Evaluating the Risks of Alternative Energy Policies: A Case Study of Industrial Energy Efficiency

Numerous studies have shown the potential for U.S. manufacturing to cut its energy costs by installing more efficient equipment that offer competitive payback periods, but the realization of this potential is hindered by numerous obstacles. This paper evaluates seven federal policy options aimed at revitalizing U.S. manufacturing by improving its energy economics while also achieving environmental and energy reliability goals.

Figure. Industrial Energy-Efficiency Policy Options

Traditionally, policy analysts have examined the cost-effectiveness of energy policies using deterministic assumptions. When risk factors are introduced, they are typically examined using sensitivity analysis to focus on alternative assumptions about budgets, policy design, energy prices, and other such variables. In this paper we also explicitly model the stochastic nature of several key risk factors including future energy prices, damages from climate change, and the cost of criteria pollutants.

Using these two approaches, each policy is “stress tested” to evaluate the likely range of private and social returns on investment. Overall we conclude that the societal cost-effectiveness of policies is generally more sensitive to alternative assumptions about damages from criteria pollutants and climate change compared with energy prices; however, risks also vary across policies based partly on the technologies they target.

 Figure. Sensitivity Analysis of Key Risk Factors Using Social Benefit-Cost Ratios

*This research project is forthcoming. Release date is expected to be announced shortly. 

Researchers:

  • Dr. Marilyn A. Brown: marilyn.brown [at] pubpolicy.gatech.edu
  • Dr. Paul Baer: paul.baer [at] gatech.edu
  • Matt Cox: Matt.Cox [at] gatech.edu

  • Yeong Jae Kim: ykim445 [at] gatech.eduu

Citations:

  • Brown, Marilyn A., Paul Baer, Matt Cox, and Jae Kim. 2014. “Evaluating the Risks of Alternative Energy Policies: A Case Study of Industrial Energy Efficiency,” Energy Efficiency, 7(1): 1–22.
  • Brown, Marilyn A., Rodrigo Cortes and Matthew Cox. 2011. “Reinventing Industrial Energy Use in a Resource-Constrained World” in Fereidoon Sioshansi (ed.) Energy Sustainability and the Environment (Elsevier Press), Chapter 8, pp. 337-366.
  • Jackson, Roderick K., Brown, Marilyn A., and Matt Cox.  2011. “Policy Analysis of Incentives to Encourage Adoption of the Superior Energy Performance Program,” Proceedings of the ACEEE Summer Study on Energy Efficiency in Industry, July 24, Niagara Falls, NY, pp. 4-90 – 4-101.
  • Benjamin Deitchman, Marilyn Brown, and Paul Baer. 2011. “Green Jobs from Industrial Energy Efficiency,” Proceedings of the American Council for an Energy Efficient Economy (ACEEE) Summer Study on Energy Efficiency in Industry, July 23, Niagara Falls, NY, pp. 6-27 – 6-38.
  • Brown, Marilyn A., Roderick Jackson, and Matt Cox. 2011. “Expanding the Pool of Federal Policy Options to Promote Industrial Energy Efficiency,” Proceedings of the ACEEE Summer Study on Energy Efficiency in Industry, July 24, Niagara Falls, NY, pp. I-24 to I-35, http://aceee.org/files/proceedings/2011/data/papers/0085-000016.pdf.
  • Jackson Roderick K., Brown, Marilyn A., and Matt Cox.  2011. “Policy Analysis of Incentives to Encourage Adoption of the Superior Energy Performance Program,” Proceedings of the ACEEE Summer Study on Energy Efficiency in Industry, July 24, Niagara Falls, NY, pp. 4-90 – 4-101.
  • Cox, Matt, Marilyn Brown and Roderick Jackson. 2011. “Regulatory Reform to Promote Clean Energy: The Potential of Output-Based Emissions Standards,” Proceedings of the ACEEE Summer Study on Energy Efficiency in Industry,July 24, Niagara Falls, NY, pp. I-57 – I-67.