Minimum energy performance standards for the 1.5 °C target: an effective complement to carbon pricing

Radical energy efficiency improvements are needed to keep global warming within 1.5 °C until the end of the century. Minimum energy performance standards (MEPS) are a widely applied policy instrument to improve the energy efficiency of appliances and reduce CO2 emissions, but they are criticized as redundant if an overarching carbon pricing scheme is in place. In order to better understand how MEPS could play a more effective role in reaching the 1.5 °C target, life cycle costs (LCC) for four home appliances were modelled considering a cost for emitting CO2. First, a significant social cost of carbon was introduced in a LCC optimisation model and it was found that a modest tightening of MEPS is sufficient to account for the climate externality. Second, more stringent MEPS were modelled and it was found that the switching prices needed to incentivize a shift up one or two efficiency classes were far higher than current carbon prices. These results have several implications for climate policy towards the 1.5 °C target. MEPS can easily internalize the climate externality and have the advantage over carbon pricing that policy makers can be certain that consumers actually move to more efficient appliances. While stringent MEPS do not appear to be economically efficient on the short-run, they are likely cost-effective in long-run 1.5 °C-consistent scenarios.