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Bridging the Energy Efficiency Gap: Insights for Policy from Economic Theory and Empirical Analysis

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  • Gillingham, Kenneth
  • Palmer, Karen

    ()
    (Resources for the Future)

Abstract

The failure of consumers to make seemingly cost-effective investments in energy efficiency is commonly referred to as the energy efficiency gap. We review the most recent literature relevant to the energy efficiency gap and in particular discuss what the latest insights from behavioral economics might mean for the gap. We find that engineering studies may overestimate the size of the gap by failing to account for all costs and neglecting particular types of economic behavior. Nonetheless, empirical evidence suggests that market failures such as asymmetric information and agency problems affect efficiency decisions and contribute to the gap. Behavioral anomalies have been shown to affect economic decisionmaking in a variety of other contexts and are being increasingly cited as an explanation for the gap. The relative contributions of the various explanations for the gap differ across energy users and energy uses. This heterogeneity poses challenges for policymakers, but also could help elucidate when different policy interventions will most likely be cost-effective. If behavioral anomalies can be more cleanly linked to energy efficiency investments, then policymakers will face new challenges in performing welfare analysis of energy efficiency policies.

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Bibliographic Info

Paper provided by Resources For the Future in its series Discussion Papers with number dp-13-02.

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Date of creation: 25 Jan 2013
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Handle: RePEc:rff:dpaper:dp-13-02

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Related research

Keywords: energy efficiency; market failures; behavioral failures;

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  1. S. Dellavigna., 2011. "Psychology and Economics: Evidence from the Field," VOPROSY ECONOMIKI, N.P. Redaktsiya zhurnala "Voprosy Economiki", vol. 4.
  2. Ignacio Palacios-Huerta & Oscar Volij, 2009. "Field Centipedes," American Economic Review, American Economic Association, vol. 99(4), pages 1619-35, September.
  3. John A. List, 2003. "Does Market Experience Eliminate Market Anomalies?," The Quarterly Journal of Economics, MIT Press, vol. 118(1), pages 41-71, February.
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Cited by:
  1. Burtraw, Dallas & Palmer, Karen L., 2013. "Mixing It Up: Power Sector Energy and Regional and Regulatory Climate Policies in the Presence of a Carbon Tax," Discussion Papers dp-13-09, Resources For the Future.
  2. Newell, Richard G. & Siikamäki, Juha, 2013. "Nudging Energy Efficiency Behavior: The Role of Information Labels," Discussion Papers dp-13-17, Resources For the Future.
  3. McConnell, Virginia, 2013. "The New CAFE Standards: Are They Enough on Their Own?," Discussion Papers dp-13-14, Resources For the Future.

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