What Does Utility-Subsidized Energy Efficiency Really Cost?

Analysis indicates that the true costs of utility-subsidized electricity conservation are often significantly higher than the costs reported by utilities and, in turn, are significantly higher than those suggested by widely cited TP studies. In addition, the experience of utilities with careful measurement programs indicates that the magnitude of energy savings achievable through their programs is substantially smaller than assumed by the TP studies. These findings do not imply that policies that promote energy conservation are undesirable. Real barriers do exist in energy markets and are a legitimate concern of public policy. Results do suggest that utility programs will provide much smaller environmental and economic gains than have been suggested by many studies. Furthermore, many improvements in cost accounting, monitoring, and savings estimation are required to measure costs and savings accurately. The current policy emphasis on utility subsidy programs, and the often complex and costly bureaucratic planning procedures associated with them, is therefore misplaced. Public policy should instead by focused on other measures to ameliorate real market barriers and, in general, to promote well-functioning energy markets.