Long-run welfare effect of energy conservation regulation

- We investigate the long-run effect of energy conservation regulation.
- We consider the cases in which Pigovian tax is imposed.
- Additional energy conservation regulation is always harmful under perfect competition.
- It may improve both social and consumer welfare under imperfect competition.

We investigate the long-run effect of energy conservation regulation, which forces firms to raise energy-saving investment above the cost-minimizing level. If Pigovian tax is imposed, additional regulation always harms social welfare under perfect competition, while it can improve welfare under imperfect competition. Our result under imperfect competition holds regardless of whether strategies are strategic substitutes or complements in contrast to direct entry regulation.