Equitable reverse auctions supporting household energy investments

Abstract

A major challenge faced by policymakers has been determining appropriate subsidy amounts for household energy investments. This can result in inequitable support being either insufficient or excessive. Equitable reverse auctions offer a novel approach to address these issues. Households can bid an amount as a subsidy from the government that they require to go ahead with an energy investment. The lowest bids are successful in a reverse auction, allowing for cost-effective government support. The novel part is the pursuit of equity, as these auctions can occur separately for a pre-determined number of carefully chosen socio-economic groups. Equitable reverse auctions would lower inequality by design, relative to a common benchmark of equal subsidies, for a given government budget and environmental outcomes. Compared to a standard reverse auction, an equitable reverse auction will have greater equality by design but lower cost-effectiveness. However, the design of equitable reverse auctions is cost-effective within each socio-economic group. Non-additional subsidy spending would be reduced through reverse auctions. Equitable reverse auctions would be flexible to fit circumstances across countries, time, and technologies.