Are energy efficiency standards justified?

Ian Parry, David Evans and Wallace Oates

Journal of Environmental Economics and Management, 2014, vol. 67, issue 2, 104-125

Abstract: This paper develops an analytical framework for comparing the welfare effects of energy efficiency standards and pricing policies for reducing gasoline, electricity, and nationwide carbon emissions. The model is parameterized with US data and includes key externalities in the energy/transportation sectors and possible underinvestment in energy efficiency due to “misperceptions” over energy savings. Even with large misperceptions, the extra welfare gains from complementing efficient pricing policies with energy efficiency standards are zero for reducing gasoline and 5 percent for reducing electricity. And when viewed as substitutes, these standards forgo 60 percent or more of the potential welfare gains from corresponding pricing policies. A combination of energy efficiency and emissions standards is more than three times as costly as carbon pricing when there is no misperception over energy savings, and even with large misperceptions, combining carbon pricing with gasoline/electricity taxes is better than combining it with energy efficiency standards.

Keywords: Efficiency standards; Energy taxes; Market failure; Climate; Power sector; Gasoline (search for similar items in EconPapers)
Date: 2014
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Citations: View citations in EconPapers (20)

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Working Paper: Are Energy Efficiency Standards Justified? (2010)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jeeman:v:67:y:2014:i:2:p:104-125

DOI: 10.1016/j.jeem.2013.11.003

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