Assessing the Energy-Efficiency Gap
Energy-efficient technologies offer considerable promise for reducing the financial costs and environmental damages associated with energy use, but these technologies appear not to be adopted by consumers and businesses to the degree that would apparently be justified, even on a purely financial basis. We present two complementary frameworks for understanding this so-called “energy paradox” or “energy-efficiency gap.” First, we build on the previous literature by dividing potential explanations for the energy-efficiency gap into three categories: market failures, behavioral anomalies, and model and measurement errors. Second, we posit that it is useful to think in terms of the fundamental elements of cost-minimizing energy-efficiency decisions. This provides a decomposition that organizes thinking around four questions. First, are product offerings and pricing economically efficient? Second, are energy operating costs inefficiently priced and/or understood? Third, are product choices cost-minimizing in present value terms? Fourth, do other costs inhibit more energy-efficient decisions? We review empirical evidence on these questions, with an emphasis on recent advances, and offer suggestions for future research.
This paper draws, in part, on a workshop held at Harvard, October 24-25, 2013, “Evaluating the Energy-Efficiency Gap,” co-sponsored by the Duke University Energy Initiative and the Harvard Environmental Economics Program. The workshop’s agenda is provided in Appendix 1, and the list of participants in Appendix 2. We are very grateful to all of the participants for the insights they provided on the questions addressed at the workshop. In addition, we gratefully acknowledge valuable comments on a previous version of the manuscript by Robert Stowe, editorial contributions by Marika Tatsutani, and generous financial support from the Alfred P. Sloan Foundation. The authors, however, are fully responsible for any errors and all opinions expressed in this paper. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.
Todd D. Gerarden & Richard G. Newell & Robert N. Stavins, 2017. "Assessing the Energy-Efficiency Gap," Journal of Economic Literature, American Economic Association, vol. 55(4), pages 1486-1525, December. citation courtesy of