What Drives Energy Use? Prices, Policy, and Inefficiency

David Benatia, R\'emy Molini\'e and Pierre-Olivier Pineau

Papers from arXiv.org

Abstract: Why is U.S. energy use so high, even among rich economies? Using a 2006--2022 panel of the 50 states and DC, an LMDI decomposition documents a 12.8% national decline alongside substantial cross-state heterogeneity. To explain differences in energy-use levels across states, we estimate a microfounded stochastic-frontier model and adapt the LMG relative-importance method to the frontier and inefficiency components. Our approach assigns 56.3% of variation to the frontier, 42.2% to inefficiency, and 1.5% to noise. Prices and efficiency-policy environments are the two leading observed contributors, jointly accounting for 31%: prices operate mainly through the benchmark, whereas policy contributes through both components. Their leading ranks are stable across 21 specifications. Persistent low prices, uneven efficiency-policy environments, structural demand, and a sizeable composite inefficiency component help explain high U.S. energy use. Policy should therefore combine durable price signals, coherent efficiency programs, structural investment, targeted measures addressing avoidable energy use, and targeted household support.

Date: 2026-04, Revised 2026-11
New Economics Papers: this item is included in nep-eff and nep-ene
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