The Adverse Effect of Energy-Efficiency Policy

40 Pages Posted: 17 May 2019 Last revised: 25 May 2019

See all articles by Achim Voss

Achim Voss

University of Hamburg - Department of Economics

Multiple version iconThere are 2 versions of this paper

Date Written: May 13, 2019

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

JEL Classification: Q41, Q48, D15

Suggested Citation

Voß, Achim, The Adverse Effect of Energy-Efficiency Policy (May 13, 2019). Available at SSRN: https://ssrn.com/abstract=3373517 or http://dx.doi.org/10.2139/ssrn.3373517

Achim Voß (Contact Author)

University of Hamburg - Department of Economics ( email )

Von-Melle-Park 5
room 2128 C rise
Hamburg, 20146
Germany

HOME PAGE: http://www.wiso.uni-hamburg.de/professuren/mikrooekonomische-theorie-und-experimente/team/wissenscha

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