(Georgia Institute of Technology, 2012-01)
Brown, Marilyn A.; Baer, Paul; Cox, Matthew; Kim, Yeong Jae
Numerous studies have shown the potential for U.S. manufacturing to cut its energy costs by installing more efficient equipment that offer competitive payback periods, but the realization of this potential is hindered by numerous obstacles. This paper evaluates seven federal policy options aimed at revitalizing U.S. 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 focused 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.
(Georgia Institute of Technology, 2011-10)
Brown, Marilyn A.; Cox, Matthew; Baer, Paul
Improving the energy economics of manufacturing is essential to revitalizing the industrial base of advanced economies. This paper evaluates a federal policy option aimed at promoting industrial cogeneration – the production of heat and electricity in a single energy-efficient process. Detailed analysis using the National Energy Modeling System and spreadsheet calculations suggest that industrial cogeneration could meet 18% of U.S. electricity requirements by 2035, compared with its current 8.9% market share. Substituting less efficient utility-scale power plants with cogeneration systems would produce numerous economic and environmental benefits, but would also create an assortment of losers as well as winners. Multiple perspectives to benefit/cost analysis are therefore valuable. Our results indicate that the federal cogeneration policy would be highly favorable to manufacturers and the public sector, cutting energy bills, generating billions of dollars in electricity sales, making producers more competitive, and reducing pollution. Traditional utilities, on the other hand, would likely lose revenues. From a public policy perspective, deadweight losses would be introduced by market-distorting federal incentives (ranging annually from $30 to $150 million), but these losses are much smaller than the estimated net social benefits of the federal cogeneration policy.