On the economic analysis of problems in energy efficiency: Market barriers, market failures, and policy implications

Abstract

In his recent paper in The Energy Journal, Ronald Sutherland argues that several so-called "market barriers" to energy efficiency frequently cited in the literature are not market failures in the conventional sense and are thus irrelevant for energy policy. We argue that Sutherland has inadequately analyzed the idea of market barrier and misrepresented the policy implications of microeconomics. We find that economic theory, correctly interpreted, does not provide for the categorical dismissal of market barriers. We explore important methodological issues underlying the debate over market barriers, and discuss the importance of reconciling the findings of non-economic social sciences with the economic analysis of energy demand and consumer decision-making. We also scrutinize Sutherland's attempt to apply finance theory to rationalize high implicit discount rates observed in energy-related choices, and find this use of finance theory to be inappropriate.

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“…One of the most comprehensive and impressive retrospectives is the 1978 book by Ascher (1978), which reviews dozens of forecasts from a variety of fields, including energy. Other retrospectives (not exclusively from the energy forecasting field) include those by Huss (1985aHuss ( , 1985bHuss ( , 1985c, Nelson and Peck (1985), Dominguez et al (1988), Nelson et al (1989), Schnaars (1989), Huntington (1994, Shlyakhter et al (1994), US DOE (1999), DeCanio (2003), Laitner et al (2003), and Sanstad et al (2003).…”

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Incorporating global warming risks in power sector planning: A case study of the New England region. Volume 1

“…1For economic analysis of the sources of such failures, see Koomey 1990b, Fisher and Rothkopf 1990, Sanstad et al 1992, and Krause and Eto 1988 qA_;_ 066I u! _so D o3eaaA v…”