Evaluating the economy-wide effects of energy efficient lighting in the household sector of Iran

Energy efficient lighting confers significant potential in electricity demand reduction. To increase the diffusion of energy efficient lighting, an LED Replacement Lamps Program is proposed. Free of charge LED lamps are suggested to be distributed to households by government to reduce household electricity demand. Because electricity is heavily subsidized in Iran, the direct benefit of the program for the government will be avoiding the energy subsidy payments. Back-of-the-envelope benefit cost analysis suggests that if potential electricity savings are realized, the program will be profitable. However, the possible rebound effect may negatively impact the program effectiveness through partially offsetting the potential electricity savings. Therefore, the viability of the program depends on the actual electricity savings that may differ from its anticipated levels. A hybrid dynamic general equilibrium model is employed to evaluate the actual economy-wide energy savings. The model has the novelty of endogenously calculating useful energy demand (e.g. lighting, cooling). Energy demand is then derived based on end-use efficiency and useful energy demand. Model results indicate an average economy-wide rebound of 43.8%. Even though the rebound value is high, the program is shown to be profitable.