Re-assessing no-regret potentials - The example of high efficiency electric motors

Panel: Panel 2: Dynamics of Consumption

Author:
Katrin Ostertag, Fraunhofer Institute for Systems and Innovation Research (ISI)

Abstract

Energy conservation proponents, often with an engineering background, claim that a range of measures exists which allow to save energy and CO_2 at negative net costs, but that these so-called no-regret measures are not being realised autonomously by market actors. This view is being challenged by traditional economic analysis, which argues that no-regret advocates neglect transaction costs and do not apply appropriate investment appraisal methods. Furthermore, the no-regret advocates' explanations for the non-exploitation of no-regret measures are often criticised as unsubstantiated or as inconsistent with the observation of profitability, e.g. when they refer to high information costs.

This paper re-assesses the no-regret potential of high efficiency electric motors (HEM). It draws on a theoretical framework which defines criteria for identifying phenomena and causes for no-regret potentials and for distinguishing between "true" and "false" no-regret potentials. The framework combines investment theory (including real option theory), transactions cost economics, market failure theory and the theory of diffusion. The re-assessment procedure is illustrated using the example of HEM. A microeconomic re-revaluation of the profitability of HEM investments delivers the first component for determining a phenomenon of no-regret. It is followed by a discussion of causes, why HEM remain underrepresented despite their economic advantage. The existence of a no-regret potential related to HEM is confirmed, but its size in energetic and financial terms is modified. In the conclusions some implications for policy intervention are indicated.