Benefits for whom? Energy efficiency within the efficient market

D. Chello
DOI:  10.12910/EAI2015-001

It is generally assumed that customers are price-responsive and able to act in an economically rational way once having received and understood the implications (the economic man model). If users do not yet undertake the actions assumed, it is because they have different preferences or the implicit costs of the transaction are too high, and hence the benefit of the energy efficiency action is not sufficient (enough). Particularly, it is assumed that the customer does not accept the potentially beneficial energy efficiency improvements because of different barriers that hinder their action (the energy efficiency gap).

In this article, I start by recalling very briefly what the energy efficiency gap means; then I try to find some explanations for this energy paradox, by considering the decision making of domestic users, following a few fundamental concepts of behavioural economics. Then, I will show the link that in my opinion exists between the energy market and the attitude of consumers. In particular, I examine the impact of a poorly functioning energy market on consumer behaviour. For this analysis, I have made abundant use of facts and figures from the second joint annual Market Monitoring Report by the Agency for the Cooperation of Energy Regulators (ACER) and CEER (2013) concerning the European internal energy market; therefore my conclusions are not applicable as such to the rest of the world. Finally, some conclusions are addressed to policy makers on how to overcome the barriers illustrated.