The analytical foundations of conservation policy

The conservation paradigm is described here as: (1) reflecting the policy goal of energy efficiency, (2) the investment model that market barrier inhibit energy efficiency investments and (3) the emphasis of engineering estimates of market efficiency. In contrast, the economics paradigm emphasizes: (1) economic efficiency and equity, (2) market failures or market imperfections as impediments to achieving economic efficiency and (3) the behavior of markets to make efficient choices. Market barriers discourage investments in energy efficiency, but this is irrelevant for policy purposes where energy efficiency differs from economic efficiency. Where market barriers discourage economically efficient investments, they are of dubious significance for policy purposes unless they are market failures. The market barriers alleged in the conservation literature typically do not coincide with market failures. In a competitive and efficient market economy, investments judged efficient by engineering and present value calculations will not instantaneously achieve a market share of 100 percent. Barriers that delay diffusion are not necessarily appropriate for Government policy.