The economic effect of efficiency programs on energy consumers and producers

Abstract

An increase in the efficiency of natural gas fired residential appliances allows users to realize the same level of service, heating water for example, while using less natural gas. In addition to this technological benefit to the residential sector, the reduced demand for natural gas depresses the price of natural gas, resulting in pecuniary gains to other energy consumers and pecuniary losses to energy producers. The question we address in this study is whether purely pecuniary effects, those that follow from the price changes elicited by lower usage of natural gas, should enter the debate concerning the implementation of energy efficiency programs. To that end, we explore the price and social welfare impacts of natural gas energy efficiency standards by evaluating the impacts of a specific efficiency standard using the National Energy Modeling System. Our analysis indicates that purely pecuniary losses to producers are largely offset by pecuniary benefits to consumers. Our analysis also provides useful insight into the sources of these benefits and losses. Although our results are based on a specific model and efficiency standard, we believe that the results generalize to other efficiency programs and would be reproduced using other energy models.