Public Policy, Technology Adoption, and Aggregate Energy Efficiency

Abstract

This research examines the factors that influence the adoption of new energy-saving technologies among U.S. manufacturing plants and explores their potential impact on aggregate energy efficiency. We conduct this analysis using two models: a conventional diffusion model and a stand-alone model of new technology adoption we develop in this paper. The latter model allows us to compute effects on aggregate efficiency based solely on adoption data.Our estimates of diffusion speed find a remarkable consistency across technologies and industries. We estimate that half the population of users adopts a new technology in roughly seven years, regardless of industry or technology. Based on a 959oconfidence interval, we estimate that at ten percent rise in energy prices would, at most, decrease the average adoption time by about one year. The obvious problem with this model is that while it explains how the diffusion of individual technologies maybe sped up, it does not address the process of developing these new technologies. In a model focused on individual technologies, this process dominates long-run behavior.Focusing instead on adoption of any technology rather than specific ones, we identify two statistically significant predictors of adoption: profitability and energy prices. Based on a 9570 confidence interval, these variables at most raise the rate of adoption by 370and 10YO, respectively, when each variable is increased by 10$ZO. In our adoption model, these increases directly translate into changes in the growth rate of energy efficiency. With an aggregate growth rate of roughly"19?0, this would indicate an increase to at most 1.1!ZO. At this rate, energy use will have fallen by 4370 instead of 39?Z0 after fifty years-a relatively small gain for fifty years of higher energy prices.From these results we draw two important policy conclusions. Since we find that profitability has a significant effect on adoption, it will be important to consider the impact of public policy on firm revenue. For example, policies that immediately raise prices without allowing firms to anticipate those changes may lead to declining adoption rates if their financial health is adversely affected. Second and more significantly, these results put a damper on the idea that technology can substantially reduce the trade-off between economic costs and environmental protection. Since energy efficiency improvements currently progress at only 1% per year, even a large increase in this growth rate will take many years to translate into significant reductions in aggregate efficiency. The only possibility for significant technology effects will be if public policy can encourage the development of large, non-incremental technologies-unlike the small, incremental technologies considered in this paper.

Advances in Energy Forecasting Models Based on Engineering Economics

“…A few studies have addressed the learning-by-doing effects by incorporating cost-development curves for power generation equipment (33)(34)(35)(36). Speed of adoption estimates using diffusion models have been made (37,38), but these have not yet made much impact on energy models.…”