A theory of ossification of energy services

This paper points out that energy efficiency has been an important driver of economic growth in the past but notes stagnation of efficiency in the electric power sector since 1960. The “ossification” of electric industry efficiency gains trace in part to the industry's exemption from the anti-trust laws, but also to the unfortunate formulation of pollution regulations. These allows plants to operate forever at whatever emissions were allowed when the plant was built, but force a plant that improves its conversion efficiency to meet latest rules. This severely penalizes the owners of electricity generation plants who would otherwise gain from investments in greater efficiency and in the process cut emissions, by requiring immediate reduction of all “criteria” pollutants to current best available control levels. The added cost of this essentially eliminates any economic incentive to improve efficiency. The paper lists steps that could change this situation and “de-ossify” the industry.