October 30, 2011

Cost-Effectiveness of Electricity Energy Efficiency Programs

by Toshi H. Arimura, Shanjun Li, Richard G. Newell and Karen Palmer

- We analyze the cost-effectiveness of electric utility ratepayer-funded programs to promote demand-side management (DSM) and energy efficiency (EE) investments. We specify a model that relates electricity demand to previous EE DSM spending, energy prices, income, weather, and other demand factors. In contrast to previous studies, we allow EE DSM spending to have a potential long-term demand effect and explicitly address possible endogeneity in spending. We find that current period EE DSM expenditures reduce electricity demand and that this effect persists for a number of years.

Arimura, T.H., S.L., R.G. Newell and K. Palmer (2011). "Cost-Effectiveness of Electricity Energy Efficiency Programs." NBER Working Paper No. 17556, Oct 2011.