International Review of Environmental and Resource Economics > Vol 8 > Issue 2

Inefficiencies in Residential Use of Energy — A Critical Overview of Literature and Energy Efficiency Policies in the EU

Thomas Broberg, Centre for Environmental and Resource Economics, Department of Economics, Sweden, thomas.broberg@econ.umu.se Andrius Kazukauskas, Centre for Environmental and Resource Economics, Department of Economics, Sweden, andrius.kazukauskas@econ.umu.se
 
Suggested Citation
Thomas Broberg and Andrius Kazukauskas (2015), "Inefficiencies in Residential Use of Energy — A Critical Overview of Literature and Energy Efficiency Policies in the EU", International Review of Environmental and Resource Economics: Vol. 8: No. 2, pp 225-279. http://dx.doi.org/10.1561/101.00000070

Published: 07 Jul 2015
© 2015 T. Broberg and A. Kazukauskas
 
Subjects
Public policy,  Environmental Economics,  Industrial Organization: Regulatory Economics
 
Keywords
Q38Q41Q48
Energy efficiency gapMarket failuresBehavioural failuresEU policies
 

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In this article:
1. Introduction
2. The Energy Efficiency Gap — The Neoclassical View
3. Behavioural Anomalies in Energy Related Choices
4. Energy Efficiency Policies in Europe
5. Discussion and Conclusions
References

Abstract

A rather large literature argues that firms and households do not always improve energy efficiency by investing in new technology even if it would be cost-effective to do so. In this paper, we review the theoretical and empirical literature on the so-called energy efficiency gap and provide a rationale for policymakers to act to improve energy efficiency. By eliminating market failures, welfare can be improved in a broad sense, including both environmental quality and material welfare. We also discuss social 'nudges' as examples of policy instruments that do not directly target any market failure in energy markets but that still may have a significant impact on energy use. Although we acknowledge the existence of the energy efficiency gap, we argue that the gap in general is overestimated as parts of it can be explained by heterogeneity in preferences and thus explained by rational choices.

DOI:10.1561/101.00000070