Energy Efficiency Economics and Policy

Abstract

Energy efficiency and conservation are considered key means for reducing greenhouse gas emissions and achieving other energy policy goals, but associated market behavior and policy responses have engendered debates in the economic literature. We review economic concepts underlying consumer decision making in energy efficiency and conservation and examine related empirical literature. In particular, we provide an economic perspective on the range of market barriers, market failures, and behavioral failures that have been cited in the energy efficiency context. We assess the extent to which these conditions provide a motivation for policy intervention in energyusing product markets, including an examination of the evidence on policy effectiveness and cost. Although theory and empirical evidence suggests there is potential for welfare-enhancing energy efficiency policies, many open questions remain, particularly relating to the extent of some key market and behavioral failures.

Smoking Gentlemen—How Formula One Has Controlled CO2 Emissions

“…Therefore, the direction of the ecological suggestions has been in the sense that various sources (daily routines, industrial activities, farming or livestock, etc.) must generate less CO 2 and must continue to improve the quality and the quantity of output (the meaning of "energetic efficiency", according to Gillingham et al [13]). …”

A Review on Energy Consumption from a Socio-Economic Perspective: Reduction Through Energy Efficiency and Beyond

“…The most relevant basic definitions are the energy efficiency related terminologies: on a more technical level energy efficiency is typically understood as the amount of service per unit of energy input (Gillingham et al, 2009) which is the reverse of the energy intensity of a product or service.…”

“…The argumentation is that in order to secure the stable supply of fossil fuels from unstable political regions the government has expanses that are not included in the price of the fossil fuels. Jaffe et al (2004) point out that it seems unlikely that a marginal demand reduction would lead to a change in those expenditures whereas Gillingham et al (2009) remark that long term reduction may reduce the associated risk and therefore not reflecting those costs will lead to an underinvestment in energy efficiency.…”

“…As the innovating firm does not profit from those benefits it will limit its R&D activity accordingly. This is a general issue of innovation which leads to a higher social rate of return compared to the private rate (Gillingham et al, 2009). Furthermore, the interaction of market failures at the energy and environmental level with the technology innovation market failures increases the hurdles for energy policy (Popp et al, 2010).…”

An Assessment of the Energy-Efficiency Gap and Its Implications for Climate Change Policy

“…Yet another possible explanation for the energy-efficiency gap is that cognitive limitations prevent people (and perhaps firms) from properly balancing present value benefits and costs when investing in energy-using goods (Gillingham, Newell, and Palmer 2009). Studies of vehicle fuel economy provide some evidence for these limitations (which are also known in the economics literature as "bounded rationality"), finding that consumers systematically misperceive the information contained in fuel economy ratings, due to the inverse relationship between gasoline consumption and miles per gallon (Larrick and Soll 2008;Allcott 2013).…”