The Adverse Effect of Energy-Efficiency Policy

Achim Voß

No 291522, FEP: Future Energy Program from Fondazione Eni Enrico Mattei (FEEM) > FEP: Future Energy Program

Abstract: I analyze energy-efficiency policy as a prescription of a minimum-efficiency standard for energy-using household goods like cars, building insulation, and home appliances. Such a policy has two effects. At the intensive margin, a household that invests will choose a more efficient device. At the extensive margin, there will be more households that choose not to invest at all. Thus, additional to and different from rebound effects, energy-efficiency policy may have unintended consequences. I analyze the equilibrium effects of a minimum-efficiency standard, taking price adjustments and household heterogeneity into account. A moderate minimum-efficiency standard increases demand for efficiency-enhancing household capital goods, and reduces energy demand. More stringent policy is shown to be less effective or even counterproductive. For the case of a fixed supply of efficiency-enhancing capital, it is shown that minimum-efficiency standards increase equilibrium energy demand. Finally, I analyze which households benefit from minimum-efficiency standards and which ones lose. A standard induces investing households to expend more for household capital and less for energy. The wedge between the induced expenditures and the private optimum is analyzed as a deadweight loss.

Keywords: Resource/Energy; Economics; and; Policy (search for similar items in EconPapers)
Pages: 45
Date: 2019-07-18
New Economics Papers: this item is included in nep-ene
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https://ageconsearch.umn.edu/record/291522/files/NDL2019-013.pdf (application/pdf)

Related works:
Working Paper: The Adverse Effect of Energy-Efficiency Policy (2019)
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Persistent link: https://EconPapers.repec.org/RePEc:ags:feemfe:291522

DOI: 10.22004/ag.econ.291522

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