Efficiency and Distributional Impacts of Tradable White Certificates Compared to Taxes, Subsidies and Regulations

Tradable White Certificates (TWC) schemes, also labelled Energy-Efficiency Certificates schemes, were recently implemented in Great Britain, Italy and France. Energy suppliers have to fund a given quantity of energy efficiency measures, or to buy so-called "white certificates" from other suppliers who exceed their target. We develop a partial equilibrium model to compare TWC schemes to other policy instruments for energy efficiency, i.e., energy taxes, subsidies on energy-saving goods and regulations fixing a minimum level of energy-efficiency. The model features an endogenous level of energy service and we analyse the influence of the substitutability between energy and energy-saving goods to produce the energy service, as well as the influence of the elasticity of demand for the energy service. We show that if the level of energy service consumption is fixed, a TWC scheme is as efficient as an energy tax, but that it is much less otherwise because it does not provide the optimal incentive to reduce the consumption of energy service. This inefficiency is worsened if energy suppliers' targets are fixed rather than proportional to the suppliers' current output. On the other hand, compared to taxes, a TWC scheme allows reaching a given level of energy savings with a lower increase in the consumers' energy price, which may ease its implementation.Energy Saving Policies, Energy-Efficiency Certificates, White Certificates, Rebound Effect

On the Road to a Unified Market for Energy Efficiency: The Contribution of White Certificates Schemes

White certificates schemes mandate competing energy companies to promote energy efficiency with flexibility mechanisms, including the trading of energy savings. So far, stylized facts are lacking and outcomes are mainly country-specific. By comparing results of British, Italian and French experiences, we attempt to identify the core determinants of their performances. We show that (i) white certificates schemes are depicted in theoretical works as mandatory subsidies on energy efficiency goods recovered by an end-use energy tax, whereby white certificates exchanges are not a central feature; (ii) at current stages, existing schemes are cost-effective and economically efficient, with large discrepancies though; (iii) the hybrid subsidy-tax mechanism seems valid but conditional to cost pass through permissions; otherwise, obliged energy companies merely promote information on the “downstream” side (i.e. at the consumer level); (iv) although white certificates exchange between different types of actors involved can be important as in Italy, trade among obliged companies is negligible; instead, flexibility sustains vertical relationships between obliged parties and “upstream” partners (i.e. installers, energy service companies). In this respect, we support the view that white certificates schemes are a policy instrument of multi-functional nature (subsidisation, information, technology diffusion), whose static and dynamic efficiency depends upon the consistency between a proper definition of long-term energy savings, the appropriate cost-recovery permission and a fine coordination with other instruments. We finally propose a four stages deployment pattern, along which fragmented markets for energy efficient technologies get closer to create a unified market delivering energy efficiency as a homogeneous good.White Certificates Schemes, Static Efficiency, Dynamic Efficiency, Vertical Organisation, Policy Coordination

European experiences with white certificate obligations: A critical review of existing evaluations

White certificate obligations impose energy savings targets on energy companies and allow them to trade energy savings certificates. They can be seen as a means of internalizing energy-use externalities and addressing energy efficiency market failures. This paper reviews existing evaluations of experiences with white certificate obligations in Great Britain, Italy and France. Ex ante microeconomic analysis find that the obligation is best modelled as a hybrid subsidy-tax instrument, whereby energy companies subsidize energy efficiency and pass-through the subsidy cost onto energy prices. Ex post static efficiency assessments find largely positive benefit-cost balances, with national differences reflecting heterogeneity in technical potentials. Compliance involved little trading between obligated parties. Whether the cost borne by obligated parties was recovered through increased energy revenue could not be ascertained. Ex post dynamic efficiency assessments find that in addition to addressing liquidity constraints through subsidies, white certificate obligations seem to have addressed informational and organisational market failures. Confidence in these conclusions is limited by the fact that no econometric analysis was performed. Yet the lack of publicly available data, a counterpart to the rationale of the instrument of harnessing private financing, makes any empirical evaluation of white certificate obligations challenging

Double Moral Hazard and the Energy Efficiency Gap

We investigate how moral hazard problems can cause sub-optimal investment in energy efficiency, a phenomenon known as the energy efficiency gap. We focus on contexts where both the seller and the buyer of an energy saving technology can take hidden actions. For instance, a home retrofit contractor may cut on the quality of installation to save costs, while the homeowner may increase her use of energy service when provided with higher energy efficiency. As a result, neither energy efficiency quality nor energy use are fully contractible. We formalize the double moral hazard problem and discuss how it can help rationalize the energy efficiency gap. We then compare two policy instruments: minimum quality standards and energy-savings insurance. Their relative efficiency depends on the balance between the monitoring costs associated with the former and the deadweight loss of the consumer's action induced by the latter. Calibrating the model to the U.S. retrofit industry, we find that at current market conditions, standards tend to outperform insurance. We also find that the welfare gains from undoing the double moral hazard are substantially larger than those from internalizing carbon dioxide externalities associated with underlying energy use

Regulating the Unknown: The Case of Cooling Technologies across Africa

The impacts of climate change and the resources to adapt to it are unequally distributed. Africa, the hottest and poorest continent, is already being adversely affected by rising temperatures; a trend that will continue. Building climate resilience is a bigger challenge in Africa than anywhere else. When it comes to climate adaptation, cooling technologies – including fans and air conditioners (AC) – have been shown to improve the quality of life. In rapidly urbanising and warming Africa, the widespread deployment of cooling technologies could save millions of lives in the coming decades. At this point, however, AC adaptation rates in Africa are only in the single digits with less than 5 %. In contrast, 88 % of households in the US, the country with one of the highest AC penetration rates, have an air conditioner. This is about to change as the number of air conditioners and cooling fans in Africa are expected to double this decade. We should therefore expect an exponential increase in the demand for electricity for these technologies in the coming decades. This raises the important question of where Africa will be on the AC energy efficiency frontier. At this point, Africa imports most of its cooling technology from global companies in China, Japan, South Korea and the US. The quality these companies choose to offer in the current African market will shape the continent’s equipment stock and electricity demand for years to come. There are currently only a few regulations in Africa encouraging the diffusion of energy-efficient cooling technologies. Worse still, there is a lack of basic information needed to introduce the right regulations. The aim of this paper is to show that consumers currently have limited access to information about the energy consumption of the cooling technologies available in Africa. To demonstrate this, the authors built a novel database by scraping Africa’s largest e-commerce platform in 13 different countries over a period of more than three years. Overall, it was found that less than 10 % of all ACs offered (N = 1382) have information related to energy consumption. In addition, we discovered that the disclosure of this information is highly idiosyncratic and does not appear to have strategic goals. In particular, it is unlikely that only the most efficient AC models would provide the information and that the communication of energy information in the market would occur without government intervention

Energy saving obligations—cutting the Gordian Knot of leverage?

International audienceBetter leverage of public funding is essential in order to trigger the invest-ment needed for energy efficiency. In times of austerity governments in-creasingly look at policy instruments not funded by public expenditure and Energy Savings Obligations represent one option. Because Energy Savings Obligations are paid for by all energy customers, the degree to which they are able to raise additional private capital for energy efficiency invest-ments is crucial with regard to the financial burden on consumers. In this paper, we systematically assess how successful Energy Savings Obliga-tions were in levering capital from parties other than the obligated entities including private investors and other public bodies. We analyse three countries with substantial experience with Energy Savings Obligations, identify the main design differences and the effect this has on the degree of leverage. We conclude that the design of Energy Savings Obligations largely determines the degree of leverage and that that there appears to be a trade-off between high leverage and additionality

Sensitivity analysis of an energy-economy model of the residential building sector

In this paper, we discuss the results of a sensitivity analysis of Res-IRF, an energy-economy model of the demand for space heating in French dwellings. Res-IRF has been developed for the purpose of increasing behavioral detail in the modeling of energy demand. The different drivers of energy demand, namely the extensive margin of energy efficiency investment, the intensive one and building occupants' behavior are disaggregated and determined endogenously. The model also represents the established barriers to the diffusion of energy efficiency: heterogeneity of onsumer preferences, landlord-tenant split incentives and slow diffusion of information. The relevance of these modeling assumptions is assessed through the Morris method of sensitivity analysis, which allows for the exploration of uncertainty over the whole input space. We find that the Res-IRF model is most sensitive to energy prices. It is also found to be quite sensitive to the factors parameterizing the different drivers of energy demand. In contrast, inputs mimicking barriers to energy efficiency have been found to have little influence. These conclusions build confidence in the accuracy of the model and highlight occupants' behavior as a priority area for future empirical research

Quelle efficacité des dispositifs de certificats blancs dans les politiques de maîtrise de la demande d'énergie ?

Les dispositifs de " certificats blancs " obligent les fournisseurs d'énergie à promouvoir les économies d'énergie, soit en incitant leurs clients à investir dans des technologies efficaces (isolation, chauffage et éclairage performants, etc.), soit en achetant des certificats à un fournisseur ayant dépassé l'objectif qui lui a été attribué. Nous tentons d'établir les propriétés théoriques de ce nouvel instrument de maîtrise de la demande d'énergie et de les valider par une analyse empirique des expériences européennes. A l'aide d'un modèle microéconomique simple, nous montrons que par rapport à d'autres instruments, les certificats blancs sont un bon compromis entre l'efficacité économique et les effets redistributifs qui conditionnent leur acceptabilité. Ils présentent un fonctionnement hybride entre subvention aux équipements efficaces et taxe sur l'énergie, où la contrainte est répercutée sur le prix de l'énergie. Ces propriétés servent à éclairer l'analyse des dispositifs britannique, italien et français et de leurs résultats, qu'il convient d'opérer dans une perspective dynamique. Si le modèle ne peut expliquer certains caractères déterminants, il reproduit les tendances communes, en particulier le développement de partenariats entre les obligés et les installateurs d'équipements efficaces. L'analyse empirique montre également l'importance de l'apprentissage et de la construction de filières d'efficacité énergétique au fur et à mesure de l'exploitation des gisements d'économies d'énergie

Moral Hazard and the Energy Efficiency Gap: Theory and Evidence

We investigate how moral hazard problems can cause sub-optimal investment in energy efficiency, a phenomenon known as the energy efficiency gap. We focus on contexts where both the quality offered by the energy efficiency provider and the behavior of the energy user are imperfectly observable. We first formalize under-provision of quality and compare two policy instruments: energy-savings insurance and minimum quality standards. Both instruments are second-best, for different reasons. Insurance induce over-use of energy, thereby requiring incomplete coverage in equilibrium. Standards incur enforcement costs. We then provide empirical evidence of moral hazard in the U.S. home retrofit market. We find that for those measures, the quality of which is deemed hard to observe, realized energy savings are subject to day-of-the-week effects. Specifically, energy savings are significantly lower when those measures were installed on a Friday—a day particularly prone to negative shocks on workers’ productivity—than on any other weekday. The Friday effect explains 65% of the discrepancy between predicted and realized energy savings, an increasingly documented manifestation of the energy efficiency gap. We finally parameterize a model of the U.S. market for attic insulation and find that the deadweight loss from moral hazard is important over a range of specifications. Minimum quality standards appear more desirable than energy-savings insurance if energy-use externalities remain unpriced

Evaluation des mesures du Grenelle de l'Environnement sur le parc de logements - Rapport pour le Conseil Général du Développement Durable, ministère de l'Ecologie

La France s'est engagée à réduire les consommations d'énergie du parc des bâtiments existants de 38 % en 2020 par rapport à 2008, objectif " Grenelle -38 % ", et à diviser les émissions de CO2 par quatre en 2050 par rapport à 1990, objectif " Facteur 4 ". Pour atteindre ces objectifs, le Grenelle de l'environnement a mis en avant un certain nombre de leviers réglementaires et incitatifs. Cette étude, réalisée par le CIRED pour le compte du CGDD, a pour objectif d'analyser l'impact de ces différents instruments sur la consommation d'énergie pour le chauffage. Mesures existantes (crédit d'impôt développement durable, éco-prêt à taux zéro, réglementation thermique) et mesures supplémentaires (obligation de rénovation, contribution climat énergie) sont évaluées grâce au modèle Res-IRF du CIRED. Ce modèle prend en compte l'efficacité énergétique des logements et leur évolution dans le temps sous l'effet de rénovations ; il modélise également de façon originale les comportements de chauffage des ménages. Les premières simulations suggèrent que les politiques considérées ne suffisent pas à atteindre les objectifs ambitieux fixés par la France. Ces résultats sont sensibles aux hypothèses retenues. En introduisant des hypothèses plus optimistes (ex : prix des rénovations plus faible) et en prenant en compte des facteurs complémentaires au modèle (ex : bois), un travail de ré-estimation sur la base du modèle du CIRED a permis d'obtenir des résultats plus proches des objectifs du Grenelle