Technology Adoption and the Timing of Environmental Policy : Evidence from Efficient Lighting

How does supporting early clean technologies affect the long-run transition away from dirty technologies? Early policy action generates immediate environmental benefits from increased adoption of available efficient products, but may result in intertemporal substitution away from later products with greater potential for reducing externalities. I examine how standards and subsidies supporting early advancements in lighting efficiency (halogens, CFLs) impacted the adoption of later products with higher efficiency (LEDs). I estimate a model of residential lighting demand, using structural methods adapted from dynamic models to capture how the market size and distribution of consumer heterogeneity depended endogenously on the history of past purchases. Counterfactual simulations suggest that delaying the implementation of standards from 2012 to 2018 would result in 36% greater LED sales over this period, while delaying the phase-out of CFL subsidies from 2012 to 2018 would result in 20% fewer LEDs sold. Across a range of specifications, I find that environmental benefits from some early policy action outweigh the environmental cost of reduced LEDs adoption; the overall environmental externality is minimized when standards are implemented in 2012 and CFL subsidies are phased-out after 2014. Sensitivity analyses around alternative technology lifetimes, externalities, and innovation responses identify conditions under which early policy intervention would be counterproductive