KEY MESSAGES

Policies to price greenhouse gases, and support technology development, are fundamental to tackling climate change. However, even if these measures are taken, barriers and market imperfections may still inhibit action, particularly on energy efficiency.

These barriers and failures include hidden and transaction costs such as the cost of the time needed to plan new investments; lack of information about available options; capital constraints; misaligned incentives; as well as behavioural and organisational factors affecting economic rationality in decision-making.

These market imperfections result in significant obstacles to the uptake of cost-effective mitigation, and weakened drivers for innovation, particularly in markets for energy efficiency measures.

Policy responses which can help to overcome these barriers in markets affecting demand for energy include:

• Regulation: Regulation has an important role, for example in product and building markets by: communicating policy intentions to global audiences; reducing uncertainty, complexity and transaction costs; inducing technological innovation; and avoiding technology lock-in, for example where the credibility of carbon markets is still being established.

• Information: Policies to promote: performance labels, certificates and endorsements; more informative energy bills; wider adoption of energy use displays and meters; the dissemination of best practice; or wider carbon disclosure help consumers and firms make sounder decisions and stimulate more competitive markets for more energy efficient goods and services.

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