THE ENERGY-EFFICIENCY GAP - WHAT DOES IT MEAN

As renewed attention has been given by policy makers to energy conserv ation issues, it has frequently been asserted that an energy-efficienc y gap exists between actual and optimal energy use. The critical quest ion is how to define the optimal level of energy efficiency. This pape r seeks to disentangle some confusing strands of argument that are fre quently brought to bear on this question, by identifying the major con ceptual issues that determine the set of feasible answers. We identify five separate and distinct notions of optimality: the economists' eco nomic potential, the technologists' economic potential, hypothetical p otential, the narrow social optimum and the true social optimum. Each of these has associated with it a corresponding definition of the ener gy-efficiency gap. Our analysis demonstrates that necessary preconditi ons for identifying the right measure of the energy-efficiency gap inc lude understanding and disentangling market failure and non-market fai lure explanations for the gradual diffusion of energy-efficient techno logies.