to make investments in energy efficient equipment and reduce energy consumption. This study carries out a quantitative analysis to provide insights into EE programs performance. In two empirical applications, the research examines program performance on two levels: national coverage including all US-based utilities in the first application and state performance in the second application. The first empirical application examines stipulated energy savings from electric utilities across all states and compares the outcome to an econometric model that estimates savings from observed consumption. This study examines panel data from the contiguous US spanning eleven years from 2005 to 2015, to estimate the effect of EE program total expenditures on electricity demand. We find that although EE investments have been effective in reducing energy consumption, the modeled magnitude of these energy savings implies that EE programs have had a smaller effect on energy consumption than claimed by electric utilities over the same period. The results imply a price elasticity of energy efficiency ranging between 0.29 - 0.54; indicating a rebound effect. Consequentially, energy savings are less than proportional to the increase in energy efficiency. However, consumers benefit from an increase in energy services, since they get more of the service, for less cost. The second empirical application examines the cost-effectiveness of state-specific EE programs. The application employs econometric analysis to mimic an experimental research design using observational data from states with different energy policies in EE investments. This methodology evaluates program performance between states with aggressive EE policies and states with moderate programs. The differential effect of EE program implementation (treatment) in those states is examined in the context of a difference in differences approach and synthetic control method. The study examines the performance of the state with the highest per capita investments in EE: the state of Rhode Island. We assessed the energy efficiency policy of Rhode Island and compared its outcome to Maine and New Hampshire. Findings suggest that there is not a statistically significant effect on residential consumption, as a result of the substantial increase in EE expenditure, in RI during the period 2008 to 2015. However, a re-evaluation of the Rhode Island EE policy, using the synthetic control method (SCM) identifies that by the year 2015,