MAKING MARKETS IN RESOURCE EFFICIENCY

This 1989 research paper by Amory B. Lovins of the Rocky Mountain Institute argues for the creation of markets in resource efficiency to combat the economic tendency to treat natural resource depletion and pollution as free goods. Lovins proposes treating saved resources—such as 'negawatts' of electricity—as commodities that can be traded, auctioned, and hedged, providing a market-based alternative to regulatory mandates. He asserts that efficient technology is generally cheaper than producing new resources, creating a significant profit opportunity for those who sell efficiency rather than the resource itself.

• Conventional economic models fail by treating resource depletion and pollution as free goods, valuing resources only at their extraction cost rather than their long-run replacement cost.
• There is a significant economic opportunity in selling resource efficiency because technology that increases resource productivity is typically cheaper than mining or producing additional resources.
• In the United States, there is a vast untapped potential for electricity and oil savings using existing or near-market technologies; electricity savings could reach three-fourths of current use at a cost of approximately 0.6$/kW-h, while oil savings could reach nearly four-fifths at about $3/bbl.
• The concept of 'negawatts' treats saved electricity as a commodity that can be traded through various market mechanisms, including local trading between customers, national and international trades between utilities, and the use of derivative instruments like futures and options.
• Market-based tools for resource efficiency include 'all-source bidding' auctions, where efficiency bids often undercut power plants, and sliding-scale hookup fees that internalize the social costs of inefficient buildings.
• The author suggests that the logic of resource efficiency can be applied to other sectors, such as water management in the U.S. and even national security, by treating security as a service that can be achieved through means other than weapons.

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} }