A quantitative and qualitative analysis of the super-efficient equipment program subsidy in India

India is a fast growing economy with a fast growing population. Estimations indicate that in the next few years, it will be the world’s most populous country, with China only second. These developments, together with high urbanization rates, are putting increasing pressure on the energy sector and driving the attention to energy efficiency. The issue is not only financial but also social and environmental. One of the schemes developed to promote energy efficiency in the residential housing sector is the Super Efficient Equipment Program (SEEP), which aims at reducing energy consumption in Indian households, by subsidizing the production of super efficient fans. Emphasis is put into increasing economies of scale and balancing possible losses in market power for producers. However, the scheme does not take into consideration consumers’ behavior in the market and their purchasing propensity toward energy efficient fans. In this article, we develop an econometric model that takes consumers’ preferences and behavior into consideration, by analyzing how these influence the success of the SEEP scheme. To do so, the price elasticity of energy efficient fans is calculated. We will then apply it to the SEEP subsidy scheme in order to assess how the quantity of super efficient fans sold varies with changes in the price. Using projected data on residential housing floor space in India, we will estimate the percentage of super efficient fans sold and calculate future energy savings. We are finally able to infer whether the SEEP scheme is capable of meeting its goals.