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Designing incentive schemes for promoting energy-efficient appliances: a new methodology and a case study for Spain

Ibon Galarraga, Luis Abadie, Steffen Kallbekken

The energy-efficiency gap has been high on research and policy agendas for several decades. Incentive schemes such as subsidies, taxes and bonus-malus schemes are widely used to promote energy-efficient appliances. Most research, however, considers instruments in isolation, and only rarely in the context of political constraints on instrument use, or for alternative policy goals. This paper presents a methodology for the optimal design of incentive schemes based on the minimisation of Dead Weight Loss for different policy goals and policy restrictions. The use of the methodology is illustrated by designing optimal combinations of taxes and subsidies in Spain for three types of appliance: dishwashers, refrigerators and washing machines. The optimal policies are designed subject to different policy goals such as achieving a fixed reduction in emissions or a certain increased market share for efficient appliances, and for policy constraints such as budget neutrality. The methodology developed here can also be used to evaluate past and current incentive schemes.

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