Improving end-use energy efficiency—that is, the energy-efficiency of individuals, households, and firms as they consume energy—is often cited as an important element in efforts to reduce greenhouse-gas (GHG) emissions. Arguments for improving energy efficiency usually rely on the idea that energy-efficient technologies will save end users money over time and thereby provide low-cost or no-cost options for reducing GHG emissions. However, some research suggests that energy-efficient technologies appear not to be adopted by consumers and businesses to the degree that would seem justified, even on a purely financial basis. We review in this paper the evidence for a range of explanations for this apparent "energy-efficiency gap." We find most explanations are grounded in sound economic theory, but the strength of empirical support for these explanations varies widely. Retrospective program evaluations suggest the cost of GHG abatement varies considerably across different energy-efficiency investments and can diverge substantially from the predictions of prospective models. Findings from research on the energy-efficiency gap could help policy makers generate social and private benefits from accelerating the diffusion of energy-efficient technologies—including reduction of GHG emissions.

Bilateral climate change negotiations between China and the US are the most significant development since the Kyoto Protocol

In June, the Obama Administration unveiled its proposal for a Clean Power Plan, which it estimates would reduce carbon dioxide (CO2) emissions from existing U.S. power plants 30% below 2005 levels by 2030 (see the chart). Power plant emissions have declined substantially since 2005, so the plan is seeking reductions of about 18% from current levels. Electricity generation accounts for about 40% of U.S. CO2 emissions.

Negotiations pursuant to the Durban Platform for Enhanced Action appear likely to lead to a 2015 Paris agreement that embodies a hybrid climate policy architecture, combining top-down elements, such as for monitoring, reporting, and verification, with bottom-up elements, including “nationally determined contributions” from each participating country, detailing what it intends to do to reduce emissions, based on its national circumstances. For such a system to be cost-effective—and thus more likely to achieve significant global emissions reductions—a key feature will be linkages among regional, national, and sub-national climate policies. By linkage, we mean a formal recognition by a greenhouse gas mitigation program in one jurisdiction (a regional, national, or sub-national government) of emission reductions undertaken in another jurisdiction for purposes of complying with the first jurisdiction’s mitigation program. We examine how a future international policy architecture could help facilitate the growth and operation of a robust system of international linkages of regional, national, and sub-national policies. Several design elements merit serious consideration for inclusion in the Paris agreement, either directly or by establishing a process for subsequent international elaboration. At the same time, including detailed linkage rules in the core agreement is not desirable because this could make it difficult for rules to evolve in light of experience.

Negotiations pursuant to the Durban Platform for Enhanced Action appear likely to lead to a 2015 Paris agreement that embodies a hybrid climate policy architecture, combining top-down elements, such as for monitoring, reporting, and verification, with bottom-up elements, including “nationally determined contributions” from each participating country, detailing what it intends to do to reduce emissions, based on its national circumstances. For such a system to be cost-effective—and thus more likely to achieve significant global emissions reductions—a key feature will be linkages among regional, national, and sub-national climate policies. By linkage, we mean a formal recognition by a greenhouse gas mitigation program in one jurisdiction (a regional, national, or sub-national government) of emission reductions undertaken in another jurisdiction for purposes of complying with the first jurisdiction’s mitigation program. We examine how a future international policy architecture could help facilitate the growth and operation of a robust system of international linkages of regional, national, and sub-national policies. Several design elements merit serious consideration for inclusion in the Paris agreement, either directly or by establishing a process for subsequent international elaboration. At the same time, including detailed linkage rules in the core agreement is not desirable because this could make it difficult for rules to evolve in light of experience.