ENERGY EFFICIENCY — A ROLE FOR GOVERNMENT OR BEST LEFT TO CONSENTING ADULTS?

This paper examines arguments for UK government intervention to promote energy efficiency. Those relating to market imperfection and learning curve gains from boosting innovative energy products are not unique; loan terms reflect risks in competitive markets; credit to energy efficiency investors is not unduly limited. Differing fiscal treatments of energy and efficiency goods distort choice, but the 8.8 % pricing difference does not justify intervention. The case for saving supply investment is invalid where tariffs reflect marginal supply costs, the terms for financing supply and use capex is not distorted, and no constraints on capacity remain. The case for UK energy efficiency intervention to climate change is misguided. A case exists for increasing energy prices to reflect external costs, thereby raising energy prices markedly and greatly improving energy efficiency; but the "externality adders" are unknown, and UK governments would not adopt this first best option. The energy depletion argument fails because past government interventions demonstrate that states are not omniscient, fail to provide adequate services in the public sector, are slow to adjust, and seldom cost-effective. Overall, they should not intervene in energy markets other than by taxation to reflect external costs. One exception is in its own estate where its record is poor; it could also improve conservation in council housing.