Trading Appliance Efficiency for Electricity Subsidies: The Potential in Emerging Economies

Numerous countries use taxpayer funds to subsidize residential electricity for a variety of socio-economic objectives. These subsidies lower the value of energy efficiency to the consumer while raising it for the government. Further, while it would be especially helpful to have stringent Minimum Energy Performance Standards (MEPS) for appliances and buildings in this environment, they are hard to strengthen without imposing a cost on ratepayers. In this second-best world, where the presence of subsidies limits the government’s ability to strengthen standards, we find that avoided subsidies are a readily available source of financing for energy efficiency incentive programs. Here, we introduce the LBNL Energy Efficiency Revenue Analysis (LEERA) model to estimate the appliance energy savings that can be achieved in several emerging economies by the revenue neutral financing of incentive programs from avoided subsidies. LEERA uses the detailed techno-economic analysis developed by LBNL for the Super-efficient Equipment and Appliance Deployment (SEAD) initiative to calculate the incremental costs of appliance efficiency improvements. We analyze the tariff structures and the long-run marginal cost of supply to calculate the marginal savings for the government from appliance efficiency. In this paper, we present our initial findings for Mexico, Russia and the United Arab Emirates (UAE). We find substantial market transformation potential for refrigerators and televisions in Mexico and for room air conditioners in the UAE. In Russia, we find that other sources of revenue need to supplement avoided subsidies to meaningfully transform appliance markets.