Chapter 5 – Is There an Energy Efficiency Gap?

By Hunt Allcott, Michael Greenstone. 2012

975 citations recorded by the source corpus.

Many analysts have argued that energy efficiency investments offer an enormous "win-win" opportunity to both reduce negative externalities and save money. This overview paper presents a simple model of investment in energy-using capital stock with two types of market failures: first, uninternalized externalities from energy consumption, and second, forces such as imperfect information that cause consumers and firms not to exploit privately-profitable energy efficiency investments. The model clarifies that only if the second type of market failure cannot be addressed directly through mechanisms such as information provision, energy efficiency subsidies and standards may be merited. We therefore review the empirical work on the magnitude of profitable unexploited energy efficiency investments, a literature which frequently does not meet modern standards for credibly estimating the net present value of energy cost savings and often leaves other benefits and costs unmeasured. These problems notwithstanding, recent empirical work in a variety of contexts implies that on average the magnitude of profitable unexploited investment opportunities is much smaller than engineering-accounting studies suggest. Finally, there is tremendous opportunity and need for policy-relevant research that utilizes randomized controlled trials and quasi-experimental techniques to estimate the returns to energy efficiency investments and the welfare effects of energy efficiency programs.

Subfields: Economics and Econometrics, Renewable Energy, Sustainability and the Environment

View Paper: https://www.semanticscholar.org/paper/0fd00265144be6d02917bcdc7cadf29c17e8940d

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Citations in the corpus

Effects of providing total cost of ownership information on consumers’ intent to purchase a hybrid or plug-in electric vehicle (2015, background): “to as the "energy-efficiency paradox" or the "energy-efficiency gap" (Gillingham et al., 2009; Allcott and Greenstone, 2012; Gillingham and Palmer, 2013).”
Do Energy Efficiency Investments Deliver? Evidence from the Weatherization Assistance Program (2018, background): “Homeowners may make systematic optimization mistakes if they are inattentive to energy costs, unable to convey the precise energy usage of an improved house or apartment they are selling or renting to others (Allcott and Greenstone 2012; Myers, 2014), or (6)For simplicity, we are assuming that there”
Switching from fossil fuel to renewables in residential heating systems: An empirical study of homeowners' decisions in Germany (2014, background): “Empirical evidence shows that the energy efficiency gap or energy paradox can be observed in a number of cases (for a review of empirical studies see e.g. Brown et al., 1998 or Allcott and Greenstone, 2012).”
Drivers in CO2 emissions variation: A decomposition analysis for 33 world countries (2016, background): “Trends appear in energy intensity reduction at both country level and sectorial level, with different nuances from sector to sector [7, 8].”
The dynamics of behavior change: Evidence from energy conservation (2016, background): “First, consumers may gradually become inattentive to information about electricity costs (Allcott and Greenstone, 2012) especially as the savings potential is typically small.”
Developing a Social Cost of Carbon for US Regulatory Analysis: A Methodology and Interpretation (2013, background): “…have excluded any assessment of private fuel savings resulting from the rule because, although there is an emerging literature, many consider the question of how consumers account for fuel savings in their purchase decisions an unsettled empirical question (see Allcott and Greenstone 2012).”
Disclosure: Psychology Changes Everything (2014, neutral): “For example, energy-efficiency requirements for appliances may produce goods that work less well or that have characteristics that consumers do not want (Allcott & Greenstone 2012).”
Determinants of households’ investment in energy efficiency and renewables: evidence from the OECD survey on household environmental behaviour and attitudes (2015, background): “inefficient and costly means of decreasing CO2 emissions based on assumed parameters [7] or are likely to lead to”
Green nudges: Do they work? Are they ethical? (2016, background): “…Thaler and Cass Sunstein (Thaler and Sunstein, 2003; Sunstein and Thaler, 2003; Thaler and Sunstein, 2008; Sunstein, 2014a) and implemented by governments across the globe.5 The behavior of 3 This is illustrated, for instance, by the notorious ‘energy-efficiency gap’ (Allcott and Greenstone, 2012).”