Energy price disparity and public welfare

The differences in the price of energy to economic sectors are linked to a number of system parameters and to public welfare. There are large disparities in energy prices within states when comparing residential and industrial prices although neoclassical economics predicts one price in markets. The large disparities between the two sectors across states negatively affects the efficiency of resource allocation, creates subsidies for those getting the cheap energy and results in unequal access to energy. These in turn lead to inefficient partitioning of energy between products and waste, higher pollution, leakage of wealth and poorer energy use efficiency, i.e. high energy intensity. States with large energy price disparities between sectors have statistically higher poverty, lower incomes, more pollution and use more energy but with less efficiency. Higher energy price disparities also result in higher throughput per unit of output thus reducing the chances for sustainability and lower public welfare. © 2001 Elsevier Science B.V. All rights reserved.