Purpose. The purpose of this research was to identify whether a relationship exists between state energy-efficiency policy and innovation in the State of California and to shed light on the impact that energy-efficiency policy can have on supporting statewide economic development goals.

Theoretical Framework. The theoretical framework drew from foundations in neoclassical economic theory, technology change theory, and new growth theory. Together these theories formed the basis to describe the impacts caused by the innovations within the market economy. Under this framework, policy-generated innovations are viewed to be translated into efficiency and productivity that propel economic benefits.

Methodological Considerations. This study examined various economic indices and efficiency attainment indices affecting four home appliances regulated under Title 20's energy-efficiency standard established by the California Energy Commission, Warren Alquist Act. The multiple regression analysis performed provided an understanding of the relationship between the products regulated, the regulation standard, and the policy as it relates to energy-efficiency regulation.

Findings. There is enough evidence to show that strategies embedded in the Warren Alquist Act, Title 20 do drive innovation. Three of the four product categories tested showed statistical significance in the policy standard resulting in an industry efficiency improvement. Conclusively, the consumption of electricity per capita in California has positively diverged over a 35-year period from national trends, even though California had mirrored the nation in income and family size during the same period, the only clear case of divergence is the state's action toward a different energy policy.

Conclusions and Recommendations. California's regulations propelled manufacturers to reach higher efficiency levels not otherwise pursued by market forces. The California effort included alliances all working together to make the change financially feasible as well as increasing efficiency levels. The success of the policy is based on the attainment of regulation standards, economic growth within the energy-efficiency industry, and energy-efficiency business savings. The key to the policy was its ability to “level the playing field” for manufacturers who could then choose the technology and design that best fit their products and compliance levels while at the same time lowering the cost of production.