How Would Carbon Pricing Affect Purchases of Energy-Efficient Appliances? The Case of Refrigerators

The purpose of this research is to estimate the potential effect of carbon pricing on the purchase of energy efficient appliances, using refrigerators as a representative appliance. Carbon emissions are widely believed to be contributing to climate change, although the U.S. has not yet introduced a nationwide method of limiting these emissions (two regional carbon trading schemes involving a handful of states notwithstanding). To estimate response, we first estimate the effect of electricity price on the market share of energy efficient refrigerators -- representing energy savings of 15-20% as compared to standard refrigerators -- that qualify for the USEPA’s ENERGY STAR program. The second step is to estimate the additional response that would result if the U.S. implemented a price on carbon, thereby increasing the price of electricity and the market share of energy efficient appliances. We find a price elasticity of demand of between 0.16 and 0.26, a relatively small response and smaller than the effect of percent of owner-occupied homes and percent of adults with a bachelor’s degree. In turn, Resources for the Future (2010) estimates that a carbon price would increase the average electricity price by at most $0.04/kWh, which would increase purchases of ENERGY STAR refrigerators by less than 3%. In turn, carbon emissions would decrease by approximately 0.3%. We suggest that in order to achieve the socially efficient outcome, it may be necessary to add another instrument in addition to the price on carbon