Association for Public Policy Analysis & Management

The objective of the paper is to examine the impact of energy-efficiency policy on innovation in household appliance firms. Firms must meet the minimum federal standards dictated by the National Appliance Energy Conservation Act (NAECA) to sell their products. Furthermore, ENERGY STAR was created in 1992 and assists firms investing in energy-efficient products, thereby promoting energy-product diffusion to consumers. Firms have incentives to participate in voluntary environmental regulations in order to escape more stringent regulation from the government. Some firms have gone above and beyond the threshold of voluntary standards while others barely satisfy the requirement. When firms achieve the requirements to get certified as ENERGY STAR products, they can raise their prices in order to maximize their profits. However, little work has investigated the relationship between energy-efficiency policy and innovation across firms. In this regard, this paper investigates the firms’ patenting behavior in response to the energy-efficiency policy change.

I collected the patent data to analyze firm innovation behaviors related to refrigerator energy efficiency gathered from the United States Patent and Trademark Office (USPTO) database between 1990 and 2006. In order to match the list of ENERGY STAR participants with the assignee of patents, I use the disambiguation technique. First, I begin with some basic summary statistics on the patenting behavior of firms. Second, I use a difference-in-differences estimation method with a linear regression model. The idea is to distinguish between treatment groups (ES participating firms) and control groups (ES non-participating firms) after the ENERGY STAR criteria change. Third, the Poisson and Negative Binomial models are also used with robust standard errors. However, the estimation method of count models is vulnerable to the potential endogeneity problems. I also use the generalized method of moments (GMM) to estimate the Poisson model that allows me to estimate a count data model in a panel framework while mitigating endogeneity.

The preliminary result confirms that voluntary energy policy can exploit opportunities to close the energy efficiency gap through energy product innovation. In order to accelerate greater energy efficiency for all refrigerators, the federal government should keep an eye on whether a policy achieves the intended outcomes and to what extent. Overall, these findings imply the current drive to strengthen the voluntary energy policy should be sustained to capture low-hanging fruits.