Are Energy Efficiency Standards Justified?
AbstractThis paper develops and parameterizes an overarching analytical framework to estimate the welfare effects of energy efficiency standards applied to automobiles and electricity-using durables. We also compare standards with sectoral and economywide pricing policies. The model captures a wide range of externalities and preexisting energy policies, and it allows for possible “misperceptions”—market failures that cause underinvestment in energy efficiency.Automobile fuel economy standards are not part of the first-best policy to reduce gasoline: fuel taxes are always superior because they reduce the externalities related to vehicle miles traveled. For the power sector, potential welfare gains from supplementing pricing instruments with efficiency standards are small at best. If pricing instruments are not feasible, a large misperceptions failure is required to justify efficiency standards, and even in this case the optimal reductions in fuel and electricity use are relatively modest. Reducing economywide carbon dioxide emissions through regulatory packages (combining efficiency and emissions standards) involves much higher costs than pricing instruments.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Resources For the Future in its series Discussion Papers with number dp-10-59.
Date of creation: 23 Nov 2010
Date of revision:
standards; energy taxes; market failure; climate; power sector; gasoline;
Find related papers by JEL classification:
- Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy
- Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy
- H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
- R48 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Transportation Systems - - - Government Pricing and Policy
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-12-04 (All new papers)
- NEP-ENE-2010-12-04 (Energy Economics)
- NEP-ENV-2010-12-04 (Environmental Economics)
- NEP-MIC-2010-12-04 (Microeconomics)
- NEP-REG-2010-12-04 (Regulation)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Kenneth Gillingham & Richard G. Newell & Karen Palmer, 2009.
"Energy Efficiency Economics and Policy,"
NBER Working Papers
15031, National Bureau of Economic Research, Inc.
- Austin, David & Dinan, Terry, 2005. "Clearing the air: The costs and consequences of higher CAFE standards and increased gasoline taxes," Journal of Environmental Economics and Management, Elsevier, vol. 50(3), pages 562-582, November.
- Burtraw, Dallas & Parry, Ian & Goulder, Lawrence & Williams III, Roberton, 1998.
"The Cost-Effectiveness of Alternative Instruments for Environmental Protection in a Second-Best Setting,"
dp-98-22, Resources For the Future.
- Goulder, Lawrence H. & Parry, Ian W. H. & Williams III, Roberton C. & Burtraw, Dallas, 1999. "The cost-effectiveness of alternative instruments for environmental protection in a second-best setting," Journal of Public Economics, Elsevier, vol. 72(3), pages 329-360, June.
- 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.
- Geoffrey Heal, 2009. "Climate Economics: A Meta-Review and Some Suggestions for Future Research," Review of Environmental Economics and Policy, Association of Environmental and Resource Economists, vol. 3(1), pages 4-21, Winter.
- Parry, Ian & Fischer, Carolyn & Harrington, Winston, 2004. "Should Corporate Average Fuel Economy (CAFE) Standards Be Tightened?," Discussion Papers dp-04-53, Resources For the Future.
- B. Howarth, Richard & Haddad, Brent M. & Paton, Bruce, 2000. "The economics of energy efficiency: insights from voluntary participation programs," Energy Policy, Elsevier, vol. 28(6-7), pages 477-486, June.
- Brown, Stephen P.A. & Huntington, Hillard G., 2010. "Reassessing the Oil Security Premium," Discussion Papers dp-10-05, Resources For the Future.
- 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.
- Hunt Allcott & Michael Greenstone, 2012.
"Is There an Energy Efficiency Gap?,"
NBER Working Papers
17766, National Bureau of Economic Research, Inc.
- Klier, Thomas & Linn, Joshua, 2011.
"Fuel Prices and New Vehicle Fuel Economy in Europe,"
dp-11-37, Resources For the Future.
- Thomas Klier & Joshua Linn, 2011. "Fuel Prices and New Vehicle Fuel Economy in Europe," Working Papers 1117, Massachusetts Institute of Technology, Center for Energy and Environmental Policy Research.
- Ian W.H. Parry & John Norregaard & Dirk Heine, 2012. "Environmental Tax Reform: Principles from Theory and Practice to Date," IMF Working Papers 12/180, International Monetary Fund.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Webmaster).
If references are entirely missing, you can add them using this form.