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Energy efficiency subsidies with price-quality discrimination

Author

Listed:
  • Marie-Laure Nauleau

    (CIRED)

  • Louis-Gaëtan Giraudet

    (CIRED, Ecole des PontsParisTech)

  • Philippe Quirion

    (CIRED, CNRS)

Abstract

We compare a range of energy efficiency policies in a durable good market subject to both energy-use externalities and price-quality discrimination by a monopolist. We find that the social optimum can be achieved with differentiated subsidies. With ad valorem subsidies, the subsidization of the high-end good leads the monopolist to cut the quality of the low-end good. The rates should always be decreasing in energy efficiency. With per-quality subsidies, there are no such interference and the rates can be increasing if the externality is large enough relative to the market share of low-type consumers. Stand-alone instruments only achieve second-best outcomes. A minimum quality standard may be set at the high-end of the product line if consumers are not too dissimilar, otherwise it should only target the low-end good. An energy tax should be set above the marginal external cost. Likewise, a uniform ad valorem subsidy should be set above the subsidy that would be needed to spec ifically internalize energy-use externalities. Lastly, if, as is often observed in practice, only the high-end good is to be incentivized, a per-quality schedule should be preferred over an ad valorem one. An ad valorem tax on the high-end good may even be preferred over an ad valorem subsidy if the externality is small enough and low-end consumers dominate the market.

Suggested Citation

  • Marie-Laure Nauleau & Louis-Gaëtan Giraudet & Philippe Quirion, 2015. "Energy efficiency subsidies with price-quality discrimination," Working Papers 2015.11, FAERE - French Association of Environmental and Resource Economists.
  • Handle: RePEc:fae:wpaper:2015.11
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    Cited by:

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    2. Marc Ringel & Roufaida Laidi & Djamel Djenouri, 2019. "Multiple Benefits through Smart Home Energy Management Solutions—A Simulation-Based Case Study of a Single-Family-House in Algeria and Germany," Energies, MDPI, Open Access Journal, vol. 12(8), pages 1-21, April.
    3. Bourgeois, Cyril & Giraudet, Louis-Gaëtan & Quirion, Philippe, 2021. "Lump-sum vs. energy-efficiency subsidy recycling of carbon tax revenue in the residential sector: A French assessment," Ecological Economics, Elsevier, vol. 184(C).
    4. Fleckinger, Pierre & Glachant, Matthieu & Tamokoué Kamga, Paul-Hervé, 2019. "Energy Performance Certificates and investments in building energy efficiency: A theoretical analysis," Energy Economics, Elsevier, vol. 84(S1).
    5. Louis-Gaëtan Giraudet, 2018. "Energy efficiency as a credence good: A review of informational barriers to building energy savings," Policy Papers 2018.04, FAERE - French Association of Environmental and Resource Economists.
    6. Ramos, A. & Gago, A. & Labandeira, X. & Linares, P., 2015. "The role of information for energy efficiency in the residential sector," Energy Economics, Elsevier, vol. 52(S1), pages 17-29.
    7. Marc Ringel & Roufaida Laidi & Djamel Djenouri, 2019. "Multiple Benefits through Smart Home Energy Management Solutions -- A Simulation-Based Case Study of a Single-Family House in Algeria and Germany," Papers 1904.11496, arXiv.org.
    8. Nie, Pu-yan & Yang, Yong-cong & Chen, You-hua & Wang, Zhao-hui, 2016. "How to subsidize energy efficiency under duopoly efficiently?," Applied Energy, Elsevier, vol. 175(C), pages 31-39.
    9. Giraudet, Louis-Gaëtan, 2020. "Energy efficiency as a credence good: A review of informational barriers to energy savings in the building sector," Energy Economics, Elsevier, vol. 87(C).

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    More about this item

    Keywords

    energy efficiency; price-quality discrimination; imperfect discrimination; vertical differentiation; subsidy;
    All these keywords.

    JEL classification:

    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

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