Improving Energy Efficiency through Technology

Improving Energy Efficiency through Technology

Trends, Investment Behaviour and Policy Design

Edited by Raymond J.G.M. Florax, Henri L.F. de Groot and Peter Mulder

This innovative book explores the adoption of energy-saving technologies and their impact on energy efficiency improvements. It contains a mix of theoretical and empirical contributions, and combines and compares economic and physical indicators to monitor and analyse trends in energy efficiency.

Chapter 7: A Meta-Regression Analysis of the Investment–Uncertainty Relationship

Mark J. Koetse, Henri L.F. de Groot and Raymond J.G.M. Florax

Subjects: economics and finance, energy economics, environmental economics, environment, energy policy and regulation, environmental economics, innovation and technology, technology and ict

Extract

Mark J. Koetse, Henri L.F. de Groot and Raymond J.G.M. Florax 1 INTRODUCTION Over the past three decades major doubts have been raised about the environmental sustainability of prevailing economic processes and behaviour, the most relevant starting point being the report to the Club of Rome (see Meadows et al., 1972). Limits to the capacity of our natural resource stock to replenish the fuels that we extract as well as coping with the pollution we cause are at the heart of the associated economic and political discussion. This discussion is still relevant and thriving. An important option to steer economic production into a more sustainable direction is to invest in energy-saving technologies. The adoption of these technologies is of political and social interest because it provides promising potential for reducing energy use and thereby the emission of environmentally harmful gasses. However, adoption is of interest from an economic perspective as well, because it may provide a means to producing more efficiently. The standard framework for analysing the profitability of adopting a technology is the net present value (NPV) framework. In this framework the current and future costs and benefits of the investment are discounted using a critical discount rate to produce a net present value. A standard textbook rule is to invest when the net present value is non-negative. Using the NPV framework, it is widely recognized that many energy-saving technologies are cost-effective at current prices (Schipper and Meyers, 1992). Still, apart from large energy-intensive companies, the adoption of these...

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