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Power Efficiency Guide

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This article explores the relative advantages of three funding mechanisms - government budget appropriations, earmarking of energy or environment taxes, and system public benefit charges - to determine whether one has distinct advantages over the others.

Table 2

Attributes and effects to consider when selecting an energy efficiency funding mechanism

Table 2

Attributes and effects to consider when selecting an energy efficiency funding mechanism

Political-economy dimension

Adequacy and stability

The funding should cover policy implementation costs and be steady and predictable over time

Public acceptance

The funding source should be credible to stakeholders and affected customers and in line with overall EE policies

Classical economics dimension

Fiscal and governance effects

Funding decisions should be free from political or other influence, have low administrative requirements, and funding levels commensurate with other government spending priorities

Static efficiency

The funding should be raised and spent at least cost, not create market or price distortions or crowd-out other funding

Equity

The funding source should not harm vulnerable groups

System public benefit charges

System public benefit charges (SPBC) are levies placed on network-delivered energy (e.g., gas or electricity) that are earmarked for socially beneficial purposes. These charges are very common in the United States, which has almost two dozen different SPBC programmes. Other countries funding energy efficiency interventions with charges on electricity consumption include the United Kingdom (Energy Savings Trust), Norway (transmission tax), New Zealand (Energy Saver Fund), Jordan, and Brazil (Sovacool, 2010).

An SPBC funding mechanism provides steady and often substantial funding for energy efficiency programmes or other socially beneficial spending. It can be embedded within the regulated tariffs of gas, electricity or water, or even district heating and cooling providers. SPBC funding is especially well suited to long-term market transformation efforts, as it provides a multiyear stream of support. The flexibility of SPBC mechanisms allows the funds to be used for a portfolio of energy efficiency or other interventions across a range of customers.

The collection of the SPBC can be done independently of the policy implementing agency, for political purposes or to avoid conflicts of interest.

In Vermont and New York, for example, the energy utilities serve only as collection agencies, including the SPBC in rates at the direction of the regulator. Revenues flow into a special account administered by a separate statutory authority, also under regulatory oversight.

Another advantage of SPBC schemes is the opportunity to tailor the funding source to programme design and adapt spending to the demand for sectoral programmes; this improves economic efficiency and helps create political acceptance. For example, the Energy Research and Development Authority in New York State (NYSERDA) implements energy-efficiency policies for industrial customers which are funded by their own SPBC contributions. To recoup the funding, the industrial customers must participate in energy-efficiency programmes, eg, co-finance energy efficiency investments. Table 3 summarises several SPBC schemes in the United States and elsewhere.

Table 3

System public benefit charge examples

Table 3

System public benefit charge examples

Jurisdiction

Public benefit spending as a % of utility revenue

(USD million)

Brazil

1%*

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