Using the Market to Help Leverage Increased Energy Efficiency: 16 Policies Could Save the U.S. Economy Almost $1 Trillion

Blog | March 21, 2013 - 9:46 am
By Steven Nadel , Executive Director

While there is disagreement among politicians about the role of government spending and government regulations to spur cost-effective energy efficiency investments, politicians of all political stripes agree that knocking down market barriers that keep Americans from saving money is a worthy task.

Within this context, the American Council for an Energy-Efficient Economy (ACEEE) released a new report on Monday highlighting 16 policies that would use market forces to spur additional cost-effective investments in energy efficiency while helping to surmount market barriers that hinder these investments. In total, these policies could save consumers and businesses nearly $1 trillion over the 2014-2030 period, considering both the energy bill savings and the cost of the energy efficiency investments.

The United States has become much more energy efficient in the last few decades, but there are still large, cost-effective opportunities available to advance efficiency even further, while improving the economy at the same time. However, a variety of market failures and market barriers contribute to keeping us from fully realizing our energy efficiency potential. Examples of such market barriers include lack of information that would help would-be purchasers and tenants identify more efficient buildings, and “split incentives,” where one party (e.g., landlords) purchases equipment while another party (e.g., tenants) pays the operating costs of this equipment through their energy bills.

The new ACEEE report, Overcoming Market Barriers and Using Market Forces to Advance Energy Efficiencydiscusses several targeted policies that leverage market mechanisms in order to address specific market failures, without requiring substantial spending or government mandates. For example, the development of a comprehensive building labeling and benchmarking program would allow purchasers and tenants to identify efficient homes and commercial buildings and could save consumers and businesses approximately $60 billion between 2014 and 2030. Even more impressive are the benefits gained from adjusting corporate tax legislation to remove hidden barriers in the tax code. These adjustments would encourage the replacement of inefficient equipment and remove regulatory barriers to combined heat and power projects. These two policies alone could save the economy close to $300 billion.

The report also includes policy interventions targeted at residential and commercial buildings, the industrial sector, and the transportation sector, as well as a number of policies with economy-wide benefits. For each measure, the report provides a brief description of the policy, its legislative history, general estimates of associated costs and benefits, and recommendations about future policy design. By acting on these recommendations, Congress and state legislatures can light a way forward towards a stronger economy and a brighter energy future.