Green Energy, Efficiency and Climate Change: An Economic Perspective - Green Energy and Efficiency: An Economic Perspective - page 8

theory of markets and transactions costs, 3 Mundaca [ 22 ] provides empirical evi-
dence on the nature and scale of transaction costs in energy ef ciency projects. He

shows that these costs depend on the speci c characteristic of each project.

The presence of external effects, asymmetric information and transaction costs
are only three of the many factors that make it dif ciency in the

energy sector. Other reasons that are also relevant include noncompetitive condi-
tions in energy markets, the need to use the long run perspective or the differences
that arise among private and social discount rates.

cult to achieve ef

3 Policies to Promote Green Energy and Ef ciency

The dif culties in designing appropriate public regulation in the energy sector may

explain why energy policy in many countries has not been able to achieve neither
energy conservation nor ef ciency in the use and production of this vital input.

The failure of many of the policies implemented is related with the need to
conciliate the technological point of view with the economic perspective. There are,
for example, optimal options, from a technological point of view, that may not lead
to what economists consider an optimal solution, mainly because cost effectiveness
is not guaranteed. In other words, the objectives of energy conservation and energy
ef

ned in the previous section) are, in many occasions, achieved at a
cost that is considered too high by economic analysts.
The

ciency (de

point of view suggests that technological progress will be
capable of solving the problems that arise in the energy sector and that

“ technological ”

the

achievement of energy ef ciency should not be too costly. Nevertheless “ too

costly is a vague expression as economic theory shows that public policy has to be

able to achieve energy ef

”

ciency in a cost-effective way. This implies the selection
of policy instruments that are or equivalently that achieve the

objective at minimum costs Baumol and Oates [ 4 ].
With respect

“ cost-effective ”

to the objectives, the ful llment of social ef ciency or the

achievement of cost effectiveness should not be confused. Ef ciency implies

solutions in which externalities are internalized, prices of the goods re ect the

social costs of production (not only the private costs) and markets function
smoothly so as to achieve ef cient allocations of goods and services.

An example will be clarifying. Assume that a given level of mitigation of CO 2 is
pursued by means of public intervention. If the instruments used and the way of
implementing them are such that the cost of getting the proposed mitigation is
minimized, we will say that the solution is a cost minimizing one. We cannot say
however, that we have achieved ef cient

levels of mitigation or emissions are. And this is no easy task, as complex models
and computations are needed.

ciency if we do not know which the ef

3

The work by North [ 23 ] is also very inspiring.