Working Paper: NBER ID: w15031
Authors: Kenneth Gillingham; Richard G. Newell; Karen Palmer
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 energy-using 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.
Keywords: energy efficiency; energy conservation; market failures; policy interventions; consumer decision making
JEL Codes: H23; Q41; Q48
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| energy prices (Q41) | adoption of energy-efficient technologies (Q55) |
| market failures (D52) | underinvestment in energy efficiency (Q41) |
| behavioral failures (D91) | underinvestment in energy efficiency (Q41) |
| market barriers (L10) | policy interventions in energy markets (Q48) |
| energy efficiency gap (Q41) | underinvestment in energy-efficient technologies (Q41) |