Deconstructing the Energy-Efficiency Gap: Conceptual Frameworks and Evidence

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 to the degree that appears justified, even on a purely private basis. We present two complementary frameworks for understanding this so-called “energy paradox” or “energy efficiency gap.” First, we build upon 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 examine the elements of cost-minimizing energy efficiency decisions, the typical benchmark used in assessing the gap's magnitude.