Energy Efficiency Policy with Price-quality Discrimination

Marie-Laure Nauleau, Louis-Gaëtan Giraudet and Philippe Quirion

No 202240, Climate Change and Sustainable Development from Fondazione Eni Enrico Mattei (FEEM)

Abstract: We compare a range of energy efficiency policies in a durable good market subject to both energy-use externalities and price-quality discrimination by a monopolist. We find that the social optimum can be achieved with differentiated subsidies. With ad valorem subsidies, the subsidization of the high-end good leads the monopolist to cut the quality of the low-end good. The rates should always be decreasing in energy efficiency. With per-quality subsidies, there is no such interference and the rates can be increasing if the externality is large enough relative to the market share of low-type consumers. Stand-alone instruments only achieve second-best outcomes. A minimum quality standard may be set at the high-end of the product line if consumers are not too dissimilar, otherwise it should only target the low-end good. An energy tax should be set above the marginal external cost. Likewise, a uniform ad valorem subsidy should be set above the subsidy that would be needed to specifically internalize energy-use externalities. Lastly, if, as is often observed in practice, only the high-end good is to be incentivized, a per-quality schedule should be preferred over an ad valorem one. An ad valorem tax on the high-end good may even be preferred over an ad valorem subsidy if the externality is small enough and low-end consumers dominate the market.

Keywords: Resource/Energy; Economics; and; Policy (search for similar items in EconPapers)
Pages: 28
Date: 2015-04-22
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Citations: View citations in EconPapers (1)

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https://ageconsearch.umn.edu/record/202240/files/NDL2015-033.pdf (application/pdf)

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Working Paper: Energy Efficiency Policy with Price-quality Discrimination (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:ags:feemcl:202240

DOI: 10.22004/ag.econ.202240

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