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The Adverse Effect of Energy-Efficiency Policy

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  • Voss, Achim

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.

Suggested Citation

  • Voss, Achim, 2019. "The Adverse Effect of Energy-Efficiency Policy," FEP: Future Energy Program 291522, Fondazione Eni Enrico Mattei (FEEM) > FEP: Future Energy Program.
  • Handle: RePEc:ags:feemfe:291522
    DOI: 10.22004/ag.econ.291522
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    References listed on IDEAS

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    More about this item

    Keywords

    Resource /Energy Economics and Policy;

    JEL classification:

    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices
    • Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy
    • D15 - Microeconomics - - Household Behavior - - - Intertemporal Household Choice; Life Cycle Models and Saving

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