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

Resources for the Future Discussion Paper 14-34

60 Pages Posted: 14 Dec 2014

See all articles by Sébastien Houde

Sébastien Houde

ETH Zurich

Joseph E. Aldy

Harvard Kennedy School; National Bureau of Economic Research; Resources for the Future; Harvard University - Harvard Kennedy School (HKS)

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Date Written: September 15, 2014

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.

Keywords: Subsidies, Energy Efficiency, ENERGY STAR, Stimulus

JEL Classification: Q4, Q48, Q58, H31

Suggested Citation

Houde, Sébastien and Aldy, Joseph E., Belt and Suspenders and More: The Incremental Impact of Energy Efficiency Subsidies in the Presence of Existing Policy Instruments (September 15, 2014). Resources for the Future Discussion Paper 14-34, Available at SSRN: https://ssrn.com/abstract=2537910 or http://dx.doi.org/10.2139/ssrn.2537910

Sébastien Houde

ETH Zurich ( email )

Zurich
Switzerland

Joseph E. Aldy (Contact Author)

Harvard Kennedy School

79 JFK Street
Cambridge, MA 02138
United States
617-496-7213 (Phone)

HOME PAGE: http://www.hks.harvard.edu/about/faculty-staff-directory/joseph-aldy

National Bureau of Economic Research

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Resources for the Future

79 JFK Street
Cambridge, MA 02138
United States
617-496-7213 (Phone)

HOME PAGE: http://www.hks.harvard.edu/about/faculty-staff-directory/joseph-aldy

Harvard University - Harvard Kennedy School (HKS) ( email )

79 John F. Kennedy Street
Cambridge, MA 02138
United States

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