The impact of energy prices on energy efficiency: Evidence from the UK refrigerator market

Produced as part of the Evaluating the performance of climate policies CCCEP research programme theme

It is commonly believed that large energy efficiency gaps exist in the energy-using durables markets. We develop a broad analytical framework capturing consumer purchase behavior and suppliers’ pricing and innovation decisions to estimate the effect of household electricity price variations on the refrigerator market outcomes. Using UK product-level panel data from 2002 to 2007, we find that the main factor limiting the full effect of rising price signals on curbing energy consumption of refrigerators is not consumer myopia, but changes in relative prices of products in favor of the less efficient models. We also find that manufacturers strongly respond to rising electricity prices by changing their product portfolio. This suggests shifting policy attention towards suppliers’ pricing and innovation behaviors would be effective in achieving energy efficiency gains in the durables market.