The Adverse Effect of Energy-Efficiency Policy

Achim Voß

No 2019.13, Working Papers from Fondazione Eni Enrico Mattei

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: Energy Efficiency; Rebound Effects; Household Heterogeneity; Extensive Margin; Gruenspecht Effect; Investment; Theory of Environmental Policy (search for similar items in EconPapers)
JEL-codes: D15 Q41 Q48 (search for similar items in EconPapers)
Date: 2019-07
New Economics Papers: this item is included in nep-ene and nep-reg
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Working Paper: The Adverse Effect of Energy-Efficiency Policy (2019)
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