Self-financed efficiency incentives: case study of Mexico

Abstract

Numerous countries use public funds to subsidize residential electricity for a variety of socioeconomic objectives. These subsidies lower the value of energy efficiency to the consumer while raising it for the government. Further, while it would be especially helpful to have stringent Minimum Energy Performance Standards (MEPS) for end uses in this environment, they are hard to strengthen without imposing a cost on ratepayers. In this second-best world, where the presence of subsidies limits the government's ability to strengthen standards, we find that efficiency-induced savings in subsidy payments can be a significant source of financing for energy efficiency incentive programs. Here, we introduce the Lawrence Berkeley National Laboratory (LBNL) Energy Efficiency Revenue Analysis (LEERA) model to estimate the greatest appliance efficiency improvements that can be achieved in Mexico by the revenue neutral financing of incentive programs from savings in subsidy payments yielded by the same efficiency improvements. We analyze Mexico's tariff structures and the long-run marginal cost of supply to calculate the marginal savings for the government from appliance efficiency. We find that these avoided subsidy payments alone can provide enough revenue to cover the full incremental manufacturing cost of refrigerators that are 29 % more efficient and televisions that are 36 % more efficient than baseline models. For room air conditioners (ACs), the same source of financing can contribute up to one third of the incremental manufacturing cost of a model that is 10 % more efficient than baseline. We analyze the sensitivity of our results to the most important parameters and find our main conclusion that efficiency-induced avoided subsidy payments will contribute significantly to financing efficiency incentive programs in Mexico to be significant and robust.

Application of best practice for setting minimum energy efficiency standards in technically disadvantaged countries: Case study of Air Conditioners in Brunei Darussalam

“…Assuming the MEPS is set at a high end of 3.34, the maximum increase of equipment costs, given everything else, including brand is equal, is BN$ 238.7 (1US$ = BN$1.25), about 0.86% and 1.97% of annual household expenditure of the average household and the lowest income household, respectively (Table 8). This low percentage demonstrated that first cost barrier to EE products, which are prevailing in the literature [42], is unlikely to present in Brunei.…”

“…This is expected since electricity is heavily subsidized. The avoided subsidy payment may be able to cover the full incremental manufacturing costs of more efficient products and thus the government could promote market transformation without additional costs and without change of electricity subsidy policy [42]. That is to say, the government can redistribute some of its fiscal benefits to consumers through such policy as rebate or subsidies for energy efficient products.…”

Lessons Learned From Incentives Programs for Efficient Air Conditioners: A Review

“…In Mexico, for example, where electricity tariffs are heavily subsidized, the federal government saves, for each kilowatt hour (kWh) saved by efficiency, the subsidies that would have been spent on that energy. LBNL developed the Energy-Efficiency Revenue Analysis (LEERA) model to calculate the subsidy savings for different levels of efficiency in specific appliances, including ACs (Gopal et al, 2014). Table 6 shows the benefits that can be quantified as part of a cost-benefit analysis.…”

Rational and efficient energy use programs in Non-Interconnected Zones in Colombia: a system dynamics analysis

“…International experiences have shown that applying government subsidies focused on improving the EE of communities with high consumption and/or scarce resources generates immediate improvements (Gopal et al, 2014;Nie et al, 2021;Spyridaki et al, 2020). This is achieved by replacing old appliances with energy-efficient ones and changing consumption habits.…”