Impact of energy conservation on electricity sales

This paper has two main purposes. The first purpose is to develop a simple model of an economy without external effects, extend this model to include pollution as an external effect or distortion, and further extend this model to include energy conservation as an instrument to reduce pollution. The second purpose of this paper is to estimate the impact of BC Hydro's Power Smart energy conservation program on electricity sales using econometric methods. There are three main empirical results. First, the relationship between electricity sales and key drivers can be successfully modelled using a relatively simple framework estimated using maximum likelihood methods. Power Smart reduced electricity sales by about 2,320 GWh per year by 2000, or about 93% of program estimates of Power Smart's impact. Third, the large estimated program impacts generated by alternative models suggest the importance of careful model specification in attempting to estimate energy conservation program impacts.