Air conditioners on the rebound

The various cash for clunkers programs during the last recession had two objectives in mind: create aggregate demand (or shift it from good to bad times) and improve the stock of capital. In the case of cars, it was expected that this would lower pollution. Other programs outside of recessions have had the same goal, for example subsidies to replace light bulbs or appliances for more energy efficient ones. But it does not always work out as expected.

Lucas Davis, Alan Fuchs and Paul Gertler look at a recent and large appliance renewal initiative in Mexico. A staggering 1.5 million households changed their refrigerator or air condition units for better ones, with again the goal of reducing electricity consumption. But it seems to have backfired for the AC units. Indeed, they seem to have been so much more efficient that people feel less guilty of running them, increasing the total energy consumption in the process. This is called the rebound effect, which has already been discussed here. And once again, nothing beats taxing energy use instead of subsidizing alternative energy, or alternative energy uses.