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made efficiency investments, ignorance of the subsidy program, slowness in applying for limited subsidy funds, or having a low income or poor credit rating that hinders the ability to get financing to cover the non-subsidized portion of the efficiency investment.


For over three decades, some technologists have argued that there are extensive opportunities for profitable energy efficiency investments. For much of these three decades, however, some economists have countered that these estimates of profitable energy efficiency overlook important intangible costs facing firms and consumers. These include transaction costs, investment risks facing new technologies and long payback investments, heterogeneity in the market, and differences in quality of service. While these costs are usually ignored by technologists, economists have done little research to estimate their actual magnitude—so fault lies on both sides.

These competing paradigms are confusing to policy makers trying to assess the cost-effectiveness and likely contribution of energy efficiency to efforts to reduce GHG emissions. Bottom-up cost curve analysis by technologists suggests an extremely large and profitable potential, which implicitly suggests that information and subsidies alone may reduce emissions substantially. Top-down marginal abatement cost curve analysis by economists suggests the opposite, implying the need for strong emissions pricing and/or regulations. More recent research with hybrid models that are technologically explicit but behaviorally realistic suggests that while there is some profitable potential for energy efficiency, strong pricing and regulatory policies will indeed be required for a modern economy to achieve substantial GHG emissions abatement over the coming decades.


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