Journal of Economic Perspectives
ISSN 0895-3309 (Print) | ISSN 1944-7965 (Online)
Is There an Energy Efficiency Gap?
Journal of Economic Perspectives
vol. 26,
no. 1, Winter 2012
(pp. 3–28)
(Complimentary)
Abstract
Many analysts of the energy industry have long believed that energy efficiency offers an enormous "win-win" opportunity: through aggressive energy conservation policies, we can both save money and reduce negative externalities associated with energy use. In 1979, Daniel Yergin and the Harvard Business School Energy Project estimated that the United States could consume 30 or 40 percent less energy without reducing welfare. The central economic question around energy efficiency is whether there are investment inefficiencies that a policy could correct. First, we examine choices made by consumers and firms, testing whether they fail to make investments in energy efficiency that would increase utility or profits. Second, we focus on specific types of investment inefficiencies, testing for evidence consistent with each. Three key conclusions arise: First, the evidence presented in the long literature on the subject frequently does not meet modern standards for credibility. Second, when one tallies up the available empirical evidence from different contexts, it is difficult to substantiate claims of a pervasive Energy Efficiency Gap. Third, it is crucial that policies be targeted. Welfare gains will be larger from a policy that preferentially affects the decisions of those consumers subject to investment inefficiencies.Citation
Allcott, Hunt, and Michael Greenstone. 2012. "Is There an Energy Efficiency Gap?" Journal of Economic Perspectives, 26 (1): 3–28. DOI: 10.1257/jep.26.1.3JEL Classification
- Q41 Energy: Demand and Supply
- Q48 Energy: Government Policy
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