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Market Barriers to Energy-Efficiency Investments


  • Ronald J. Sutherland


The conservation literature argues that numerous cost-effective conservation measures could be undertaken, but they are not because market barriers discourage such investments. A review of these barriers indicates that in genera{ they do not discourage investment and they are not market failures. A conventional investment model suggests that business investments in energy efficiency are made with the same decision rules as any other investments. Consumers who invest in energy efficiency require higher rates of return when the investments are illiquid and they are unable to diversify away the risk The high discount rates required by consumers for energy-eficiency investments reflect real costs in a competitive market, not artificial market barriers. Policies that encourage the dissemination of information, such as appliance labelling, may promote energy efficiency and overall economic efficiency. Policies, such as appliance standards, that require consumers to invest according to lower discount rates, reduce consumers' overall economic wellbeing. Two market failures that illuminate the need for government support of conservation policies are the external costs of energy consumption and production and the lack of aggregate insurance against energy-related risks.

Suggested Citation

  • Ronald J. Sutherland, 1991. "Market Barriers to Energy-Efficiency Investments," The Energy Journal, International Association for Energy Economics, vol. 0(Number 3), pages 15-34.
  • Handle: RePEc:aen:journl:1991v12-03-a03

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    References listed on IDEAS

    1. Berndt, Ernst R, 1976. "Reconciling Alternative Estimates of the Elasticity of Substitution," The Review of Economics and Statistics, MIT Press, vol. 58(1), pages 59-68, February.
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    3. Ronald E. Findlay & Carlos Alfredo Rodriguez, 1977. "Intermediate Imports and Macroeconomic Policy under Flexible Exchange Rates," Canadian Journal of Economics, Canadian Economics Association, vol. 10(2), pages 208-217, May.
    4. Hall, Robert E, 1978. "The Macroeconomic Impact of Changes in Income Taxes in the Short and Medium Runs," Journal of Political Economy, University of Chicago Press, vol. 86(2), pages 71-85, April.
    5. Hall, Robert E & Lilien, David M, 1979. "Efficient Wage Bargains under Uncertain Supply and Demand," American Economic Review, American Economic Association, vol. 69(5), pages 868-879, December.
    6. Stephen M. Goldfeld, 1976. "The Case of the Missing Money," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 7(3), pages 683-740.
    7. Daniel J.B. Mitchell, 1978. "Union Wage Determination: Policy Implications and Outlook," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 9(3), pages 537-582.
    8. Robert J. Gordon, 1970. "The Recent Acceleration of Inflation and Its Lessons for the Future," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 1(1), pages 8-47.
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    JEL classification:

    • F0 - International Economics - - General


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