Stavins Works on Energy-Efficient Technology

At the same time that President Clinton announced that the United States will overcome the threat of climate change through more rapid innovation and diffusion of energy-efficient technologies, Robert Stavins, a professor of public policy at the Kennedy School of Government and faculty chair of the Environment and Natural Resources Program at the Belfer Center for Science and International Affairs, was investigating what sorts of policies are most likely to successfully induce such technology innovation and diffusion.

In recent research, Stavins and colleagues have found that both energy prices (and hence, energy taxes) and energy-efficiency standards can have significant impacts on the innovation of new energy-efficient products.

In a recent paper, "The Induced Innovation Hypothesis and Energy-Saving Technological Change," Stavins and co-authors Richard Newell (Resources for the Future) and Adam Jaffe (Brandeis University) investigate econometrically the factors affecting the innovation of a number of energy-using consumer products, including water heaters and central and room air conditioners. They find that up to half of the improvements in mean energy efficiency of these products over the past two decades has been associated with rising energy prices, and that this responsiveness to price changes increased substantially after government product labeling requirements came into effect.

In earlier work, Stavins and Jaffe carried out econometric analyses of the factors affecting the diffusion of thermal insulation in new home construction. In that work, they found that energy prices and technology (insulation) costs had significant effects on adoption decisions, but that the effect of technology-cost changes was twice as great as the energy price effects. The research suggests that a 10 percent energy tax would increase the average energy efficiency of insulation in new homes by about 5 percent, while a 10 percent adoption-cost subsidy would increase the average energy efficiency of insulation in new homes by about 11 percent on average.

On May 4, President Clinton announced a new government-building industry partnership for more energy-efficient homes. Further, the president's fiscal year 1999 budget proposes a five-year, $6.3 billion package of tax incentives and research investments, including $1.4 billion of tax credits (adoption subsidies) for the purchase of energy-efficient heating and cooling systems, and $200 million in tax credits for the purchase of "ultra-energy-efficient homes."