Relative Effectiveness of Energy Efficiency Programs versus Market Based Climate Policies in the Chemical Industry

Gale Boyd and Jonathan Lee

Working Papers from U.S. Census Bureau, Center for Economic Studies

Abstract: This paper addresses the relative effectiveness of market vs program based climate policies. We compute the carbon price resulting in an equivalent reduction in energy from programs that eliminate the efficiency gap. A reduced-form stochastic frontier energy demand analysis of plant level electricity and fuel data, from energy-intensive chemical sectors, jointly estimates the distribution of energy efficiency and underlying price elasticities. The analysis controls for plant level price endogeneity and heterogeneity to obtain a decomposition of efficiency into persistent (PE) and time-varying (TVE) components. Total inefficiency is relatively small and price elasticities are relatively high. If all plants performed at the 90th percentile of their efficiency distribution, the reduction in energy is between 4% and 13%. A modest carbon price of between $9.48/ton and $14.01/ton CO2 would achieve reductions in energy use equivalent to all manufacturing plants making improvements to close the efficiency gap.

Keywords: Energy efficiency; price elasticities; manufacturing; stochastic frontier; plant-level data (search for similar items in EconPapers)
Pages: 33 pages
Date: 2018-04
New Economics Papers: this item is included in nep-ene, nep-env and nep-reg
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Downloads: (external link)
https://www2.census.gov/ces/wp/2018/CES-WP-18-16.pdf First version, 2018 (application/pdf)

Related works:
Journal Article: Relative Effectiveness of Energy Efficiency Programs versus Market Based Climate Policies in the Chemical Industry (2020)
Journal Article: Relative Effectiveness of Energy Efficiency Programs versus Market Based Climate Policies in the Chemical Industry (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:cen:wpaper:18-16

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