Reductions In Energy Demand

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The price mechanism can be an important part of any policy intended to reduce energy consumption. Prices encourage efficiency, discussed in the next section, but they can also change behavior. For example, if gasoline prices rise, whether from taxes or market forces, people who commute long distances may buy a more efficient vehicle or they may switch to public transportation or move closer to work. Nevertheless, the impact of prices on consumers and the economy are an important area for further research. It should be noted that prices are not the only feature involved in consumer choice, and the response to increased energy prices (the elasticity of demand) is often modest. There are many possible explanations for this: modest changes in price are not noticed, consumers cannot easily change some aspects of their consumption (for example, it is not always feasible to sell a car with low gas mileage to buy one with higher mileage when gas prices rise, at least in the short run), and there are many other factors that influence decisions that affect energy consumption and in some circumstances may have more influence than prices (Carrico et al., 2010; Stern et al., in press; Wilson and Dowlatabadi, 2007).

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