The paper by Hunt Allcott and Michael Greenstone explores the concept of the "Energy Efficiency Gap," which refers to the difference between the socially optimal level of energy efficiency and the actual level achieved due to market failures. The authors distinguish between two types of market failures: uninternalized externalities from energy consumption and investment inefficiencies caused by imperfect information or other factors. They argue that only when the second type of market failure cannot be addressed through mechanisms like information provision or subsidies should energy efficiency investments be considered meritorious. The paper reviews empirical evidence on the magnitude of profitable but unexploited energy efficiency investments, noting that much of the existing literature suffers from methodological issues, such as the use of engineering analyses or observational studies that may introduce biases. Recent empirical work, however, suggests that the magnitude of these investment opportunities is much smaller than previously estimated. The authors highlight the need for policy-relevant research using randomized controlled trials and quasi-experimental techniques to estimate the returns to energy efficiency investments and the welfare effects of energy efficiency programs. They conclude that while there may be some investment inefficiencies, the overall impact on energy use is likely to be small, and targeted policies are crucial to maximize welfare gains.The paper by Hunt Allcott and Michael Greenstone explores the concept of the "Energy Efficiency Gap," which refers to the difference between the socially optimal level of energy efficiency and the actual level achieved due to market failures. The authors distinguish between two types of market failures: uninternalized externalities from energy consumption and investment inefficiencies caused by imperfect information or other factors. They argue that only when the second type of market failure cannot be addressed through mechanisms like information provision or subsidies should energy efficiency investments be considered meritorious. The paper reviews empirical evidence on the magnitude of profitable but unexploited energy efficiency investments, noting that much of the existing literature suffers from methodological issues, such as the use of engineering analyses or observational studies that may introduce biases. Recent empirical work, however, suggests that the magnitude of these investment opportunities is much smaller than previously estimated. The authors highlight the need for policy-relevant research using randomized controlled trials and quasi-experimental techniques to estimate the returns to energy efficiency investments and the welfare effects of energy efficiency programs. They conclude that while there may be some investment inefficiencies, the overall impact on energy use is likely to be small, and targeted policies are crucial to maximize welfare gains.