MAKING MARKETS IN RESOURCE EFFICIENCY

The author proposes shifting economic focus from the mere pricing of depletion and pollution to the creation of active markets for 'negawatts' (saved electricity) and other saved resources. By treating efficiency as a tradable commodity, the author argues that the economic incentive to save resources—which is often cheaper than producing new ones—can be harnessed through arbitrage, auctions, and derivative instruments. The text details various mechanisms for implementing these markets in the electricity and water sectors, suggesting that such an approach reduces financial and environmental risks while providing a more efficient alternative to regulatory mandates.

• Conventional economic models fail to price the 'negentropic flux' of resource depletion and pollution, treating them as free goods and ignoring the physical reality of matter-energy throughput.
• Efficient technology that increases resource productivity is generally cheaper than extracting or producing additional resources, creating a profit opportunity for those who sell efficiency.
• The use of the best demonstrated technologies could potentially save nearly 80% of U.S. oil at an average cost of approximately $3 per barrel, which is less than the cost of finding new domestic oil.
• The 'negawatt' concept transforms saved electricity into a tradable commodity, allowing for local, national, and international arbitrage where saved power is bought and sold based on the cost difference between production and saving.
• Specific market instruments for resource efficiency include 'all-source bidding' auctions, 'capped demand covenants' for peak-load management, and sliding-scale hookup fees that internalize social costs of inefficient buildings.
• Market-based efficiency mechanisms are already being applied to water conservation in dry regions of the United States, including the use of mass retrofits and requirements for builders to save water elsewhere before constructing new homes.

APA

LOVINS, A. B. (1989). MAKING MARKETS IN RESOURCE EFFICIENCY. RMI. https://rmi.org/app/uploads/2017/05/RMI_Document_Repository_Public-Reprts_2013-19_MakingMarketsinResourceEfficiency.pdf

Chicago

LOVINS, AMORY B. MAKING MARKETS IN RESOURCE EFFICIENCY. RMI, 1989. https://rmi.org/app/uploads/2017/05/RMI_Document_Repository_Public-Reprts_2013-19_MakingMarketsinResourceEfficiency.pdf.

Wikipedia

{{cite report |last1=LOVINS |first1=AMORY B. |title=MAKING MARKETS IN RESOURCE EFFICIENCY |publisher=RMI |date=1989 |url=https://rmi.org/app/uploads/2017/05/RMI_Document_Repository_Public-Reprts_2013-19_MakingMarketsinResourceEfficiency.pdf |access-date=17 August 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{lovins1989making, author = {LOVINS, AMORY B.}, title = {{MAKING MARKETS IN RESOURCE EFFICIENCY}}, institution = {RMI}, year = {1989}, url = {https://rmi.org/app/uploads/2017/05/RMI_Document_Repository_Public-Reprts_2013-19_MakingMarketsinResourceEfficiency.pdf}, urldate = {2026-08-17}, note = {Indexed by Climate Insights Directory} }