“The [Federal Energy Regulatory] Commission’s recent progress in promoting competitive wholesale energy markets has the potential to be undone as a result of this well-meaning, but misguided Rule.”
– FERC Commissioner Philip Moeller, “Demand Response Compensation in Organized Wholesale Energy Markets,” Order No. 745 (2011).
Renewable energy subsidies are at the forefront of the public policy debate with constant talk of “green” jobs and the looming expiration of the production tax credit, a familiar subject at this blogsite. But qualifying renewables get other subsidies too, such as accelerated depreciation and state-level must-buy mandates.
The Federal Energy Regulatory Commission (FERC), regulating interstate electricity, is arguably subsidizing another favorite “green” resource – the practice of energy abstinence called “demand response.”
FERC Order Nos. 745 and 745-A established, for the first time, a uniform compensation scheme for demand response in organized electricity markets.…
“Perhaps the main failure of rationality is that of the regulators themselves.”
-Ted Gayer and W. Kip Viscusi, authors, Overriding Consumer Preferences with Energy Regulations
In a working paper for the Mercatus Center titled Overriding Consumer Preferences with Energy Regulations, economists Ted Gayer and W. Kip Viscusi examine several energy use regulations and the accompanying Benefit-Cost Analyses (BCAs). They find the regulations would not pass a BCA (provide net benefits) without two assumptions: first, that individuals make systematic and financially significant mistakes in their energy consumption choices, and second, that government policies can correct these mistakes.
The regulations cited in the paper include mileage requirements for vehicles and energy efficiency standards for household appliances and light bulbs. The BCA numbers are telling – the authors show, for example, that the vast majority (about 85 percent) of the estimated benefits of the mileage requirements proposed in 2011 accrue to the individual user, mostly in the form of avoided fuel costs.…
Energy efficiency and energy savings are considered to be intrinsically good. Politicians of all stripes sing the praises of less-is-more. Only one problem: this view is simplistic and wrong from the economic point of view.
Energy efficiency is so central to the current energy conversation that to criticize it is to take on the unenviable role of the contrarian or, as some have called me, the curmudgeon. In a recent paper, Roy Cordato of the John Locke Foundation happily takes on the role of critic as he dissects energy efficiency as a policy goal.
Dr. Cordato states in part:
…It seems that no matter what governments at any level do, from building buildings to formulating and implementing legislation, “energy efficiency” has to be a consideration…. The problem is that the term, as defined by those who embrace it as a policy guide, is focused strictly on saving energy even if it means sacrificing overall economic efficiency.