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Informational Barriers to Energy Efficiency - Theory and European Policies

Author

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  • Lars-Morten Andersen

    (Quartz+Co)

  • Raimund Bleischwitz

    (University College London)

Abstract

This paper addresses informational barriers to energy efficiency. It is a widely acknowledged result that an energy efficiency gap exists implying that the level of energy efficiency is at an inefficiently low level. Several barriers to energy efficiency create this gap and the presence of asymmetric information is likely to be one such barrier. In this article a theoretical framework is presented addressing the issues of moral hazard and adverse selection related to energy efficiency. Based on the theoretical framework, European policies on energy efficiency are evaluated. The article is divided into two main parts. The first part presents the theory on information asymmetries and its consequences on energy efficiency focusing on the problems of moral hazard and adverse selection. Having established a theoretical framework to understand the agency barriers to energy efficiency, the second part evaluates the policies of the European Union on energy efficiency. The paper finds that problems of moral hazard and adverse selection indeed can help explain the seemingly low levels of energy. In both presented models the cost to the principal from implementing high energy efficiency outcome is increased with the informational asymmetries. The theory reveals two implications to policies on energy efficiency. First, the development of measures to enable contractual parties to base remuneration on energy performance must be enhanced, and second, the information on technologies and the education of consumers and installers on energy efficiency must be increased. This could be complemented with certification of installers and energy efficiency advisors to enable consumers to select good agents. Finally, it is found that the preferred EU policy instrument on energy efficiency, so far, seems to be the use of minimum requirements. Less used in EU legislation is the use of measuring and verification as well as the use of certifications. Therefore, it is concluded that the EU should consider an increased use of these instruments, and in particular focus on a further development of standards on measurability and verification as well as an increased focus on education of consumers as well as installers and advisors on energy efficiency.

Suggested Citation

  • Lars-Morten Andersen & Raimund Bleischwitz, 2009. "Informational Barriers to Energy Efficiency - Theory and European Policies," Bruges European Economic Research Papers 15, European Economic Studies Department, College of Europe.
    • Handle: RePEc:coe:wpbeer:15
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    References listed on IDEAS

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    Cited by:

    1. Mehdi Bensouda & Mimoun Benali & Ghada Moufdi & Taoufik El Bouzekri El Idrissi & Abdelhamid El Bouhadi, 2023. "Energy Audit as an Instrument to Tackle Internal Barriers to Energy Efficiency: Lessons from Moroccan Industrial Firms," Sustainability, MDPI, vol. 15(15), pages 1-19, July.

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    More about this item

    Keywords

    energy efficiency; informational barriers; European policies;
    All these keywords.

    JEL classification:

    • Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission

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