No-regret Potentials in Energy Conservation: An Analysis of Their Relevance, Size and Determinants by Katrin OstertagNo-regret Potentials in Energy Conservation: An Analysis of Their Relevance, Size and Determinants by Katrin Ostertag

No-regret Potentials in Energy Conservation: An Analysis of Their Relevance, Size and Determinants

byKatrin Ostertag

Paperback | November 26, 2002

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(2) Do existing estimates of the no-regret potential stand up to are-evaluation within this framework? As a result of this analysis the size of previous estimates for no-regret potentials may be modified - in terms ofenergy savings or in financial terms. On the basis of these findings, we will approach the overriding third research question: (3) How large is the no-regret potential and what determines its size? The following chapter will provide a fuller account of the debate on no-regret potentials. This will be complemented by a detailed theory-based definition of no­ regret potentials in Chapter 2. The thesis will focus mostly on the micro-level of analysis. But we will also address the implications ofour findings for the analysis ofenergy saving measures and policies at more aggregate levels, notably within a feasibility study for adapting a model which represents the level of the national economy. The debate on no-regret potentials­ 1 origin, context, issues The term "no-regret potentials" was coined during the debate on climate change. It designates opportunities for the reduction of greenhouse gas (GHG) emissions ". . . that are worth undertaking whether or not there are climate-related reasons for doing so. " (IPCC 1996, p. 271). In the IPCC's Third Assessment Report (TAR), no­ regret potentials are increasingly equated with GHG emission reduction potentials at negative (net) costs (lPCC 2001, p. 21).
Title:No-regret Potentials in Energy Conservation: An Analysis of Their Relevance, Size and DeterminantsFormat:PaperbackDimensions:408 pagesPublished:November 26, 2002Publisher:Springer-Verlag/Sci-Tech/TradeLanguage:English

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ISBN - 10:379081539X

ISBN - 13:9783790815399

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Table of Contents

I Introduction.- Subject and research questions.- 1 The debate on no-regret potentials - origin, context, issues.- 1.1 The origin: climate change and policy responses.- 1.1.1 International and supranational policy responses.- 1.1.2 German climate policy background.- 1.2 The relevance of no-regret potentials beyond climate policy.- 1.3 Key issues in the debate on no-regret potentials.- 1.4 Focus and structure of the thesis.- 2 The issues of the no-regret controversy.- 2.1 Definition of "no-regret" potentials.- 2.1.1 The micro-level of costs and benefits.- 2.1.2 The level of energy system analysis.- 2.1.3 The level of the national economy.- 2.2 Characterisation of the conflicting views.- 2.2.1 No-regret potentials within the framework of the transformationcurve.- 2.2.2 No-regret potentials within the framework of isoquants.- II Theory-based framework for the reassessment of no-regret potentials.- Preliminary remarks.- 3 The standard theory of market failure.- 3.1 Outline of theoretical concepts.- 3.1.1 Externalities.- 3.1.2 Decreasing average costs and market concentration.- 3.1.3 Information deficiencies.- 3.1.3.1 Quality ignorance and information asymmetries.- 3.1.3.2 Market solutions to information asymmetries.- 3.1.3.3 Ignorance of utility and prices.- 3.1.3.4 Uncertainty.- 3.2 Existing evidence on market failures related to energy saving measures.- 3.2.1 Existing evidence on external effects related to energy saving measures.- 3.2.2 Existing evidence on market failure following decreasingaverage costs.- 3.2.3 Existing evidence on information deficiencies related to energysaving measures.- 3.3 Conclusions on the standard theory of market failure.- Annex to Chapter 3.- A.1 Key questions related to market failure.- A.1.1 Key questions related to externalities as a reason for market failure.- A.1.2 Key questions related to market failure following decreasing average costs.- A.1.3 Key questions on information deficiencies related to energy saving measures.- A.1.3.1 Key questions related to asymmetric quality information.- A.1.3.2 Key questions related to ignorance of utility and prices.- A.1.3.3 Key questions related to the uncertainty of energy saving measures.- A.2 Micro-economic background.- 4 Transaction cost economics.- 4.1 Transaction costs and market failure.- 4.2 Outline of transaction cost economics.- 4.2.1 Outline of the quantitative approach.- 4.2.2 Outline of the heuristic approach.- 4.2.2.1 Asset specificity.- 4.2.2.2 Uncertainty and opportunism.- 4.2.2.3 Frequency.- 4.3 Review of empirical transaction cost research.- 4.3.1 Exemplary empirical TCE research.- 4.3.2 Existing heuristic evidence of transaction costs related to energysaving measures.- 4.3.3 Existing quantitative evidence of transaction costs related toenergy saving measures.- 4.4 Conclusions about transaction costs.- Annex to Chapter 4: Key questions based on the TCE approach.- A.1 Key questions from a market failure perspective.- A.2 Key questions from a heuristic perspective.- A.3 Key questions from a quantitative perspective.- 5 Investment appraisal.- 5.1 Standard theory of investment.- 5.1.1 Data for investment appraisal.- 5.1.2 Net present value and internal rate of return.- 5.1.3 Choosing the appropriate discount rate: the Capital AssetPricing Model.- 5.1.4 Shortcomings of the standard concepts.- 5.2 Real option values.- 5.2.1 Outline of the theoretical concept.- 5.2.2 Alternative modes of operationalisation.- 5.2.3 Strengths and potential biases in real option valuation.- 5.3 Review of investment appraisal methods in "no-regret" studies.- 5.3.1 Underlying data on revenues and expenditures.- 5.3.2 Conventional investment appraisal criteria in no-regret studies.- 5.3.3 Evaluation of energy saving measures as real options.- 5.4 Conclusions on investment appraisal.- Annex to Chapter 5.- A.1 Key questions on investment evaluation.- A.1.1 Verify and re-estimate data on cash flows.- A.1.2 Re-assessment based on conventional investment criteria.- A.1.3 Assessing the no-regret potential on the basis of real option theory.- A.2 Treatment of taxes and depreciation in cash flow estimates.- 6 Complementary perspectives on the no-regret potential.- 6.1 Dynamic aspects of market failure.- 6.1.1 Results from preceding chapters.- 6.1.2 Complementary insights from the theory of diffusion.- 6.1.3 Existing evidence on dynamic market failures related to energysaving measures.- 6.2 Implications for policy evaluation.- 6.2.1 Evaluation of policy benefits and costs.- 6.2.2 Effectiveness of policy instruments.- 6.2.3 Review of policy evaluations related to the no-regret potential.- 6.3 Synopsis of further linkages between principal theoretical elements.- 6.4 Conclusions on complementary aspects.- Annex to Chapter 6: Key questions concerning complementary perspectives.- A.1 Key questions related to dynamic market failure.- A.2 Key questions related to policy evaluation.- 7 Theoretical conclusions - A typology of no-regret potentials.- 7.1 Synopsis of phenomena and causes of no-regret potentials.- 7.2 Conclusions for the empirical re-assessment of no-regret potentials.- III Empirical analyses.- Preliminary methodological remarks.- 8 Case study of electric motors.- 8.1 Review of an engineering study about electric motors.- 8.1.1 Motor electricity consumption patterns and determinants.- 8.1.2 Technical energy saving potentials.- 8.1.3 Economic energy saving potentials.- 8.1.4 Summary with respect to our typology.- 8.2 Re-evaluation at the level of phenomena of no-regret potentials.- 8.2.1 Verification and re-estimation of the data on cash-flows.- 8.2.2 Investment appraisal criteria.- 8.2.2.1 Re-assessment of the conventional NPV.- 8.2.2.2 Assessment of the sequential NPV.- 8.2.3 (Re-) Evaluation of transaction costs.- 8.2.4 Interim results regarding the level of phenomena.- 8.3 Re-evaluation at the level of causes.- 8.3.1 Market failure related to information deficiencies.- 8.3.2 Diffusion failure.- 8.4 Policy initiatives for the promotion of HEMs.- 8.4.1 Policy design and effectiveness.- 8.4.2 Policy costs.- 8.5 Summary of the re-evaluation results.- Annex to Chapter 8.- A.1 Case study on motor use in firm B.- A.1.1 Characteristics of motor stock in firm B.- A.1.2 Summary of interview topics.- A.2 Features of case study data base Ostertag, Landwehr,Thomas et al. 1998.- A.2.1 List of interviewees for the market study.- A.2.2 Summary of interview topics for the market study.- A.3 Decision trees for the sequential NPV of optimal motor choice.- 9 Case study of "Contracting".- 9.1 Contracting from the perspective of the no-regret advocates.- 9.1.1 Economic energy saving potential of residential heat contracting.- 9.1.2 Interpretation with respect to our typology.- 9.2 Re-evaluation of "first level" phenomena and causes.- 9.2.1 Verification of investment appraisal.- 9.2.2 Re-evaluation of transaction costs.- 9.2.3 Re-evaluation of 1st level causes of market failure.- 9.2.3.1 Evidence for causes of Type I and Type II.- 9.2.3.2 Evidence for causes of Type III.- 9.2.3.3 Evidence for causes of Type V.- 9.2.3.4 Conclusions about the 1st level causes of market failure.- 9.3 Contracting as an autonomous solution (2nd level).- 9.3.1 Effectiveness of contracting.- 9.3.1.1 Contracting as a remedy to X-inefficiencies.- 9.3.1.2 Contracting as a remedy to the ignorance of utility.- 9.3.1.3 Contracting as a remedy to interferences with diffusionmechanisms.- 9.3.1.4 Contracting as a remedy to excessive capital costs.- 9.3.2 Transaction costs and cost-efficiency of contracting.- 9.3.2.1 Comparative heuristic aspects of transaction costs undercontracting.- 9.3.2.2 Quantitative aspects of transaction costs under contracting.- 9.3.2.3 Impact of contracting on profitability beyond transaction costs.- 9.3.3 Evidence and remedies for causes of market failure at the 2nd level.- 9.3.3.1 Market failure related to standard energy service contracts.- 9.3.3.2 Information asymmetries on the quality of the contractor.- 9.3.3.3 Information asymmetries on the ex-post behaviour ofcontracting clients.- 9.3.3.4 Reinforcements of contracting as an autonomous solution.- 9.4 Summary and policy implications of the re-evaluation results.- Annex to Chapter 9.- A.1 Definition and critique of performance contracting.- A.2 The energy saving potential of heat contracting in residentialbuildings (re-estimation).- A.3 Economic aspects of rental housing legislation.- A.4 List of contracting projects for secondary analysis.- A.5 List of interview candidates.- A.6 Summary of interview topics.- A.6.1 Topics of interviews with technical experts.- A.6.2 Topics of interviews with contracting professionals.- A.6.3 Topics of interviews in individual contracting projects.- 10 Generalisation of case study results.- 10.1 Discussion of the case study findings.- 10.1.1 Synopsis of results.- 10.1.2 Policy implications.- 10.1.3 From case studies towards more general results.- 10.2 Possibilities for aggregation by means of the Panta Rhei model.- 10.2.1 General characteristics and key equations.- 10.2.1.1 Energy demand in households.- 10.2.1.2 Energy demand in production.- 10.2.1.3 Capital stock turnover.- 10.2.2 "Cause"-based aggregated estimation of no-regret potentials.- 10.2.2.1 Price distortions of non-energy inputs to energy savingmeasures.- 10.2.2.2 X-inefficiencies on the side of the adopter.- 10.2.2.3 Mismatch of governance structures.- 10.2.3 Explicit technology choice.- 10.3 Conclusion on the aggregation of no-regret potentials.- Annex to Chapter 10: Key features of the model "Panta Rhei".- A.1 Energy demand and related regression equations.- A.1.1 Energy demand in households.- A.1.2 Energy demand in production.- A.2 Prices, demand and production.- General conclusions.- Annex.- List of abbreviations.- List of tables.- List of figures.- References.