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Title: Energy Efficiency Under Alternative Carbon Policies. Incentives, Measurement, and Interregional Effects

In this report, we examine and compare how tradable mass-based polices and tradable rate-based policies create different incentives for energy efficiency investments. Through a generalized demonstration and set of examples, we show that as a result of the output subsidy they create, traditional rate-based policies, those that do not credit energy savings from efficiency measures, reduce the incentive for investment in energy efficiency measures relative to an optimally designed mass-based policy or equivalent carbon tax. We then show that this reduced incentive can be partially addressed by modifying the rate-based policy such that electricity savings from energy efficiency measures are treated as a source of zero-carbon generation within the framework of the standard, or equivalently, by assigning avoided emissions credit to the electricity savings at the rate of the intensity target. These approaches result in an extension of the output subsidy to efficiency measures and eliminate the distortion between supply-side and demand-side options for GHG emissions reduction. However, these approaches do not address electricity price distortions resulting from the output subsidy that also impact the value of efficiency measures. Next, we assess alternative approaches for crediting energy efficiency savings within the framework of a rate-based policy. Finally, we identify amore » number of challenges that arise in implementing a rate-based policy with efficiency crediting, including the requirement to develop robust estimates of electricity savings in order to assess compliance, and the requirement to track the regionality of the generation impacts of efficiency measures to account for their interstate effects.« less
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  1. National Renewable Energy Laboratory (NREL), Golden, CO (United States)
Publication Date:
OSTI Identifier:
Report Number(s):
Resource Type:
Technical Report
Research Org:
National Renewable Energy Laboratory (NREL), Golden, CO (United States)
Sponsoring Org:
U.S. Department of Energy Office of Energy Policy and Systems Analysis, Washington, DC (United States)
Country of Publication:
United States
29 ENERGY PLANNING, POLICY, AND ECONOMY energy efficiency; electricity; policy; regulation; climate; carbon