BARRIERS WITHIN FIRMS TO ENERGY-EFFICIENT INVESTMENTS

Many investments in energy efficiency fail to be made despite their apparent profitability. Internal hurdle rates are often set at levels higher than the cost of capital to the firm. Reasons for these practices include bounded rationality, principal-agent problems, and moral hazard. The policy implication is that government can simultaneously improve overall energy efficiency and increase private sector productivity by providing informational and organizational services that go beyond the traditional regulatory framework.