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Extramural Research

Grantee Research Project Results

Grantee Research Project Results

The Economics of Energy Market Transformation Programs

EPA Grant Number: U915383
Title: The Economics of Energy Market Transformation Programs
Investigators: Duke, Richard
Institution: Princeton University
EPA Project Officer: Just, Theodore J.
Project Period: January 1, 1998 through January 1, 2001
Project Amount: $102,000
RFA: STAR Graduate Fellowships (1998)
Research Category: Academic Fellowships , Economics and Decision Sciences , Fellowship - Economics and Business



The objective of this research project is to develop a dynamic, benefit-cost model and apply it to the World Bank Group's Photovoltaic Market Transformation Initiative (PVMTI), the U.S. Environmental Protection Agency's (EPA) Green Lights (GL) Program, and the federal gasoline excise tax exemption for ethanol.


This research project, designed in conjunction with my advisor Professor Daniel M. Kammen, evaluates three energy-sector market transformation programs: the U.S. EPA's ongoing GL Program to promote on-grid efficient lighting, the World Bank Group's new Photovoltaic Market Transformation Initiative (PVMTI), and the federal tax subsidy to support grain ethanol. We developed a benefit-cost model that uses experience curve theory to estimate unit cost reductions as a function of cumulative production experience. This novel methodology for assessing market transformation programs assumes an isoelastic demand schedule and calculates indirect demand effects based on the induced price differential. Accounting for dynamic feedback between the demand response and learning substantially raises the benefit-cost ratio (BCR) of the first two programs. The BCR of the ethanol program, however, is approximately zero, illustrating a technology for which a market transformation program was not justified. Our results support a broader role for market transformation programs to commercialize new environmentally attractive technologies, but the ethanol experience suggests moderately funding a broad portfolio of technologies that meet strict selection criteria.

Supplemental Keywords:

fellowship, Photovoltaic Market Transformation Initiative, PVMTI, Green Lights Program, federal gasoline excise tax, ethanol, benefit-cost ratio, BCR, benefit-cost model, experience curve theory, energy market., RFA, Economic, Social, & Behavioral Science Research Program, Scientific Discipline, Economics, Economics and Business, Atmospheric Sciences, Sociology, Market mechanisms, Social Science, market-based mechanisms, market transformation programs (MTPs), energy sector MTPs, energy efficiency, anthropogenic emissions, joint implementation MTPs

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The perspectives, information and conclusions conveyed in research project abstracts, progress reports, final reports, journal abstracts and journal publications convey the viewpoints of the principal investigator and may not represent the views and policies of ORD and EPA. Conclusions drawn by the principal investigators have not been reviewed by the Agency.

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