The economics of energy efficiency: insights from voluntary participation programs

This paper reviews experience with two programs sponsored by the US Environ mental Protection Agency - the Green Lights and Energy Star Office Products programs - that promote the adoption of energy-efficient technologies thro ugh voluntary agreements with private sector firms. The evidence suggests t hat Green Lights has induced firms to make investments in cost-saving light ing systems that firms failed to exploit prior to the program's implementat ion. Energy Star Office Products, in contrast, has led suppliers of compute rs and electronic equipment to substantially improve the energy efficiency of their products in ways that confer net cost savings on equipment users. The paper argues that the success of these programs is based on their abili ty to reduce market failures related to problems of imperfect information a nd bounded rationality that impair the effectiveness of both intra-firm org anization and the coordination between equipment suppliers and their custom ers. Given the nature of the technologies in question, these programs shoul d have little effect on the demand for energy services so that energy effic iency improvements should lead to one-to-one reductions in the level of ene rgy use. (C) 2000 Elsevier Science Ltd. All rights reserved.