Assessing the Energy-Efficiency Gap

75 Pages Posted: 28 Apr 2015

See all articles by Todd Gerarden

Todd Gerarden

Cornell University - Dyson School of Applied Economics and Management

Richard G. Newell

Duke University - Nicholas School of Environment; National Bureau of Economic Research (NBER); Resources for the Future

Robert N. Stavins

Harvard University - Harvard Kennedy School (HKS); Resources for the Future; National Bureau of Economic Research (NBER)

Multiple version iconThere are 3 versions of this paper

Date Written: April 27, 2015

Abstract

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.

Keywords: Energy-Efficiency, Financial Costs, Environmental Damages

JEL Classification: Q4, Q48, Q5, Q55

Suggested Citation

Gerarden, Todd and Newell, Richard G. and Stavins, Robert N., Assessing the Energy-Efficiency Gap (April 27, 2015). FEEM Working Paper No. 035.2015, Available at SSRN: https://ssrn.com/abstract=2599532 or http://dx.doi.org/10.2139/ssrn.2599532

Todd Gerarden

Cornell University - Dyson School of Applied Economics and Management ( email )

Ithaca, NY
United States

Richard G. Newell

Duke University - Nicholas School of Environment ( email )

Box 90228
Durham, NC 27708-0328
United States
919-681-8865 (Phone)

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Resources for the Future ( email )

1616 P Street, NW
Washington, DC 20036
United States

Robert N. Stavins (Contact Author)

Harvard University - Harvard Kennedy School (HKS) ( email )

79 John F. Kennedy Street
Cambridge, MA 02138
United States
617-495-1820 (Phone)
617-496-3783 (Fax)

Resources for the Future

1616 P Street, NW
Washington, DC 20036
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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