Environmental Engineering Reference
In-Depth Information
The same cannot be said so easily for measures in the form of subsidies. A
number of studies have looked at the impacts of subsidies in various forms of
rebates and subsidized loans [
2
,
12
,
35
,
53
,
57
,
64
,
74
,
77
].
4
Most
nd that the
subsidy does have a positive effect on the choice of more ef
cient appliances. In
general, rebates at purchase are more effective per euro compared to subsidised
loans. Tax credits are also relatively cost effective when measured in terms of the
cost per ton of CO
2
removed. Two main drawbacks related with rebates are free-
ridership and rebound effects. Firstly, using a choice experiment in Switzerland,
Ban
nd that willingness to pay (WTP) for energy-saving measures
generally exceed the cost of such measures. Gr
et al. [
5
]
รถ
sche and Vance [
40
] identity this as
a necessary condition for free-ridership, and
nd that roughly 50% of the western
households in Germany also present a WTP higher than the observed cost for
certain retro
cant rebound
effect from the rebates on purchase in that energy bills rise for those who purchase
the more ef
t options. Secondly, Galarraga et al. [
35
],
nd a signi
cient appliances. On the other hand an increase in tax has no such
rebound effect and a smaller welfare cost. Alberini et al. [
2
]
nd no reduction in
electricity consumption for those who purchase a heat pump under a rebate but a
16 % reduction among those who made the same purchase without a rebate, sug-
gesting that the rebound effect is greater with the subsidy.
5
Finally Markandya et al.
[
53
] make a direct comparison between a tax incentive and a subsidy and
nd that
the welfare cost of the subsidy is almost always higher than that of a tax and the
same applies to the cost per ton of CO
2
removed.
Thus we have the situation where the more politically popular instrument
(subsidies) is less cost- effective than the less popular one (taxes). Yet subsidies
may be on occasions more effective than other instruments that lead to energy price
increases [
41
]. We have already noted the arguments that taxes have negative
distributional effects and, although we are inclined to the view that such effects are
exaggerated, should they occur it may be necessary to introduce complementary
policies that product vulnerable groups from being disproportionately affected.
Another feature of the tax/subsidy instruments for energy ef
ciency is the wide
range of values at which they are applied across different sectors. If the aim is, for
example, to reduce CO
2
emissions the tax or subsidy should be such that the
implied bene
t to the emitter of a ton of CO
2
is the same irrespective of which
4
The range of subsidies is very wide and the instrument takes many forms. It is very common for
example to use renovation or
plans, which consists of subsidizing the substitution of
inefcient products by new ones with a certain energy efciency requirements, especially during
economic recessions. However, the principal goal of these plans is frequently to activate the
market and not really environmental protection [
10
]. Nevertheless, the use of such measures is also
supported by some evidence through consumer surveys which show that the up-front investment
cost is one of the main factors driving consumer decisions. This is the case with low-carbon
technology vehicles in the UK [
54
].
5
Research on the rebound effect arising from these subsidies is problematic. The dif
culty of
estimating indirect rebound effects (see the discussion above) has constrained the development of
research in this area (see [
14
]).
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