Green Energy, Efficiency and Climate Change: An Economic Perspective - Green Energy and Efficiency: An Economic Perspective - page 2

Green Energy, Efciency and Climate
Change: An Economic Perspective

M.C. Gallastegui, M. Escapa and A. Ansuategi

Abstract The three core objectives of any sensible energy policy nowadays are
(1) security of supply, (2) competitiveness, and (3) sustainability. Renewable
energy and energy ef

ciency investments are crucial if we are to make energy
supplies more sustainable, competitive and secure. These goals support each other.
More sustainable energy sources, such as renewables, help the energy sector to be
more competitive, as well as diversifying and securing its energy supply. Yet
implementing policies to promote green energy and ef

ciency is no easy task. This

chapter seeks to discuss the dif culties facing the regulation needed in the energy

sector and to analyze the key concepts and the main markets failures that charac-
terize the energy markets. It also reviews the main policies undertaken at EU level
in order to deal with the relations between the energy sector and the problem of
climate change.

1 Introduction

Economists use an algebraic function which maps inputs into output as a tool to
describe the determinants of production. Thus, macroeconomists use an aggregate
“

which combines aggregate inputs typically including phys-
ical capital, labor and sometimes other inputs such as land 1 and energy. Production
functions have more recently been extended to include natural and human capital.
Technology and innovation represent the way the production possibilities of a

production function ”

1 Land was used to include all natural resource inputs to production and played a central role in
the classical economic model. However, as its value share of Gross Domestic Product (GDP) fell
steadily in the twentieth century [ 26 ], it gradually diminished in importance in economic theory
and today is usually subsumed as a subcategory of natural capital.