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Informational Barriers to Energy Efficiency – Theory and European Policies

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  • Bleischwitz, Raimund
  • Andersen, Lars-Morten

Abstract

This BEER addresses informational barriers to energy efficiency. It is a widely acknowledged result that an energy efficiency gap exists implying that the level of energy efficiency is at an inefficiently low level. Several barriers to energy efficiency create this gap and the presence of asymmetric information is likely to be one such barrier. In this article a theoretical framework is presented addressing the issues of moral hazard and adverse selection related to energy efficiency. Based on the theoretical framework, European policies on energy efficiency are evaluated. The article is divided into two main parts. The first part presents the theory on information asymmetries and its consequences on energy efficiency focusing on the problems of moral hazard and adverse selection. Having established a theoretical framework to understand the agency barriers to energy efficiency, the second part evaluates the policies of the European Union on energy efficiency. The BEER finds that problems of moral hazard and adverse selection indeed can help explain the seemingly low levels of energy. In both presented models the cost to the principal from implementing high energy efficiency outcome is increased with the informational asymmetries. The theory reveals two implications to policies on energy efficiency. First, the development of measures to enable contractual parties to base remuneration on energy performance must be enhanced, and second, the information on technologies and the education of consumers and installers on energy efficiency must be increased. This could be complemented with certification of installers and energy efficiency advisors to enable consumers to select good agents. Finally, it is found that the preferred EU policy instrument on energy efficiency, so far, seems to be the use of minimum requirements. Less used in EU legislation is the use of measuring and verification as well as the use of certifications. Therefore, it is concluded that the EU should consider an increased use of these instruments, and in particular focus on a further development of standards on measurability and verification as well as an increased focus on education of consumers as well as installers and advisors on energy efficiency.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 19937.

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Date of creation: Dec 2009
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Handle: RePEc:pra:mprapa:19937

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Keywords: Energy efficiency; Informational barriers; European policies;

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  1. Macho-Stadler, Ines & Perez-Castrillo, J. David, 2001. "An Introduction to the Economics of Information: Incentives and Contracts," OUP Catalogue, Oxford University Press, Oxford University Press, edition 2, number 9780199243259, October.
  2. Robert W. Fri, 2003. "The Role of Knowledge: Technological Innovation in the Energy System," The Energy Journal, International Association for Energy Economics, International Association for Energy Economics, vol. 0(Number 4), pages 51-74.
  3. Michael Grubb & David Ulph, 2002. "Energy, the Environment, and Innovation," Oxford Review of Economic Policy, Oxford University Press, Oxford University Press, vol. 18(1), pages 92-106, Spring.
  4. Bleischwitz, Raimund, 2009. "Eco-innovation - putting the EU on the path to a resource and energy efficient economy," MPRA Paper 19939, University Library of Munich, Germany.
  5. Staffan Jacobsson & Anna Bergek, 2004. "Transforming the energy sector: the evolution of technological systems in renewable energy technology," Industrial and Corporate Change, Oxford University Press, vol. 13(5), pages 815-849, October.
  6. Bleischwitz, Raimund, 2003. "Cognitive and institutional perspectives of eco-efficiency," Ecological Economics, Elsevier, Elsevier, vol. 46(3), pages 453-467, October.
  7. Adam Jaffe & Richard Newell & Robert Stavins, 2002. "Environmental Policy and Technological Change," Environmental & Resource Economics, European Association of Environmental and Resource Economists, European Association of Environmental and Resource Economists, vol. 22(1), pages 41-70, June.
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