Rethinking the energy-efficiency gap: Producers, intermediaries, and innovation

Rethinking the energy-efficiency gap: Producers, intermediaries, and innovation / Carl Blumstein and Margaret Taylor. Berkeley : Energy Institute at Haas, May 2013, 12 p. (EI @ Haas WP-243)

The economic justification for energy efficiency policy primarily focuses on market failures and barriers that prevent energy consumers from undertaking privately profitable investments in efficiency. These consumer-oriented market imperfections are the subject of a substantial and growing body of research regarding human behaviour and economic incentives that influence the demand for energy-efficient technologies. But the literature has focused much less on the producers of energy efficient technologies, and intermediaries such as retailers, who supply technology choice sets for consumer adoption as a result of their competitive strategy.This paper focuses on the question: How could supplier strategy issues help explain the observed “energy efficiency gap” between the privately optimal energy efficiency of goods and services and the actual energy efficiency of goods and services? A central point of the paper is the observation that the efficiency gap is dynamic, changing over time and with the processes of innovation; the invention of new, more energy-efficient technologies can widen the gap, while the refinement and take-up of such technologies can narrow it. Understanding the role of the supply side in both narrowing and widening the efficiency gap is vital because of the potential importance of government intervention in affecting the rate and direction of technological change with respect to energy efficiency. Further analysis is warranted to better understand whether, in some instances, relatively low-cost measures like upstream subsidies and Minimum Energy Performance Standards are superior to energy taxes when addressing the energy efficiency gap.