Energy efficiency regulations, market and behavioural failures and standardization

Evaluations of mandatory energy performance standards (MEPS) indicate that such policies tend to deliver energy efficiency at a very low cost, and provide great socio-economic benefits. In this contribution we evaluate MEPS, and argue that one of the great benefits of MEPS compared to other policies is their potential to reduce transaction costs. More and more research in the energy and climate policy field is devoted to transaction costs, but current literature and knowledge are fragmented. Transaction costs are often dealt with in economics, but less so in the law-and-economics literature, despite Coase’s and Williamson’s claims of their fundamental role in market formation and functioning. If transaction costs of market-based policies are high, command-and-control regulations may be preferable to incentive-based instruments. MEPS, in combination with mandatory energy labelling, can greatly increase consumer welfare, and the transaction costs are often low compared to other policy options. From a theoretical perspective, setting MEPS at the EU level rather than at the national level should lower transaction costs, and global standard-setting could be even more beneficial in this regard.