Energy Paradox: Simulation and Policy Recommendations for the Case of Solar Water Heater

Abstract

The objective of this paper is crystallized around the explanation of the energy paradox, that of the non adoption of cost-effective energy-saving investments. The latter is mutually driven by two major factors. Uncertainty future benefits of energy savings, which we assume that they follow a geometric Brownian motion. In this stochastic process, we take into account the lower costs of efficient equipment as a result of learning by doing. To affirm the robustness of the model, we generate simulation results for the case of solar water heaters. The minimum rate of return required by households reached 18.81%. Beyond that, the model allows the simulation of the effects of the instruments of energy policy oriented to the promotion of the adoption of this equipment. We urge policymaker’s ineffectiveness of the policy of subsidy to the purchase of energy-saving equipment and the effectiveness of energy taxation policy. The combination of these two instruments amplifies the adoptions of these devices and generates very positive externalities in terms of energy saving and emission reduction of greenhouse gases.