Transaction costs analysis of low-carbon technologies

Transaction costs (TCs) must be taken into account when assessing the performance of policy instruments that create markets for the diffusion and commercialization of low-carbon technologies (LCTs). However, there are no comprehensive studies on the development and application of transaction cost analysis to LCTs. In this meta-analysis, a wide-ranging evaluation of TCs associated with energy efficiency, renewable energy, and carbon market technologies is provided. There is a plethora of different definitions of, and measurement techniques to estimate, TCs. There is wide variation in the quantitative estimates, which can be attributed to factors such as the definition used, data collection, quantification methods, the type and size of technologies, the regulatory frameworks, the complexity of transactions, and the maturity of policy instruments. It is concluded that TCs are highly specific to both LCTs and policy instruments and that a common methodological approach is needed to avoid misleading policy analysis of the extant and future assessments. Policy relevance Transaction costs (TCs) accrued by, for instance, the search for information, due diligence, monitoring and verification (M&V) activities, must be considered in the design, implementation, and assessment of policy instruments. Such costs can have a negative effect on the performance of policy instruments aimed at the diffusion and commercialization of low-carbon technologies. It is shown here that TC analysis is mostly technology and policy context-specific and hence that it is not advisable to make generalizations about sources and estimates. The nature and scale of TCs are likely to differ due to a variety of endogenous determinants (e.g. size and performance of technologies), exogenous drivers (e.g. regulatory policy frameworks), and methodological aspects (e.g. quantification techniques). Several measures and strategies have the potential to reduce TCs, including standardized full cost accounting systems, an ex ante M&V approach, project bundling, and streamlining of procedures.

[1]  Ernst Worrell,et al.  ADVANCES IN ENERGY FORECASTING MODELS BASED ON ENGINEERING ECONOMICS , 2004 .

[2]  Malcolm Rutherford.  Institutional Economics: Its Place in Political Economy , 1989 .

[3]  O. Williamson.  Transaction Costs and Property Rights , 2001 .

[4]  N. Nakicenovic,et al.  Global Energy Assessment – Toward a Sustainable Future , 2012 .

[5]  Jayant Sathaye,et al.  Market Failures, Consumer Preferences, and Transaction Costs in Energy Efficiency Purchase Decisions California Energy Commission California Climate Change Center Report Series Number 2005-010 California Energy Commission Public Interest Energy Research (pier) Program List of Figures List of Tables , 2004 .

[6]  M. Pavan,et al.  Tradable energy efficiency certificates: the Italian experience , 2008 .

[7]  Alan S. Miller.  Financing the integration of climate change mitigation into development , 2008 .

[8]  O. Williamson.  The Economics of Organization: The Transaction Cost Approach , 1981, American Journal of Sociology.

[9]  Pushpam Kumar.  Agriculture (Chapter8) in IPCC, 2007: Climate change 2007: Mitigation of Climate Change. Contribution of Working Group III to the Fourth assessment Report of the Intergovernmental Panel on Climate Change , 2007 .

[10]  J. Ward,et al.  Encouraging Participation in Market Based Instruments and Incentive Programs , 2008 .

[11]  Mark Jaccard,et al.  Hybrid Modeling: New Answers to Old Challenges Introduction to the Special Issue of The Energy Journal , 2006 .

[12]  R. Coase,et al.  The Problem of Social Cost , 1960, The Journal of Law and Economics.

[13]  S. Connolly,et al.  Economics of the Public Sector , 1999 .

[14]  Staffan Jacobsson,et al.  Are tradable green certificates a cost-efficient policy driving technical change or a rent-generating machine? Lessons from Sweden 2003–2008 , 2010 .

[15]  Juan-Pablo Montero,et al.  Marketable pollution permits with uncertainty and transaction costs , 1998 .

[16]  Mark Jaccard,et al.  Energy efficiency and the cost of GHG abatement: A comparison of bottom-up and hybrid models for the US , 2011 .

[17]  L. G. Hein,et al.  Transaction costs of energy efficiency improvement , 1995 .

[18]  O. Williamson.  The Vertical Integration of Production: Market Failure Considerations , 1971 .

[19]  Gabrial Anandarajah,et al.  Pathways to a Low-Carbon Economy , 2009 .

[20]  D. Victor,et al.  A Realistic Policy on International Carbon Offsets , 2008 .

[21]  Alan H. Sanstad,et al.  DISCOUNT RATES AND ENERGY EFFICIENCY , 1995 .

[22]  Arnold Schwarzenegger,et al.  MARKET FAILURES, CONSUMER PREFERENCES, AND TRANSACTION COSTS IN ENERGY EFFICIENCY PURCHASE DECISIONS , 2005 .

[23]  Thomas Bruckner,et al.  Policy, financing and implementation , 2011 .

[25]  O. Williamson.  Transaction Cost Economics and Organization Theory , 1993 .

[26]  Tim Hoffmann,et al.  Challenges for investment in renewable electricity in the European Union. Background report in the ADMIRE REBUS project , 2003 .

[27]  B. Jones.  BOUNDED RATIONALITY , 1999 .

[28]  O. Williamson.  Transaction Cost Economics: The Natural Progression † , 2010 .

[29]  Robert N. Stavins,et al.  Transaction Costs and Tradeable Permits , 1995 .

[30]  Joan V. Robinson,et al.  The Nature of the Firm , 2004 .

[31]  Ann Wolverton,et al.  Energy-Efficiency Gap* , 2013 .

[32]  Additionality, Transactional Barriers and the Political Economy of Climate Change , 1998 .

[33]  L. Mundaca.  Transaction Costs of Energy Efficiency Policy Instruments , 2007 .

[34]  R. Matthews,et al.  The Economics of Institutions and the , 1986 .

[35]  Bhagwan Shree Ram,et al.  Entrepreneurship in the Environmentally Friendly and Economically Sound Renewable Energy Conversion System , 2012 .

[36]  J. Schleich,et al.  EU emissions trading and transaction costs for small and medium sized companies , 2004 .

[37]  Thomas Sterner,et al.  Economic Efficiency of Compulsory Green Electricity Quotas in Sweden , 2004 .

[38]  Paul L. Joskow,et al.  What Does a Negawatt Really Cost? Evidence from Utility Conservation Programs , 1992 .

[39]  Bruce P. Chadwick.  Transaction costs and the clean development mechanism , 2006 .

[40]  Jeffrey T. Macher,et al.  Transaction Cost Economics: An Assessment of Empirical Research in the Social Sciences , 2006, Business and Politics.

[41]  Global Energy Assessment Writing Team.  Global Energy Assessment: Toward a Sustainable Future , 2012 .

[42]  C. Hepburn,et al.  Auctioning of EU ETS phase II allowances: how and why? , 2006 .

[43]  O. Williamson.  Transaction-Cost Economics: The Governance of Contractual Relations , 1979, The Journal of Law and Economics.

[44]  Douglass C. North,et al.  Perspectives on Positive Political Economy: Institutions and a transaction-cost theory of exchange , 1990 .

[45]  Pablo del Río,et al.  Encouraging the implementation of small renewable electricity CDM projects: An economic analysis of different options , 2007 .

[46]  Vlasis Oikonomou,et al.  Tradable white certificate schemes: what can we learn from tradable green certificate schemes? , 2008 .

[47]  Benjamin K. Sovacool,et al.  The policy challenges of tradable credits: A critical review of eight markets , 2011 .

[48]  Axel Michaelowa,et al.  Transaction costs of the Kyoto Mechanisms , 2003 .

[49]  F. Convery,et al.  Transaction costs for firms in the EU ETS: lessons from Ireland , 2010 .

[50]  P. Bhatia,et al.  The greenhouse gas protocol : a corporate accounting and reporting standard , 2001 .

[51]  S. Jayaraj,et al.  Clean development mechanism as a solution to the present world energy problems and a new world order: a review , 2014 .

[52]  Tobias S. Schmidt,et al.  Performance of renewable energy technologies under the CDM , 2010 .

[53]  A. Jaffe,et al.  The energy-efficiency gap What does it mean? , 1994 .

[54]  E. Usher.  Mobilising Finance For Renewable Energies , 2004 .

[55]  Leslie A. Solmes.  Energy Service Companies , 2009 .

[56]  Yannick Perez,et al.  The social efficiency of instruments of promotion of renewable energies: A transaction-cost perspective , 2007 .

[57]  Axel Michaelowa,et al.  Transaction costs, institutional rigidities and the size of the clean development mechanism , 2005 .

[58]  O. Rentz,et al.  The impact of private investor's transaction costs on the cost effectiveness of project-based Kyoto mechanisms , 2003 .

[59]  Luis Mundaca,et al.  Transaction costs of Tradable White Certificate schemes: The Energy Efficiency Commitment as case study , 2007 .

[60]  Paul L. Joskow,et al.  The Role of Transaction Cost Economics in Antitrust and Public Utility Regulatory Policies , 1991 .

[61]  S. Masten,et al.  The Costs of Organization , 1991 .

[62]  O. Langniss.  Governance structures for promoting renewable energy sources , 2003 .

[63]  Tim Jeppesen,et al.  Tradable Green Certificates in selected European countries--overview and assessment , 2003 .

[64]  Matthias Krey,et al.  Transaction Costs of CDM Projects in India - An Empirical Survey , 2004 .

[65]  N. Strachan,et al.  Marginal abatement cost (MAC) curves: confronting theory and practice , 2011 .

[66]  Carl J. Dahlman.  The Problem of Externality , 1979, The Journal of Law and Economics.

[67]  Pierre Dupraz,et al.  Agri-environment contract adoption under fixed and variable compliance costs , 2009 .

[68]  H. Rodhe,et al.  CDM wind-energy projects: exploring small capacity thresholds and low performances , 2004 .

[69]  Loren Lutzenhiser,et al.  A cultural model of household energy consumption , 1992 .

[70]  J. R. Commons.  Institutional Economics: Its Place in Political Economy, Volume 2 , 1989 .

[71]  K. William Easter,et al.  Transaction cost measurement for evaluating environmental policies , 2005 .

[72]  O. Williamson,et al.  The mechanisms of governance , 1996 .

[73]  E. G. Furubotn,et al.  The New Institutional Economics of Markets , 2010 .

[74]  Thomas Sundqvist,et al.  Using the market at a cost: How the introduction of green certificates in Sweden led to market inefficiencies , 2007 .

[75]  M. Krey.  Transaction costs of unilateral CDM projects in India–results from an empirical survey , 2005 .

[76]  Auctioning of EU ETS Phase II allowances: why and how? , 2006 .

[77]  Martijn Gough.  Climate change , 2009, Canadian Medical Association Journal.

[78]  Lena Neij,et al.  Exploring Transaction Costs under the Free-of-Charge Energy Audits Programme in Denmark. , 2007 .

[79]  T. Tietenberg.  Emissions Trading: Principles and Practice , 2006 .

[80]  Don Fullerton,et al.  A Framework to Compare Environmental Policies , 2001 .

[81]  世界環境経済人協議会.  Greenhouse gas protocol : a corporate accounting and reporting standard , 2001 .