Banning Products with Low Energy Efficiency: Market Response and Adjustment Cost

This study analyzes a regulation that banned household appliances with energy efficiency below a minimum standard from the European Union’s common market in 2014. Based on a dataset reporting unit sales at product level, we conduct an empirical analysis of the product-characteristics space. This permits us to explore the market response in terms of energy efficiency and size of products and to estimate the adjustment cost. Though our results show that the product ban induced a sizable market transformation toward products with higher energy efficiency, we find that the minimum standard is set inefficiently low: if the regulation banned a larger segment of the market, higher energy savings could be obtained at lower adjustment cost.