Overcoming Market Barriers to Advance Energy Efficiency

March 6, 2017-The United States has greatly improved energy efficiency over the past several decades. In fact, energy consumption is almost half of what it would have been without efficiency initiatives.

That is great, but there is a lot of room for improvement. So how do we get there and what is standing in the way?

According to a recent report by the American Council for an Energy-Efficient Economy (ACEEE), a variety of market barriers and failures prevent us from reaching our full energy-efficiency potential:

  • Flawed Information: According to ACEEE, one of the largest barriers to advancing energy-efficiency is our unreliable information. In particular, the report states that our knowledge of the performance of different equipment, technologies, buildings, and other systems is imperfect. Our information related to energy consumption is also flawed, largely because energy savings are so difficult to measure.
  • Split Incentives: When the person making energy efficiency investments isn’t the one paying the actual energy bill (e.g., a landlord/tenant situation), the two not being in agreement can form a barrier.
  • Externalities: These barriers form when the costs and benefits are realized by people outside of the immediate participants in a transaction. This can be unavoidable costs an individual, group, or society incurs, such as pollution or traffic.
  • Imperfect Competition: Prices may be inefficient when there is not a fully competitive market.

According to the ACEEE, the following are ways to overcome these barriers:

Improving Information

  • Improve appliance labeling: Proper labeling will help consumers make decisions at the point of purchase and motivate them to consider energy efficiency.
  • Building labeling and disclosure: Building labeling should inform prospective buyers about the efficiency of a building so they can make more informed decisions. This would also help motivate them to make more profitable investments in energy efficiency.
  • Unfettering energy data: Individuals and businesses can make better decisions when they have proper information about their energy use and savings. This information should be relevant, accessible, and accurate.

Removing Legal Barriers

  • Improving Combined Heat and Power (CHP) interconnection standards: Transparency in the connections process will encourage the use of CHP systems.
  • Fair supplemental and backup power rates: By making this power more affordable and accessible, facilities will see more economic incentive for using CHP.
  • Output-based emission standards: Moving away from input-based standards would help CHP system owners justify the efficiency and environmental benefits of the system.
  • Valuation of ancillary services: If the various ancillary benefits of a CHP system were calculated (e.g., higher system reliability, increased power quality), the economic benefits of the system would be clearer to consumers and utilities.
  • Utility regulatory reform: Investor-owned utilities (IOUs) hinder investment in energy efficiencies and drive utilities to increase revenues. Implementing policies to properly align financial incentives can remove these barriers.
  • Restructure corporate income tax: Make changes so they no longer discourage investments in energy efficiency.

Even though there have been great strides in increasing energy efficiency, more can be done to help consumers save money. Knowing the barriers and possible solutions will allow a continued push toward reaching the country’s energy -saving potential.