Belt and Suspenders and More: The Incremental Impact of Energy Efficiency Subsidies in the Presence of Existing Policy Instruments

Sebastien Houde and Joseph Aldy
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Sebastien Houde: University of MD

Working Paper Series from Harvard University, John F. Kennedy School of Government

Abstract: The effectiveness of investment subsidies depends on the existing array of regulatory and information mandates, especially in the energy efficiency space. Some consumers respond to information disclosure by purchasing energy-efficient durables (and thus may increase the inframarginal take-up of a subsequent subsidy), while other consumers may locate at the lower bound of a minimum efficiency standard (and a given subsidy may be insufficient to change their investment toward a more energy-efficient option). We investigate the incremental impact of energy efficiency rebates in the context of regulatory and information mandates by evaluating the State Energy Efficient Appliance Rebate Program (SEEARP) implemented through the 2009 American Recovery and Reinvestment Act. The design of the program--Federal funds allocated to states on a per capita basis with significant discretion in state program design and implementation--facilitates our empirical analysis. Using transaction-level data on appliance sales, we show that most program participants were inframarginal due to important short-term intertemporal substitutions where consumers delayed their purchases by a few weeks. We find evidence that some consumers accelerated the replacement of their old appliances by a few years, but overall the impact of the program on long-term energy demand is likely to be very small. Our estimated measures of cost-effectiveness are an order of magnitude higher than estimated for other energy efficiency programs in the literature. We also show that designing subsidies that reflect, in part, underlying attribute-based regulatory mandates can result in perverse effects, such as upgrading to larger, less energy-efficient models.

JEL-codes: H31 Q40 Q48 Q58 (search for similar items in EconPapers)
Date: 2014-09
New Economics Papers: this item is included in nep-ene and nep-reg
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (16)

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Working Paper: Belt and Suspenders and More: The Incremental Impact of Energy Efficiency Subsidies in the Presence of Existing Policy Instruments (2014)
Working Paper: Belt and Suspenders and More: The Incremental Impact of Energy Efficiency Subsidies in the Presence of Existing Policy Instruments (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:ecl:harjfk:rwp14-046

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