Association for Public Policy Analysis & Management

Many energy policies are implemented to subsidize the adoption of energy efficiency. However, when private savings from energy efficiency adoption exceed the social benefits, there is an incentive to over-invest in energy efficiency; otherwise, there is under-investment. This study adds to this discussion by providing empirical evidence for the electricity savings as well as social vs. private benefits from energy efficiency under time-of-use (TOU) pricing and increasing block rate. This study applies a rich household-level dataset of hourly electricity smart meter data for about 16,000 residential consumers from 2013-2017 in Arizona. We show that for the TOU consumers, the private savings from energy efficient air-conditioning are greater than the social savings by 182%, while for increasing block rate consumers the private savings exceed the social savings by a lower percentage of 157%. The result indicates that there is an incentive to over-invest for both types of consumers. A larger discrepancy between the private and social savings are observed for TOU consumers, which implies that TOU pricing does not yield less overinvestment, and policymakers should focus more on non-TOU consumers to promote the adoption of energy efficiency. We also find that energy efficiency makes the electricity demand more elastic to price changes during the summer months. In addition, we provide evidence that the rebound effects exist.