Energy Efficiency

, Volume 7, Issue 1, pp 1–22

Evaluating the risks of alternative energy policies: a case study of industrial energy efficiency

  • Marilyn A. Brown
  • Paul Baer
  • Matt Cox
  • Yeong Jae Kim
Original Article

Abstract

Numerous studies have shown the potential for US manufacturing to cut its energy costs by installing more efficient equipment that offers competitive payback periods, but the realization of this potential is hindered by numerous obstacles. This paper evaluates seven federal policy options aimed at revitalizing US manufacturing by improving its energy economics while also achieving environmental and energy reliability goals. 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. Future research needs to examine the macroeconomic consequences of the choice between a lethargic approach to energy waste and modernization in manufacturing versus a vigorous commitment to industrial energy productivity and innovation as characterized by the suite of policies described in this paper.

Keywords

Industrial energy efficiency Energy policy Risk analysis Monte Carlo simulation 

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Copyright information

© Springer Science+Business Media Dordrecht 2013

Authors and Affiliations

  • Marilyn A. Brown
    • 1
  • Paul Baer
    • 1
  • Matt Cox
    • 1
  • Yeong Jae Kim
    • 1
  1. 1.School of Public PolicyGeorgia Institute of TechnologyAtlantaUSA

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