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Are energy efficiency standards justified?

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Author Info

  • Parry, Ian W.H.
  • Evans, David
  • Oates, Wallace E.

Abstract

This paper develops an analytical framework for comparing the welfare effects of energy efficiency standards and pricing policies for reducing gasoline, electricity, and nationwide carbon emissions. The model is parameterized with US data and includes key externalities in the energy/transportation sectors and possible underinvestment in energy efficiency due to “misperceptions” over energy savings. Even with large misperceptions, the extra welfare gains from complementing efficient pricing policies with energy efficiency standards are zero for reducing gasoline and 5 percent for reducing electricity. And when viewed as substitutes, these standards forgo 60 percent or more of the potential welfare gains from corresponding pricing policies. A combination of energy efficiency and emissions standards is more than three times as costly as carbon pricing when there is no misperception over energy savings, and even with large misperceptions, combining carbon pricing with gasoline/electricity taxes is better than combining it with energy efficiency standards.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Environmental Economics and Management.

Volume (Year): 67 (2014)
Issue (Month): 2 ()
Pages: 104-125

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Handle: RePEc:eee:jeeman:v:67:y:2014:i:2:p:104-125

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Web page: http://www.elsevier.com/locate/inca/622870

Related research

Keywords: Efficiency standards; Energy taxes; Market failure; Climate; Power sector; Gasoline;

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References

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  1. Lawrence H. Goulder & Ian W. H. Parry & Roberton C. Williams III & Dallas Burtraw, 1998. "The Cost-Effectiveness of Alternative Instruments for Environmental Protection in a Second-Best Setting," NBER Working Papers 6464, National Bureau of Economic Research, Inc.
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Citations

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Cited by:
  1. Kenneth Gillingham & Karen Palmer, 2014. "Bridging the Energy Efficiency Gap: Policy Insights from Economic Theory and Empirical Evidence," Review of Environmental Economics and Policy, Association of Environmental and Resource Economists, vol. 8(1), pages 18-38, January.
  2. Klier, Thomas & Linn, Joshua, 2011. "Fuel Prices and New Vehicle Fuel Economy in Europe," Discussion Papers dp-11-37, Resources For the Future.
  3. Rozenberg, Julie & Vogt-Schilb, Adrien & Hallegatte, Stephane, 2014. "Transition to clean capital, irreversible investment and stranded assets," Policy Research Working Paper Series 6859, The World Bank.
  4. Tsvetan Tsvetanov & Kathleen Segerson, 2011. "Re-Evaluating the Role of Energy Efficiency Standards: A Time-Consistent Behavioral Economics Approach," Working Papers 07, University of Connecticut, Department of Agricultural and Resource Economics, Charles J. Zwick Center for Food and Resource Policy.
  5. Ian W.H. Parry & John Norregaard & Dirk Heine, 2012. "Environmental Tax Reform," IMF Working Papers 12/180, International Monetary Fund.
  6. Hunt Allcott & Michael Greenstone, 2012. "Is There an Energy Efficiency Gap?," NBER Working Papers 17766, National Bureau of Economic Research, Inc.
  7. Parry, Ian W.H. & Timilsina, Govinda R., 2012. "Demand side instruments to reduce road transportation externalities in the greater Cairo metropolitan area," Policy Research Working Paper Series 6083, The World Bank.
  8. Burtraw, Dallas & Palmer, Karen L., 2013. "Mixing It Up: Power Sector Energy and Regional and Regulatory Climate Policies in the Presence of a Carbon Tax," Discussion Papers dp-13-09, Resources For the Future.
  9. Tsvetan Tsvetanov & Kathleen Segerson, 2011. "Re-Evaluating the Role of Energy Efficiency Standards: A Time-Consistent Behavioral Economics Approach," Working papers 2011-24, University of Connecticut, Department of Economics.

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