CARBON MITIGATION COSTS FOR THE COMMERCIAL SECTOR

1616PSt.NWWashington,DC20036202-328-5000„RFFDP05-13CarbonMitigationCostsfortheCommercialSectorDiscrete-ContinuousChoiceAnalysisofMultifuelEnergyDemandRichardG.NewellandWilliamA.PizerDISCUSSIONPAPER©2005ResourcesfortheFuture.Allrightsreserved.Noportionofthispapermaybereproducedwithoutpermissionoftheauthors.Discussionpapersareresearchmaterialscirculatedbytheirauthorsforpurposesofinformationanddiscussion.Theyhavenotnecessarilyundergoneformalpeerreview.CARBONMITIGATIONCOSTSFORTHECOMMERCIALSECTOR:DISCRETE-CONTINUOUSCHOICEANALYSISOFMULTIFUELENERGYDEMANDRichardG.NewellandWilliamA.PizerAbstractWeestimateacarbonmitigationcostcurvefortheU.S.commercialsectorbasedoneconometricestimationoftheresponsivenessoffueldemandandequipmentchoicestoenergypricechanges.Themodeleconometricallyestimatesfueldemandconditionalonfuelchoice,whichischaracterizedbyamultinomiallogitmodel.Separateestimationofenduses(e.g.,heating,cooking)usingthe1995CommercialBuildingsEnergyConsumptionSurveyallowsforexceptionallydetailedestimationofpriceresponsivenessdisaggregatedbyenduseandfueltype.Wethenconstructaggregatelong-runelasticities,byfueltype,throughaseriesofsimulations;own-priceelasticitiesrangefrom–0.9fordistrictheatservicesto–2.9forfueloil.Thesimulationsformthebasisofamarginalcostcurveforcarbonmitigation,whichsuggeststhatapriceof$20pertonofcarbonwouldresultinan8%reductionincommercialcarbonemissions,andapriceof$100pertonwouldresultina28%reduction.KeyWords:commercialenergydemand,carbonpolicy,climatechange,discretechoiceJELClassificationNumbers:Q28,Q48,Q41,C35,C15TableofContents1.Introduction................................................................................................................................11.1Commercialandresidentialenergydemandliterature...................................................22.Discrete-ContinuousChoiceModelofEnergyDemand...........................................................32.1Modeloffuelchoiceandenergydemand.......................................................................32.2Econometricspecification...............................................................................................53.DataandEstimation...................................................................................................................73.1CommercialBuildingsEnergyConsumptionSurvey.....................................................73.2Estimationandsimulation...............................................................................................84.EstimationandSimulationResults..........................................................................................134.1Estimationresults..........................................................................................................134.2Carbontax/pricesimulationresults..............................................................................175.Conclusion...............................................................................................................................18References......................................................................................................................................25CarbonMitigationCostsfortheCommercialSector:Discrete-ContinuousChoiceAnalysisofMultifuelEnergyDemandRichardG.NewellandWilliamA.Pizer∗1.IntroductionThecommercialsectorisoneoffourimportantenergyend-usesectors—alongwithresidential,industrial,andtransportationuses—andwasresponsiblefor245millionmetrictonsofcarbonin1998,or16%ofU.S.energy-relatedcarbonemissions(U.S.EIA2002).Since1990,commercialemissionshavegrownatanaverageofabout2%peryear,fasterthananyoftheotherend-usesectors.Theseemissionsresultfromthelighting,heating,cooling,andotherenergyoperatingrequirementsofcommercialbuildingssuchasstores,offices,restaurants,hotels,religiousorganizations,schools,andotherpublicbuildings.Anyassessmentofthelikelymagnitudeandcostofpoliciesforreducingcarbonemissionsfromthecommercialsectorthereforequicklybecomesaproblemofestimatingchangesinthequantityandtypesofenergyusedbycommercialbuildings.Giventhecommercialsector’simportance,aswellasthelargenumberofeconometricstudiesestimatingresidentialandtransportationenergydemand,itissurprisinghowfeweconometricstudiesofcommercialenergydemandexist.Werespondbyusingthemostcomprehensiveavailabledataoncommercialbuildingenergyconsumptiontoestimatea1∗NewellisaSeniorFellowandPizerisaFellowatResourcesfortheFuture,Washington,DC.WethankMartinHeintzelmanandKennyGillinghamforresearchassistance,andweacknowledgefinancialsupportfromU.S.DepartmentofEnergyGrantDE-FG02-98ER62702.ResourcesfortheFutureNewellandPizerdiscrete-continuouschoicemodeloffueldemand,andthenusetheseestimatestosimulatecarbonmitigationcostcurvesforthecommercialsector.1.1CommercialandresidentialenergydemandliteratureThemicroeconomicliteratureonenergydemandinthecommercialsectorisnotverydeep.Bohi(1981)andDahl(1993)providethoroughreviewsoftheenergydemandliteraturebothingeneralandspecificallyregardingthecommercialsector.1Theresidentiale