Energy Efficiency

, Volume 10, Issue 5, pp 1155–1173 | Cite as

Energy-efficiency skeptics and advocates: the debate heats up as the stakes rise

  • Marilyn A. BrownEmail author
  • Yu Wang
Original Article


Energy efficiency (EE) is rapidly growing in many markets today, but its its cost-effectiveness and potential for growth are being hotly debated. These controversies impede public and private investment in efficiency programs, products, and services. As the stakes rise, the debate has heated up and the need grows to clarify the disagreements and disputes. We review the arguments of skeptics and advocates on 10 key questions concerning energy efficiency, attempting to answer three overriding questions: does an EE gap exist, how big is the gap, and how can the gap be shrunk? We tackle 10 areas of contention: the significance of market failures, the efficiency of investment levels, energy intensity as a measure of efficiency, the treatment of naturally occurring EE, the application of discount rates, accounting for transaction costs, treatment of the rebound effect, the practice of EE delivery, the integration of EE into utility business models, and opportunities for EE growth. Research needs in each of these areas are also described. By examining the divergent views of skeptics and advocates and by addressing the limitations of current knowledge, policymakers and stakeholders can make better-informed decisions supported by more defensible analysis.


Energy efficiency gap Energy efficiency potential Discount rates Rebound effect Transaction costs 



This article deepens and extends arguments presented in Green Savings: How Markets and Policies Drive Energy Efficiency (Praeger, 2015). We thank our colleagues in the Climate and Energy Policy Laboratory and the Brook Byers Institute of Sustainable Systems at Georgia Tech for helping to crystallize many of these arguments.


  1. ACEEE. (2011). “How Does Energy Efficiency Create Jobs? Fact Sheet.”
  2. Allcott, H., & Greenstone, M. (2012). Is there an energy efficiency gap? Journal of Economic Perspective, 26, 3–28.CrossRefGoogle Scholar
  3. Amann, Jennifer Thorne. (2006). Valuation of non-energy benefits to determine cost-effectiveness of whole-house retrofits programs : a literature review. Vol. 20036. Washington D.C.Google Scholar
  4. American Council for an Energy Efficient Economy (ACEEE), (2015). State Energy Efficiency Resources Standards (EERS) (April).Google Scholar
  5. Arrow, K., Cropper, M., Gollier, C., Groom, B., Heal, G., Newell, R., Nordhaus, W., Pindyck, R., Pizer, W., & Portney, P. (2013). Determining benefits and costs for future generations. Science, 341(6144) American Association for the Advancement of Science, 349–350.CrossRefGoogle Scholar
  6. Asensio, O. I., & Delmas, M. A. (2015). Nonprice incentives and energy conservation. Proceedings of the National Academy of Sciences, 112(6), E510–E515.CrossRefGoogle Scholar
  7. Baer, P., Brown, M. A., & Kim, G. (2015). The job generation impacts of expanding industrial cogeneration. Ecological Economics, 110(2015), 141–153.CrossRefGoogle Scholar
  8. Baumol, W. J., & Oates, W. E. (1975). The theory of environmental policy. Englewood Cliffs, N.J: Englewood Cliffs, N.J., Prentice-Hall.Google Scholar
  9. Benzion, U., Rapoport, A., & Yagil, J. (1989). Discount rates inferred from decisions: an experimental study. Management Science, 35(3) INFORMS, 270–284.CrossRefGoogle Scholar
  10. Birol, Fatih. (2012). “Chief economist at the International Energy Agency.”
  11. Borenstein, S. (2015). A microeconomic framework for evaluating energy efficiency rebound and some implications. The Energy Journal, 36(1), 1–21.Google Scholar
  12. Bradley, Robert L. (2014). Capitalism at work: business, government, and energy. M & M Scrivener Press.Google Scholar
  13. Brookes, L. (1990). The greenhouse effect: the fallacies of in the energy efficiency solution. Energy Policy, 18, 199–201.CrossRefGoogle Scholar
  14. Brown, M. A. (2001). Market failures and barriers as a basis for clean energy policies. Energy Policy, 29(14), 1197–1207.CrossRefGoogle Scholar
  15. Brown, Marilyn A, and Yu Wang. (2015). Green savings: how policies and markets drive energy efficiency: how policies and markets drive energy efficiency. ABC-CLIO.Google Scholar
  16. Brown, M. A., Baer, P., Cox, M., & Kim, J. (2014). Evaluating the risks of alternative energy policies: a case study of industrial energy efficiency. Energy Efficiency, 7(1), 1–22.CrossRefGoogle Scholar
  17. Brown, M. A., Johnson, E., Matisoff, D., Staver, B., Beppler, R., & Blackburn, C. (2016). “Impacts of solar power on electricity rates and bills,” Proceedings of the 2016 ACEEE Summer Study on Energy Efficiency in Buildings, Pacific Grove, CA. Washington, DC: American Council for an Energy-Efficient Economy.Google Scholar
  18. Cox, M., Brown, M. A., & Sun, X. (2013). Energy benchmarking of commercial buildings: a low-cost pathway toward urban sustainability. Environmental Research Letters, 8(3), 035018. doi: 10.1088/1748-9326/8/3/035018.CrossRefGoogle Scholar
  19. Deitchman, B. (2017). Climate and clean energy policy: state institutions and economic implications, Routledge.Google Scholar
  20. DOE EIA. (2011). “Residential demand module of the national energy modeling system model documentation report.” US DOE Energy Information Administration. (2011).pdf.
  21. Donahue, John D. (1989). The privatization decision: public ends, private means. Basic Books.Google Scholar
  22. Fowlie, M., Greenstone, M., & Wolfram, C. (2015). Are the non-monetary costs of energy efficiency investments large? Understanding low take-up of a free energy efficiency program. American Economic Review: Papers & Proceedings, 105(5), 201–204. doi: 10.1257/aer.p20151011.CrossRefGoogle Scholar
  23. Frederick, S., Loewenstein, G., & O’Donoghue, T. (2002). Time discounting and preference : a critical time review. Journal of Economic Literature, 40(2351–401). doi: 10.2307/2698382.
  24. Fri, R. W. (2003). The role of knowledge: technological innovation in the energy system. The Energy Journal, 24(4), 51–74
  25. Geller, H., & Attali, S. (2005). The experience with energy efficiency policies and programmes in IEA countries. Paris: Learning from the Critics.Google Scholar
  26. Geller, H., Harrington, P., Rosenfeld, A. H., Tanishima, S., & Unander, F. (2006). Polices for increasing energy efficiency: thirty years of experience in OECD countries. Energy Policy, 34(5), 556–573.CrossRefGoogle Scholar
  27. Gillingham, Kenneth, and Karen Palmer. (2014). “Bridging the energy efficiency gap: policy insights from economic theory and empirical evidence.” Review of Environmental Economics and Policy. Oxford University Press, ret021.Google Scholar
  28. Gillingham, K., Newell, R., & Palmer, K. (2006). Energy efficiency policies: a retrospective examination. Annual Review of Environment & Resources, 31(1), 161–192. doi: 10.1146/ Scholar
  29. Gillingham, K., R. Newell, and K. Palmer. (2009). “Energy efficiency economics and policy.” Resources for the Future.
  30. Gillingham, K., et al. (2013). The rebound effect is overplayed. Nature, 493, 475–476.CrossRefGoogle Scholar
  31. Goldstein, David B. (2014). “Efficiency really works!” NRDC.
  32. Goulder, L., & Parry, I. W. H. (2008). Instrument choice in environmental policy. Review of Environmental Economics and Policy, 2, 152–174 Scholar
  33. Greene, D. L. (2011). Uncertainty, loss aversion, and markets for energy efficiency. Energy Economics, 33(4) Elsevier, 608–616.CrossRefGoogle Scholar
  34. Greening, L. A., Greene, D. L., & Difiglio, C. (2000). Energy efficiency and consumption—the rebound effect—a survey. Energy Policy, 28(6–7), 389–401.CrossRefGoogle Scholar
  35. Harmelink, M., Nilsson, L., & Harmsen, R. (2008). Theory-based policy evaluation of 20 energy efficiency instruments. Energy Efficiency, 1(2), 131–148. doi: 10.1007/s12053-008-9007-9.CrossRefGoogle Scholar
  36. Hassett, K. A., & Metcalf, G. E. (1993). Energy conservation investment: do consumers discount the future correctly? Energy Policy, 21(6), 710–716.CrossRefGoogle Scholar
  37. Hausman, J. A. (1979). Individual discount rates and the purchase and utilization of energy-using durables. The Bell Journal of Economics, 10(1), 33–54.MathSciNetCrossRefGoogle Scholar
  38. Henryson, J., Håkansson, T., & Pyrko, J. (2000). Energy efficiency in buildings through information—Swedish perspective. Energy Policy, 28(3), 169–180. doi: 10.1016/S0301-4215(00)00004-5.CrossRefGoogle Scholar
  39. Herron, Seth and Eric Williams, (2013). “Modeling cascading diffusion of new energy technologies: case study of residential solid oxide fuel cells in the U.S. and internationally” Environmental Science and Technology. Google Scholar
  40. Hoffman, Ian M, Gregory Rybka, Greg Leventis, Charles A Goldman, Lisa Schwartz, Megan Billingsley, and Steven Schiller. (2015). “The total cost of saving electricity through utility customer-funded energy efficiency programs: estimates at the national, state, sector and program level.” Lawrence Berkeley National Laboratory.
  41. Horowitz, M. J., & Bertoldi, P. (2015). A harmonized calculation model for transforming EU bottom-up energy efficiency indicators into empirical estimates of policy impacts. Energy Economics, 51(September), 135–148. doi: 10.1016/j.eneco.2015.05.020.CrossRefGoogle Scholar
  42. International Energy Agency (IEA). (2013). Energy efficiency market report 2013. Paris: OECD/IEA.Google Scholar
  43. International Energy Agency (IEA). (2014). Energy efficiency market report: market trends and medium-term prospects. Paris, France.Google Scholar
  44. IPCC. (2014). Climate change 2014: mitigation of climate change. Contribution of Working Group III to the Fifth Assessment Report of the Intergovernmental Panel on Climate Change. Cambridge, UK and New York, NY, USA.Google Scholar
  45. Jaffe, A.B., R.G. Newell, and R.N. Stavins. 2004. “Economics of energy efficiency.” Encyclopedia of Energy, Elsevier, Inc.Google Scholar
  46. Jørgensen, T. B., & Bozeman, B. (2007). Public values an inventory. Administration & Society, 39(3) Sage Publications, 354–381.CrossRefGoogle Scholar
  47. Joskow, P. (1995). Utility-subsidized energy-efficiency programs. Annual Review of Energy and the Environment, 20, 526–534.CrossRefGoogle Scholar
  48. Joskow, P., & Marron, D. (1993). What does a negawatt really cost? Further thoughts and evidence. The Electricity Journal, 6(6), 14–26.CrossRefGoogle Scholar
  49. Kushler, Martin, Dan York, and Patti Witte. (2006). “Aligning utility interests with energy efficiency objectives : a review of recent efforts at decoupling and performance incentives” 20036 (October).Google Scholar
  50. Laitner, John A Skip, Steven Nadel, R Neal Elliott, Harvey Sachs, and A Siddiq Khan. (2012). The long-term energy efficiency potential : what the evidence suggests. Washington DC.
  51. Lebot, Benoit, Paolo Bertoldi, and Phil Harrington. (2004). “Consumption versus efficiency : have we Designed the right Policies and programmes ? Is energy efficiency enough ? Short discussion on the rebound effect.” In ACEEE Summer Study on Energy Efficiency in Buildings, 206–17.Google Scholar
  52. Lesh, P. G. (2009). Rate impacts and key design elements of gas and electric utility decoupling : a comprehensive review. The Electricity Journal, 22(8), 65–71.CrossRefGoogle Scholar
  53. Letschert, V., Desroches, L.-B., Ke, J., & McNeil, M. (2013). Energy efficiency—how far can we raise the bar? Revealing the potential of best available technologies. Energy, 59(September) Elsevier Ltd, 72–82. doi: 10.1016/ CrossRefGoogle Scholar
  54. Levinson, Arik. (2014). “California energy efficiency: lessons for the rest of the world, or not?” Journal of Economic Behavior & Organization, April.
  55. MacLean, J., & Purcell, D. (2014). Strategies for energy efficiency finance. Montpelier, VT: Regulatory Assistance Project.Google Scholar
  56. Makovich, L. J. (2008). The cost of energy efficiency investments. Cambridge, MA: CERA.Google Scholar
  57. McCoy, D., & Lyons, S. (2016). Unintended outcomes of electricity smart-metering: trading-off consumption and investment behaviour. Energy Efficiency, 1–20.Google Scholar
  58. Murphy, L., Meijer, F., & Visscher, H. (2012). A qualitative evaluation of policy instruments used to improve energy performance of existing private dwellings in the Netherlands. Energy Policy, 45(June), 459–468. doi: 10.1016/j.enpol.2012.02.056.CrossRefGoogle Scholar
  59. National Research Council (NRC). (2009). “Hidden costs of energy: unpriced consequences of energy production and use.” National Academy Press.Google Scholar
  60. Nordhaus, T., Shellenberger, M., & Jenkins, J. (2013). “Energy efficiency: beware of overpromises.” Breakthrough Institute.
  61. Office of Management and Budget (OMB). (2002). “Guidelines and discount rates for benefit–cost analysis of federal programs.” les/omb/assets/a94/a094.pdf.
  62. Office of Management and Budget (OMB). (2009). 2010 Discount Rates for OMB Circular No. A-94.
  63. Pérez-Lombard, L., Ortiz, J., & Velázquez, D. (2013). Revisiting energy efficiency fundamentals. Energy Efficiency, 6(2), 239–254. doi: 10.1007/s12053-012-9180-8.CrossRefGoogle Scholar
  64. Rode, J., Gómez-Baggethun, E., & Krause, T. (2015). Motivation crowding by economic incentives in conservation policy: a review of the empirical evidence. Ecological Economics, 117, 270–282.CrossRefGoogle Scholar
  65. Shah, Jigar V. (2015). “Beyond the cliche: why efficiency needs success stories, not catchphrases.” Greentech Media.
  66. Shellenberger, Michael and Ted Nordhaus. (2014). “The problem with energy efficiency.” The New York Times.Google Scholar
  67. Shipley, A. M., & Neal Elliot, R. (2006). Ripe for the picking: have we exhausted the low-hanging fruit in the industrial sector. Washington DC: American Council for an Energy-Efficient Economy.Google Scholar
  68. Sioshansi, F. P. (1994). Restraining energy demand. Energy Policy, 22(5), 378–392.CrossRefGoogle Scholar
  69. Sorrell, S., & Dimitropoulos, J. (2008). The rebound effect: microeconomic definitions, limitations and extensions. Ecological Economics, 65(3), 636–649. doi: 10.1016/j.ecolecon.2007.08.013.CrossRefGoogle Scholar
  70. Sorrell, S., Dimitropoulos, J., & Sommerville, M. (2009). Empirical estimates of the direct rebound effect: a review. Energy Policy, 37(4), 1356–1371.CrossRefGoogle Scholar
  71. State and Local Energy Efficiency Action Network (SEEAction), Dec. 2015, “State approaches to demand reduction induced price effects: examining how energy efficiency can lower prices for all” (
  72. Stern, Paul C., Kathryn B. Janda, Marilyn A. Brown, Linda Steg, Edward L. Vine, and Loren Lutzenhiser. (2016). “Opportunities and insights for reducing fossil fuel consumption by households and organizations” Nature Energy, May.Google Scholar
  73. Stevens, Noel, Nathan Caron, Christopher Chan and Pam Rathbun. (2016). “Innovative tools for estimating robust non-energy impacts that enhance cost-effectiveness testing and marketing of energy efficiency programs,” Proceedings of the 2016 ACEEE Summer Study on Energy Efficiency in Buildings, Pacific Grove, CA, (Washington, DC: American Council for an Energy-Efficient Economy).Google Scholar
  74. Sutherland, R. J., & Taylor, J. (2002). Time to overhaul federal energy R&D. Policy Analysis, 424, 1–21.Google Scholar
  75. Taylor, J. (1993). Energy conservation and efficiency: the case against coercion. Policy Analysis, 189, 1–13.Google Scholar
  76. Taylor, Jerry, and Peter Van Doren. (2007). “Energy myth five-price signals are insufficient to induce efficient energy investments.” In Energy and American Society – Thirteen Myths, 125–44.Google Scholar
  77. Thaler, Richard H. (1991). “‘Some empirical evidence on dynamic inconsistency.” Quasi Rational Economics 1. Russell Sage Foundation New York, NY, United States: 127–36.Google Scholar
  78. Thomas, S., Boonekamp, P., Vreuls, H., Broc, J.-s., Bosseboeuf, D., Lapillonne, B., & Labanca, N. (2012). How to measure the overall energy savings linked to policies and energy services at the national level? Energy Efficiency, 5(1) Dordrecht: Springer Science & Business Media, 19–35. doi: 10.1007/s12053-011-9122-x. CrossRefGoogle Scholar
  79. Tiefenbeck, V., Staake, T., Roth, K., & Sachs, O. (2013). For better or for worse? Empirical evidence of moral licensing in a behavioral energy conservation campaign. Energy Policy, 57, 160–171.CrossRefGoogle Scholar
  80. Tonn, Bruce, David Carroll, Erin Rose, Beth Hawkins, Scott Pigg, Daniel Bausch, Greg Dalhoff, Michael Blasnik, Joel Eisenberg, and Claire Cowan. (2015). “Weatherization works II—summary of findings from the ARRA period evaluation of the US Department of Energy’s Weatherization Assistance Program.” ORNL/TM-2015/139. Oak Ridge, Tennessee: Oak Ridge National Laboratory.
  81. U.S. Department of Energy (DOE), and Committee on Climate Change Science and Technology Integration (CCCSTI). (2009). “Strategies for the commercialization and deployment of greenhouse gas-intensity reducing technologies and practices.”Google Scholar
  82. U.S. Energy Information Administration (EIA). (2013). Commercial demand module of the national energy modeling system: model documentation 2013 (p. 146). Washington, DC: US Energy Information Administration.Google Scholar
  83. U.S. Energy Information Administration (EIA). (2015a). Analysis of the impacts of the clean power plan. Washington, DC: U.S. Energy Information Administration
  84. U.S. Energy Information Administration. (2015b). Analysis of energy efficiency program impacts based on program spending, May 21,
  85. U.S. Energy Information Administration. (2016). Annual energy outlook 2016. Washington D.C. Report 0383 (2016).Google Scholar
  86. U.S. IAWG. (2013). “Technical support document: technical update of the social cost of carbon for regulatory impact analysis under Executive Order 12866.” Interagency Working Group on Social Cost of Carbon, United States Government. Washington, DC.
  87. Unruh, G. C. (2000). Understanding carbon lock-in. Energy Policy, 28(12) Elsevier, 817–830.CrossRefGoogle Scholar
  88. Verbruggen, A. (2012). Financial appraisal of efficiency investments: why the good may be the worst enemy of the best. Energy Efficiency, 5(4), 571–582. doi: 10.1007/s12053-012-9149-7.CrossRefGoogle Scholar
  89. Vine, Edward, Marty Kushler, and Dan York. (2007). “Energy myth ten—energy efficiency measures are unreliable, unpredictable, and unenforceable.” In Energy and American society—thirteen myths, 265–88.Google Scholar
  90. Wagner, Gernot, and Kenneth Gillingham. (2014). “LEDs, energy efficiency and consumption.” The New York Times, A22–A22.
  91. Wang, Y., & Brown, M. A. (2014). Policy drivers for improving electricity end-use efficiency in the U.S.: an economic-engineering analysis. Energy Efficiency, 7(3), 517–546. doi: 10.1007/s12053-013-9237-3.CrossRefGoogle Scholar
  92. Weimer, David L., and Aidan R. Vining. (2011). Policy analysis: concepts and practice. Fifth Edit. Prentice Hall.Google Scholar
  93. York, Dan, Martin Kushler, Sara Hayes, Stephanie Sienkowski, and Casey Bell. (2014). “Making the business case for energy efficiency : utility performance with supportive regulation.” In 2014 ACEEE Summer Study on Energy Efficiency in Buildings, 358–69. Washington D.C.Google Scholar

Copyright information

© Springer Science+Business Media Dordrecht 2017

Authors and Affiliations

  1. 1.Georgia Institute of TechnologyAtlantaUSA
  2. 2.Iowa State UniversityAmesUSA

Personalised recommendations