Government Green Appliance Subsidy Half-Baked, Says Study

Published November 25, 2014

Academic research examining the outcomes of a green subsidy program in the American Recovery and Reinvestment Act of 2009 has found the program largely failed to achieve its stated goals.

The State Energy-Efficient Appliance Rebate Program (SEEARP)—commonly referred to as Cash for Appliances (C4A)—was a green subsidy program baked into the federal government’s “stimulus” efforts to revitalize the national economy after the 2008 financial collapse.

Intended to encourage consumers to trade inefficient home appliances for ones with lower energy demands, SEEARP was part of national politicians’ larger plan to accelerate the economic recovery by using increased government spending and manipulation of consumers’ economic behavior.

Announcing the new subsidy program in July 2009, U.S. Department of Energy Secretary Steven Chu promised SEEARP would “help families make the transition to more efficient appliances, making purchases that will directly stimulate the economy and create jobs.”

“Appliances consume a huge amount of our electricity, so there’s enormous potential to both save energy and save families money every month,” Chu’s statement continued.

Stimulus, Response
Like a similar government rebate program enacted in 2009, the Car Allowance Rebate System—commonly known as “Cash for Clunkers”—SEEARP’s goal was removing inefficient products from use and replacing them with efficient models, tying environmentalist policy goals to economic rewards for consumers.

Spending $300 million of taxpayer money, SEEARP granted money to state governments, which in turn rewarded consumers who purchased qualifying appliances. 

In the study, released by the National Bureau of Economic Research (NBER) in October, University of Maryland Assistant Professor of Economics Sébastien Houde and John F. Kennedy School of Government at Harvard University Assistant Professor of Public Policy Joseph Aldyis examined individual transaction-level data on appliance sales from each state’s individual implementation of the C4A program.

Economic Laws Remain
C4A’s failure to achieve its stated goals was predictable, says Veronique de Rugy, a senior research fellow at the Mercatus Center at George Mason University.

“It’s assumed that, when someone switches appliances and reduces his energy bill, the laws of economics are suspended. They aren’t,” she explained. “When the price of energy goes down, people tend to increase their consumption, hence [there is] no or little energy savings.”

C4A, de Rugy explained, attempted “to convince people to buy something they had no intention of buying,” so it turns out “the people who are using the program would have changed their appliances anyway.”

Noting the rebate program’s failure to achieve its goals, de Rugy offered an alternative for policymakers seeking to use market forces to reduce energy consumption.

“The only free-market policy is to get rid of all subsidies, and let the market allocate resources to their best uses,” she suggested.

Jesse Hathaway ([email protected]) is managing editor of Budget & Tax News.

Internet Info:

“Belt and Suspenders and More: The Incremental Impact of Energy Efficiency Subsidies in the Presence of Existing Policy Instruments,” Sébastien Houde: