Abstract
The concept of a backstop level of electricity intensity 1 1 Intensity (kWh/GDP) and efficiency (kWh/activity) are related by the identity “Intensity=Structure×Efficiency” with structure being activity/GDP. Intensity can be observed statistically, but efficiency is difficult to observe and to measure. For a cross-section of wealthy OECD nations, Verbruggen and Couder (2004) show that most of the variability in electricity intensity is explained by a varying degree in implementing efficient solutions. This article focuses on “intensity”, but most of the results are valid for “efficiency” too. is introduced and illustrated for the highest income economies of the world. The backstop level corresponds with the intensity that would be triggered by applying end-use electricity prices equal to the cost price of a fully sustainable electricity supply. Section 1 of the paper discusses the issue of electricity (also energy) intensity of economies. It is argued that identifying a “demand for electricity intensity” bridges the gap between the high willingness to pay for electricity services on the one hand and the disinterested attitude of consumers regarding the invisible and impalpable product electricity on the other hand. Assessment of the demand curve for electricity intensity in a cross section of high income OECD countries comes to a long-run price elasticity of almost −1. Section 2 revives Nordhaus’ concept of backstop supply technologies for weighing three power sources (fossil, nuclear, and renewable sources) in meeting today's criteria of sustainable backstop technology. Only renewable sources meet the main sustainability criteria, but the economic cost of a fully sustainable electricity supply will be elevated. The closing question of Section 3, that is, whether the countries can afford the high cost of backstop electricity supplies, is answered by indicating what reductions in intensity are required to keep the electricity bills stable. The targeted intensity level is called the backstop level, and provides a fixed point for electricity efficiency policies. The analysis supports the call for comprehensive and enduring tax reform policies.
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