How do energy efficiency standards affect consumer welfare?

To answer this question the authors look at how these standards have affected the price and quality of major appliances – including washing machines, fridges, room air conditioners and clothes dryers – sold in the US between 2001 and 2011. Using a novel index that uses the same-model price changes of appliances to disentangle price changes from perceived quality changes, they derive welfare effects as functions of changes in price and quality as energy-efficiency standards became more stringent.

Contrary to common belief, the authors find an indication that prices declined while quality and consumer welfare increased, especially when more stringent energy efficiency standards were enforced. They also find that much of the price decline is attributed to standards-induced innovation and not from competition between manufacturers.

The results and technique generate methodological insights in accounting for quality adjustments in price indexing.

A more recent version of this paper has now been published in the Journal of Environmental Economics and Management.

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