Mind the Gap - Quantifying Principal-agent Problems in Energy Efficiency : In Support of the G8 Plan of Action

Energy efficiency presents a unique opportunity to address three energy-related challenges in International Energy Agency (IEA) member countries: energy security; climate change; and economic development.

However, an energy-efficiency gap exists between actual and optimal energy use; significant cost-effective energy efficiency potential is wasted because market barriers prevent countries from achieving optimal levels.

Market barriers take many forms, from inadequate access to capital, isolation from price signals, information asymmetry, and split-incentives.

Though many studies have reported the existence of such market barriers, none so far have attempted to quantify the magnitude of their effect on energy use and efficiency."Mind the Gap: Quantifying Principal-Agent Problems in Energy Efficiency" is an attempt to quantify the size of one of the most pervasive barriers to energy efficiency - principal-agent problems, or in common parlance, variations on the 'landlord-tenant' problem.

In doing so, this publication provides energy analysts and economists with unique insights into the amount of energy affected by principal-agent problems.Using an innovative methodology applied to eight case studies (covering commercial and residential sectors and end-use appliances) from five different IEA countries, the analysis identifies over 3,800 PJ/year of affected energy use - around 85 per cent of the annual energy use of a country the size of Spain. It builds on these findings to suggest a range of possible policy solutions that can reduce the impact of principal-agent problems and help policy makers mind the energy efficiency gap.