Power Markets in Transition: Decarbonization, Energy Efficiency, and Short-Term Demand Response

Mathias Mier and Christoph Weissbart

 ifo Working Paper No. 284, 2018 | Information | PDF Download 

The ambitious decarbonization of electricity markets requires adjustments on both, the supply and the demand side of electricity markets. In this paper, the authors find that energy efficiency plays a minor role in reaching the long-run emission reduction targets when accounting for a rebound effect.


Energy efficiency and short-term demand response are key issues in the decarbonization of power markets. However, their interaction and combined impact on market prices as well as on the supply side, is yet to be understood. We develop a framework to implement investments in energy efficiency and short-term demand response in detailed partial equilibrium power market models. We quantify our results using the EU-REGEN model for the European power market and find that energy efficiency contributes, under a 80% emission reduction target, only 11% of carbon emission reductions. Intermittent renewable energies such as wind and solar power account for the major share of 53%. However, both energy efficiency and short-term demand response have their merits in reducing marginal abatement costs and additionally exhibit an subadditive effect, at least under a 80% climate policy.

Supported by Federal Ministry for Economic Affairs and Energy