Lanterna Rally

Author: Anant Sudarshan

Publisher: Stanford University

Published: 2011

Total Pages: 198

ISBN-13:

California's energy efficiency policies and energy use patterns have attracted widespread national and international interest. Over the last three decades, the state has implemented a variety of regulatory and legislative measures aimed at reducing the demand for energy, through encouraging more efficient consumption. In a startling contrast to the nation as a whole, the state electricity consumption per capita has stayed relatively steady since 1970. A comparative graph of the state and national electricity intensities is called the Rosenfeld Curve, named after the influential former Commissioner of the California Energy Commission. This thesis examines the structural determinants of electricity consumption with a view to answering the question -- What fraction of the state-nation difference in electricity consumption intensity might reasonably be attributed to policy interventions? I begin with a simple decomposition analysis of the residential, industrial and commercial sectors, using empirical data from a variety of sources. I find that over two-thirds of the difference between state and national energy intensity may be attributed to structural factors that are independent of policy interventions, leaving a smaller, unexplained portion that could owe to program interventions (a share that has increased over time). I next consider the residential sector in detail, a topic that is the primary focus of my thesis. I describe residential consumption of electricity and secondary heating fuels, using a structural model of household energy demand estimated using micro-data from the period between 1993 and 2005. In doing so, I account for heterogeneity in household types in the population. After controlling for structural factors such as climate, I find evidence suggesting that policy may have been particularly effective in reducing the energy needed for heating and cooling end uses. I also find evidence of increasing policy effects over the ten years between 1995 and 2005. Additionally, the model suggests that incentive compatibility considerations may have resulted in inefficiently high energy consumption in rented dwellings. Overall, the econometric model indicates about 20 percent of the state nation difference in the residential sector may owe to program effects. These results are interesting as a retrospective look at the California experience, but more importantly as a benchmark of what might reasonably be expected from energy efficiency elsewhere in the world. They also underline the importance of using counterfactual policy evaluation techniques instead of comparisons of aggregate statistics in understanding policy impact.