16th session of seminars on research in energy economics at paris-sciences-lettres
Abstract
Programme and Summary of the presentation
The Seminar on Research in Energy Economics at Paris-Sciences-Lettres (PSL) is jointly organized by the CERNA (MINES PARIS TECH), the CGEMP (Université Paris-Dauphine), the Chaire European Electricity Markets (Université Paris-Dauphine), and i3 (l’Institut interdisciplinaire de l’innovation), members of PSL. It is animated by François LEVEQUE (MINES PARIS TECH), Dominique FINON (Chaire European Electricity Markets, CNRS-CIRED) and Patrice GEOFFRON (Director, CGEMP, Université Paris-Dauphine).
Kenneth GILLINGHAM, Professor of Environmental and Energy Economics, Yale University
Bridging the efficiency gap: policy insights from economic theory and empirical analysis
Presentation
Summary
The failure of consumers to make seemingly cost-effective investments in energy efficiency is commonly referred to as the energy efficiency gap. We review the most recent literature relevant to the energy efficiency gap and in particular discuss what the latest insights from behavioral economics might mean for the gap. We find that engineering studies may overestimate the size of the gap by failing to account for all costs and neglecting particular types of economic behavior. Nonetheless, empirical evidence suggests that market failures such as asymmetric information and agency problems affect efficiency decisions and contribute to the gap. Behavioral anomalies have been shown to affect economic decision making in a variety of other contexts and are being increasingly cited as an explanation for the gap. The relative contributions of the various explanations for the gap differ across energy users and energy uses. This heterogeneity poses challenges for policy makers, but also could help elucidate when different policy interventions will most likely be cost-effective. If behavioral anomalies can be more cleanly linked to energy efficiency investments, then policymakers will face new challenges in performing welfare analysis of energy efficiency policies.
From a paper published in 2014 in the Review of Environmental Economics and Policy, 8(1): 18-38.
