Abstract
Inadequate information is often identified as a potential cause for the so-called “energy efficiency gap,” i.e., the sluggish pace of investment in energy efficiency technologies, which potentially affects a wide variety of energy-using goods, including road vehicles. To improve the fuel economy of vehicles, in 2003 Switzerland introduced a system of fuel economy and CO2 emissions labels for new passenger cars, based on grades from A (best) to G (worst). We have data for all cars approved for sale in Switzerland from 2000 to 2011. Hedonic regressions suggest that there is a fuel-economy premium, but do not allow us to identify whether the fuel economy label has an additional effect on car price, above and beyond the effect of fuel economy. To circumvent this problem, we turn to a sharp regression discontinuity design based on the mechanism used by the government to assign cars to the fuel economy label, which estimates the effect of the A label on price to be 6-11%. Matching estimators find this effect to be 5%.
Highlights
There is considerable debate in academic and policy circles about the existence, extent and causes of the so-called “energy efficiency gap,” namely the sluggish pace at which energyefficient technologies are adopted (Jaffe and Stavins, 1994; Hassett and Metcalfe, 1995; Golove and Eto, 1996; Allcott and Greenstone, 2012)
We further include one continuous measure of fuel economy, year fixed effects, and make-model fixed effects, which means that the effect of fuel economy on price is identified by the variation in the “trims” or “variants” within a make-model
Even holding the exact trim-variant of a make and model the same, the fuel economy may change over time, and/or the Swiss Federal Office of Energy (SFOE)’s cutoffs for placement in one or another other fuel economy class have changed over time
Summary
There is considerable debate in academic and policy circles about the existence, extent and causes of the so-called “energy efficiency gap,” namely the sluggish pace at which energyefficient technologies are adopted (Jaffe and Stavins, 1994; Hassett and Metcalfe, 1995; Golove and Eto, 1996; Allcott and Greenstone, 2012). That the label might have an effect on price rests on the assumption that auto importers believe that consumers value the fuel economy of a car, or the additional information conveyed by the label, or derive utility from the label per se. Label assignment is based on “notches” (Sallee and Slemrod, 2011), which may encourage product manipulation to take advantage of whatever benefit may be associated with falling in one rather than the notch This product manipulation is sometimes observed in the form of “bunching” at the boundary between categories, which allows manufacturers to meet standards and avoid penalties, with little actual effect on overall fuel or energy efficiency (Sallee and Slemrod, 2011; Houde, 2014b; Ito and Sallee, 2014).
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