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2003 | Book

The debate on no-regret potentials —origin, context, issues Read chapter Read first chapter

No-regret Potentials in Energy Conservation

An Analysis of Their Relevance, Size and Determinants

Author: Dr. Katrin Ostertag

Publisher: Physica-Verlag HD

Book Series : Technology, Innovation and Policy

Included in: Professional Book Archive

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About this book

(2) Do existing estimates of the no-regret potential stand up to are-evaluation within this framework? As a result of this analysis the size of previous estimates for no-regret potentials may be modified - in terms ofenergy savings or in financial terms. On the basis of these findings, we will approach the overriding third research question: (3) How large is the no-regret potential and what determines its size? The following chapter will provide a fuller account of the debate on no-regret potentials. This will be complemented by a detailed theory-based definition of no­ regret potentials in Chapter 2. The thesis will focus mostly on the micro-level of analysis. But we will also address the implications ofour findings for the analysis ofenergy saving measures and policies at more aggregate levels, notably within a feasibility study for adapting a model which represents the level of the national economy. The debate on no-regret potentials­ 1 origin, context, issues The term "no-regret potentials" was coined during the debate on climate change. It designates opportunities for the reduction of greenhouse gas (GHG) emissions ". . . that are worth undertaking whether or not there are climate-related reasons for doing so. " (IPCC 1996, p. 271). In the IPCC's Third Assessment Report (TAR), no­ regret potentials are increasingly equated with GHG emission reduction potentials at negative (net) costs (lPCC 2001, p. 21).

Table of Contents

Frontmatter

Introduction

Frontmatter
1. The debate on no-regret potentials —origin, context, issues
Abstract
The term “no-regret potentials” was coined during the debate on climate change. It designates opportunities for the reduction of greenhouse gas (GHG) emissions “… that are worth undertaking whether or not there are climate-related reasons for doing so.” (IPCC 1996, p. 271). In the IPCC’s Third Assessment Report (TAR), no-regret potentials are increasingly equated with GHG emission reduction potentials at negative (net) costs (IPCC 2001, p. 21). In the light of considerable uncertainties surrounding climate change causes and effects, no-regret potentials play a special role in determining the dimension of precautionary policy efforts. Some argue that “…until we have a better understanding of the impacts of global warming, any response should be limited to no-regrets policies.” (Manne, Richels 1995, p. 1). In this context, the implementation of no-regret potentials is considered as a hedging strategy, balancing the risks of waiting against those of premature action.
Katrin Ostertag
2. The issues of the no-regret controversy
Abstract
According to the IPCC’s Second Assessment Report, the no-regret potential comprises measures to reduce GHG-emissions that “... are worth undertaking whether or not there are climate-related reasons for doing so.” (IPCC 1996, p. 271). In its Third Assessment Report, the definition is slightly more precise: “(...) no-regret options are those options whose benefits such as reduced energy costs and reduced emissions of local/regional pollutant equal or exceed their costs to society, excluding the benefits of avoided climate change. They are also known as negative cost options.” (IPCC 2001, p. 21). Throughout the TAR, the expression “potential emission reductions at negative (net) costs” is increasingly preferred to indicate no-regret potentials.
Katrin Ostertag

Theory-based framework for the reassessment of no-regret potentials

Frontmatter
3. The standard theory of market failure
Abstract
The theory of market failure represents a normative framework to identify instances where the level of societal welfare produced by market processes alone can be further improved. It also indicates by which type of public intervention this may be achieved. With the approach of Paretian welfare economics and the model of perfect competition, it can be shown that perfect competition will produce optimal results with regard to the static functions of the market and maximal welfare in a static perspective36. Perfect competition is, therefore, one possible reference framework to assess the performance of market processes.
Katrin Ostertag
4. Transaction cost economics
Abstract
In the debate on no-regret potentials, transaction costs are a rather controversial issue. On the one hand, the controversy concerns the level of transaction costs related to energy saving measures. Existing cost-benefit analyses for energy saving measures are often criticised for being incomplete because, allegedly, they would not fully account for transaction costs. Depending on the level of transaction costs, this negligence is more or less severe. Some studies, e. g. Sutherland (1991), hold that transaction costs are so high that they challenge favourable results of quantitative cost-benefit analyses and explain why energy-efficient technologies are not adopted. Other studies implicitly assume transactions costs to be zero (e. g. Lovins, Lovins 1991; Landwehr et al. 1996). As pointed out, e. g. by Golove and Eto (1996, p. 24) this aspect of the debate suggests a need to empirically quantify transaction costs and integrate them in the cost-benefit assessment of the measures considered.
Katrin Ostertag
5. Investment appraisal
Abstract
One of the key arguments maintained by engineers in support of the existence of no-regret potentials is the empirical identification of unexploited profitable investment opportunities which simultaneously reduce energy use and total costs. In our definition of no-regret potentials (Chapter 2) we showed that this corresponds to claiming that firms are producing in a state of inefficiency above their isoquant, such as point D in Figure 2-5 (p. 31). While the causes of why such phenomena may occur have been covered in the previous chapters (Chapters 3 and 4), investment appraisal represents the perspective of identifying a phenomenon of market failure (see Figure II-1, p. 41) and constitutes an important element in the research on no-regret potentials. It is the aim of this Chapter to provide the theoretical background necessary to examine whether the engineers’ positive economic appraisal of certain energy saving measures provides a reliable indicator for this phenomenon, and hence for the existence of a no-regret potential, and whether it stands up to a rigorous economic assessment.
Katrin Ostertag
6. Complementary perspectives on the no-regret potential
Abstract
Standard market failures, transaction cost economics and investment theory form the principal theoretical elements in our framework. This focus was chosen because it regroups many of the aspects to be analysed in the re-assessment of the no-regret potential. However, in order to complete the chain of arguments for re-assessing the size and determinants of the no-regret potential, two further perspectives need to be introduced. They concern the aspects of dynamic market failures, i. e. dynamic inefficiencies (Chapter 6.1), and policy evaluation (Chapter 6.2). The perspective of dynamic efficiency aims to assess whether unexploited profitable energy saving opportunities are, indeed, a sign of sub-optimally long lags in adoption, or whether they are a “normal” temporary phenomenon. Our discussion of policy implications lays the foundation for determining the possibility of effective and cost-efficient policy intervention. Only if this is the case, can the no-regret potential be profitably exploited.
Katrin Ostertag
7. Theoretical conclusions — A typology of no-regret Potentials
Abstract
The essence of the theoretical part of this thesis consists in a summary of the different phenomena by which no-regret potentials may manifest themselves and of the underlying causes. This summary is based on the isoquant diagram from Chapter 2 (see Figure 2-5 reproduced below), and the Tables presented in the concluding chapters on the individual theories. We re-organise the findings around the different points in the isoquant-diagram to derive a classification of “true” and “false” no-regret potentials. In total we have six possible states of the economy. Types I, III, and V represent true no-regret potentials. Types II, IV, and VI, as their logical counterparts, are false no-regret potentials according to our re-evaluation scheme. The falsity of the no-regret potentials that may appear in some studies is rooted in inappropriate criteria or incomplete data for the profitability assessment of the energy saving investment considered (Types II and VI), or it may go back to the implicit assumption that the presence of any market failure works to the detriment of energy efficiency and hence provokes a no-regret potential (Type IV). Table 7-1 gives an overview of the typology. The six individual types are described in more detail in the next section.
Katrin Ostertag

Empirical analyses

Frontmatter
8. Case study of electric motors
Abstract
Electric motors were selected for a case study for two reasons. First, we consider HEMs to be a typical example for a no-regret technology because it is widely claimed that the technical energy savings potential associated to high efficiency electric motors (HEMs) is large and that a large part of it is profitable 185. This is related to the fact that electric motors are a generic technology, which is applied in all sectors of the economy. As a consequence, a large part of Germany’s total electricity consumption can be attributed to this technology — roughly 60% or 250 TWh; in the industrial sector this share is even higher, i. e. 68% (Landwehr et al. 1996, p. 7). The second reason for choosing HEMs is a methodological one. The engineering study, cited above for the assessment of the technical and economic potential of HEMs in Germany, provides data in great detail. Therefore, the material in this study lends itself to a re-evaluation. In addition, we had privileged access to the (unpublished) data bases underlying this study.
Katrin Ostertag
9. Case study of “Contracting”
Abstract
Contracting can be briefly defined as the outsourcing of the energy management function to a specialist firm. We have chosen contracting as an example for our second case study for two major reasons. First, in the era of energy market liberalisation, the contracting market is generally expected to prosper and develop rapidly. Supposedly, this promotes energy efficiency by autonomous market forces in an economic way. Secondly, the example of contracting complements our case study of HEMs in several respects. It is widely regarded as an organisational measure for achieving energy efficiency improvements, while we discussed HEMs as a technical measure. Moreover, as a brief analysis of the contracting market in Germany shows below, a large share of the market is related to heating services in residential buildings. This complements the electricity oriented perspective and the industry focus in the first case study. Finally, while the example of HEMs provided rich evidence at the level of phenomena of no-regret measures, the interest of the contracting study lies more in the re-evaluation of causes of market failures and the possibilities of their resolution.
Katrin Ostertag
10. Generalisation of case study results
Abstract
In this chapter, we first summarise the main results from our previous theoretical and empirical analysis. This will answer two of our initially formulated research questions:
  • Do existing estimates of the no-regret potential stand up to a re-evaluation within our theoretical framework?
  • How large is the no-regret potential and what determines its size?
Katrin Ostertag
Backmatter
Metadata
Title
No-regret Potentials in Energy Conservation
Author
Dr. Katrin Ostertag
Copyright Year
2003
Publisher
Physica-Verlag HD
Electronic ISBN
978-3-642-57342-2
Print ISBN
978-3-7908-1539-9
DOI
https://doi.org/10.1007/978-3-642-57342-2