Energy for Sustainability

Randolph & Masters, 2008

Chapter 16:
Energy Policy: Market
Tranformation
Can we transform Energy Markets?
 From carbon-based to non-carbon-based
 To greater efficiency
 To more sustainable energy sources

 Can we do this quickly?

To transform Energy Markets we
need:
 The Techno-Economic Solutions:
Advances in cost-effective technologies
 The Social Solutions: Choice for
more sustainable energy by consumers,
communities, investors
 The Policy Solutions:
Energy policy to advance technology and
affect choice
 Market Transformation
 Market penetration is the portion of the consumer
market served by a product or technology.
 Achieve potential for sustainable energy
 Technical Potential is constrained by technical limits.
 Socio-Economic-Cultural Potential is cost-effective
technologies including external costs and transaction costs
 Economic Potential is S-E-C Potential minus externalities
 Market Potential is Economic Potential minus transaction
costs
 Potential Market Penetration
Cost of energy savings

Market penetration
Rogers’ Model of Adoption Diffusion
 Market Penetration of selected
technologies
* percent of
households except
airplanes (%
relative to 1996),
autos (% owned
per adults >16
yrs), cell phones
(% phones owned
per auto)
Effect of Price on Penetration

Why small & slow penetration even for

quick payback periods?
Transaction Costs
Price Reductions through Experience
 The Experience Curve describes how overall
price declines with cumulative production.
Log-Log Experience Curve
P(t) = P(0)*[q(t)/q(0)] -b

PR = 2-b

Learning Rate 18%

Different Technologies with PR
Learning Investment needed to
achieve a price break even point
Photovoiltaics Progress Ratio
Apply the concept on Large Scale

Carbon Intensity of Economy

Breakaway Path
What learning investment would be
needed for Breakaway path?
 Government Policy: the case for
Market Intervention
 Market forces are the best and most efficient means of
achieving change, but…
 …the Market is imperfect:
 Externalities: Energy prices do not reflect the full range of
costs and benefits associated with energy use
 Transaction costs: limited knowledge and information,
poor access to capital, limited time, misplaced incentives
and other market barriers,….
 Poor future-orientation: The market and consumers are
today-oriented and give low priority to future energy
problems especially when they are not felt today or are
uncertain
Market Transformation Policies
 Regulations
 Economic and Financial Measures
 Energy Planning and Information
 Capacity Building, Partnerships, and
Voluntary Action
Market Intervention and Transformation
Regulations
 Product Efficiency Standards
 Production Standards
 Utility Regulation and Market Reform
 Environmental Regulations
 Price Controls
Economic and Financial Measures
 Tax incentives and disincentives
 Financing Assistance and Risk Insurance
 Research and Development Funding
 Procurement
 Energy Assistance
 Energy Planning and Information
 Energy Planning
 Information and Training

Capacity Building, Partnerships, and

Voluntary Action
 Voluntary Agreements and Partnerships
 Capacity Building and Civil Society
 Pitfalls and Critique of Policies for Efficiency

 The “rebound effect” will erode energy savings.

 The economy-wide effect will also erode energy savings.
 Most energy savings would happen anyway due to technical advances or
rising energy prices.
 Discount rates used to justify energy efficiency policies and programs are too
low
 Rate- or taxpayer-funded energy efficiency programs are an unfair subsidy
that hurts non-participants and low-income households.
 Energy efficiency programs are much less effective than their proponents
claim.
 The market failures frequently used to justify energy efficiency programs are
mostly a myth.
 Energy savings are impossible to meter and too difficult to estimate
accurately
 Energy efficiency is a failure because energy use has been increasing.
Energy up but not as much as it would be
without efficiency policies
 The Social Solutions
 Energy Politics to achieve effective policy
 Policy development is a political process
 Sustainable energy as a Social Movement
 Consumer Values and Choice
 We need more than technology, the market, and
policy to achieve sustainable energy, because:
 The efficiency conundrum: greater efficiency  more
consumption (the rebound effect is not as great as
critics contend, but it is real)
 The technology/market/policy forces are slow
 No end to increase in consumption per capita? More
and bigger houses, cars, stuff…
Two Paths: which more likely?

 70 GJ/cap-yr needs for basic needs; we now average 75

 …but it ranges from 1 to 400; U.S. is 359, European 185
 Can we expand global energy by 8x current consumption to
meet a future global demand at U.S. per capita use or even
4x at European use? A difficulty problem

 Can we reduce energy consumption per capita among the

world’s affluent without diminishing quality of life, in order to
accommodate the rising per capita needs of the poor in an
energy constrained world A wicked problem

 Will people voluntarily choose to be satisfied?