Making better use of energy and materials

This chapter explores gaps between observed energy and material efficiencies and their feasible potentials. Gaps between actual and technically feasible energy efficiencies are relatively wide for buildings, household appliances and vehicles and narrow for heavy industries and transport, although not all technically feasible efficiency gains are cost effective. Evidence on causes of potential economic inefficiencies focuses on household investment decisions and energy choices regarding dwellings, appliances and automobiles. There is significant evidence of informational asymmetries, split incentives and behavioural anomalies in contributing to economic inefficiencies. Evidence on energy efficiency policies finds that those well designed improve efficiency and overall welfare, including by directing innovations towards this somewhat neglected product characteristic. Similar issues arise for material efficiency, although available evidence is less extensive. Looking forward, efficiency policies should reflect expected shifts in relative prices arising from government climate goals and their implementing policies, especially those for building thermal and material efficiencies.