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Journal of Economic Literature

ISSN 0022-0515 (Print) | ISSN 2328-8175 (Online)

Assessing the Energy-Efficiency Gap

  • Todd D. Gerarden
  • Richard G. Newell
  • Robert N. Stavins
Journal of Economic Literature
vol. 55, no. 4, December 2017
(pp. 1486–1525)
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Abstract

Energy-efficient technologies offer considerable promise for reducing the financial costs and environmental damages associated with energy use, but it has long been observed that these technologies may not be adopted by individuals and firms to the degree that might be justified, even on a purely financial basis. We survey the relevant literature on this "energy-efficiency gap" by presenting two complementary frameworks. First, we divide potential explanations for the energy-efficiency gap into three categories: market failures, behavioral explanations, and model and measurement errors. Second, we organize previous research 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 synthesize academic research on these questions, with an emphasis on recent empirical findings, and offer suggestions for future research.

Citation

Gerarden, Todd D., Richard G. Newell, and Robert N. Stavins. 2017. "Assessing the Energy-Efficiency Gap." Journal of Economic Literature, 55 (4): 1486–1525. DOI: 10.1257/jel.20161360

Additional Materials

JEL Classification

  • D24 Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
  • D82 Asymmetric and Private Information; Mechanism Design
  • L94 Electric Utilities
  • L98 Industry Studies: Utilities and Transportation: Government Policy
  • O33 Technological Change: Choices and Consequences; Diffusion Processes
  • Q41 Energy: Demand and Supply; Prices
  • Q48 Energy: Government Policy