Transaction costs of energy efficiency policy instruments

Luis Mundaca, International Institute for Industrial Environmental Economics at Lund University

Keywords

policy instruments, energy efficiency, transaction costs

Abstract

This paper identifies the nature and scale of transaction costs (TCs) under different policy instruments aimed to increase energy efficiency. It analyses three cases: a) GHG-driven initiatives, b) tradable “White Certificate” (TWC) schemes –taking the Energy Efficiency Commitment in Great Britain as a case study-, and c) energy efficiency audits given by grid companies in Denmark. The analysis focuses on TCs borne by project developers or obliged parties under these initiatives. Several sources of TCs are considered, such as search for information, persuasion of customers, negotiation with business partners, and measurement and verification (M&V) activities. Information has been obtained through a literature review, interviews with stakeholders and questionnaires. Some similarities were found as far as the nature of TCs is concerned. Relevant sources of TCs appear to be the search for information (for both potential measures and beneficiaries), negotiation and contract agreements with third parties, follow-up of measures, M&V activities and due accreditation of savings. The scale of TCs differs to a large extent, ranging from 5 % to 36 % of total audit/project costs. Figures must be taken with caution due to a number of specific factors driving their order of magnitude, including levels of uncertainty and the TCs accounting problem. Indications of economies of scale were only found for the case of GHG policy initiatives. In all, estimations are very case-specific and cannot be comparable. It is concluded that a number of endogenous and exogenous determinants affect the nature and scale of TCs for the analysed cases.