January 11, 2010
Appliance Rebate Increases Energy Usage?

A couple of U Del economists think a government rebate to encourage people to buy new appliances might result in more energy used for refrigerators as some buyers will just add a refrigerator rather than replace it.

NEWARK, DEL Taxpayers will lose a significant portion of the $300 Million they are shelling out for the federal government's appliance rebate program and the energy-saving program could actually increase energy usage, two University of Delaware economists say.

Economics Professors Burton Abrams and George Parsons published their analysis of the program in the 1st Quarter 2010 issue of the Milken Institute Review. (Published Jan. 11, 2010)

Abrams and Parsons focused their analysis on refrigerators a major energy user. They believe in some cases, consumers will buy new refrigerators but keep the old for extra capacity, increasing energy usage. Unlike the Cash for Clunkers program, the appliance program does not require salvaging older models

They added benefits to the consumer and what society gets back in environmental benefits, and found for every $100 spent by taxpayers for refrigerators, $6 is lost.

The rebates, which range from $50-$200, could be lowered to $30 and result in the same consumer response, they wrote.

Abrams and Parsons say while Cash for Clunkers wasted $825 million, this new program's loss will be significantly smaller but is similarly ill conceived.

Aren't appliances mostly imported? So doesn't this incentive also increase the trade deficit? If reduced energy usage combined with a boost in employment is the goal then I suspect it would make more sense to provide economic incentives for home efficiency. Insulation installation requires labor and a lot of the materials are still domestically made.

The US government could more easily and cheaply incentivize old inefficient appliance replacement by creating a web site where people could enter serial numbers and other info about an appliance to get an estimate of how much energy it uses per year, what their local cost is per kwh, and what they'd save per year if they bought one of a list of highest rated energy efficient replacements. Information is much cheaper to generate and dispense and can be very powerful in its effects.

Share |      Randall Parker, 2010 January 11 06:36 PM  Energy Policy

Fat Man said at January 11, 2010 7:49 PM:

Jevon's paradox strikes again.

averros said at January 12, 2010 12:47 AM:

It's not Jevon's paradox, not in this case. Technology didn't change. What changed is that some watermelons in the government decided to push their agenda, thus invoking the Law of Unintended Consequences: http://www.econlib.org/library/Enc/UnintendedConsequences.html

Expect further ratcheting of government regulations (i.e. prohibiting second refrigerators, etc) in full accordance with von Mises's observation that intervention necessitates more intervention to combat negative effects of the previous rounds of governmental lunacy^H^H^H^H^H^H regulation.

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