Measuring the Contribution to the Economy of Investments in Renewable Energy: Estimates of Future Welfare Gains by Molly Macauley*, Joel Darmstadter*, Jhih-Shyang Shih*, Emily Aronow*, David Austin**, and Tom Bath*** We thank the U.S. Department of Energy, Office of Energy Efficiency and Renewable Energy, for their support. * Resources for the Future **now at the U.S. Congressional Budget Office *** independent engineering consultant
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by Molly Macauley*, Joel Darmstadter*, Jhih-Shyang Shih*,
Measuring the Contribution to the Economy of Investments in Renewable Energy: Estimates of Future Welfare Gains. by Molly Macauley*, Joel Darmstadter*, Jhih-Shyang Shih*, Emily Aronow*, David Austin**, and Tom Bath*** - PowerPoint PPT Presentation
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Measuring the Contribution to the Economy of Investments in
Renewable Energy: Estimates of Future Welfare Gains
by
Molly Macauley*, Joel Darmstadter*, Jhih-Shyang Shih*,
Emily Aronow*, David Austin**, and Tom Bath***
We thank the U.S. Department of Energy, Office of Energy Efficiency and Renewable Energy, for their support.
* Resources for the Future
**now at the U.S. Congressional Budget Office
*** independent engineering consultant
http://www.rff.org/disc_papers/PDF_files/0205.pdf
Approach
• Theoretical Framework
Cost-index based measure of expected consumer welfare gains from innovation
Use of counterfactual and its own technological change
Derived demand for renewable energy technologies: illustration of net surplus change with external costs
Derivation of estimating relationships
C*dt = E* (udt, Pdt, Wdt)
E* (udt, PI , WRE)
and C*I = E* (uI, Pdt, Wdt) (1)
E* (uI, PI , WRE)
½ ln (C*dt x C*I )=½ (sdt+sI) ln (Wdt/ WRE) (2)
(Bresnahan, AER 1986)
WRE = WI + (1- ) Wdt (3)
$Exp exp
Cost Index
Cost Index C*
E*(u,Wdt)
E*(u, )
WRE)
Utility u*dt u*I
C*I C*dt
0
1
Relationship between expenditures, cost index
Using the index to estimate the present value of consumer surplus
Interpretation of the index: “how much better off are we (that is, society in general) as a result of investment in renewables, taking into account the alternative (conventional technology) and differences in the social benefits and costs between renewables and conventional technology?”
estimates-- Variable portfolio weights can yield positive surplus estimates but smaller than single technology surplus estimates
Conclusions
• Limits
-- Pairwise or exogenously specified portfolio comparisons rather than optimization
-- Data gaps (external effects) and assumptions (“GenCo”; deregulation; state/local policies)
-- Gross not net of public and private investment or other expenditures to attain cost goals, adoption rates
Conclusions, continued
• Findings
-- Large differences among technologies
-- Regional differences
-- Adoption push
-- Externality internalization
-- Useful estimates result from model
Conclusions, continued• Contribution
-- Offers conceptually grounded measurement approach; alternative to data-intensive econometric models; appeal of “cost index” analogy with Consumer Price Index; tool for program managers -- Allows for uncertainty, externalities, policy simulation-- Could extend to include “green preferences” (data? Are they verified?); state and local policies-- Could extend to NRC-defined benefits including commercialization, knowledge, option values