- Energy efficiency is a technical efficiency that focuses on reducing energy wastage in giving a specific service or product. In this case, energy efficiency means that the amount of fuel or gasoline used by the automobile is less compared to other automobiles. Energy efficiency is achieved when a company produces maximum output but utilizing available technology and inputs (Fowlie, Greenstone, & Wolfram, 2018). However, economic efficiency is broad and accommodates all costs associated with inputs. Economic efficiency is attained when outputs are produced at their maximum at the lowest cost of production (Heathfield, 2016). Most manager concentrates mainly on economic efficiency rather than energy efficiency simply because maximization of profits occurs when the cost of production is low.
- For the energy-efficient vehicle to be economically efficient, the production costs of the automobile and the running costs should be less than the costs of manufacturing and running costs of a conventional automobile. This comparison means that the sum of the original cost of the automobile ($60,000) plus the cost of a gallon of gasoline should be less than the amount of the cost of a conventional automobile and fuel consumed over 180miles. Also, if the production and running costs of energy-efficient automobiles equal those of a conventional automobile, then the energy-efficient vehicle is economically efficient.
- Society prefers automobiles that are cheap to buy and maintain and are, at the same time, durable. Energy-efficiency focuses only on the input, in this case, gasoline to the output (miles covered). According to Wishlade, Michie, & Vernon (2017) and Noble (2017), energy efficiency does not consider other factors or inputs in the process, such as the cost of labor, plastics, glass, copper, or steel used in manufacturing the automobile. Therefore, even though energy-efficient automobiles might consume less fuel compared to conventional cars, their initial costs might be higher to purchase (economic efficiency).
Fowlie, M., Greenstone, M., & Wolfram, C. (2018). Do energy efficiency investments deliver? Evidence from the weatherization assistance program. The Quarterly Journal of Economics, 133(3), 1597-1644.
Heathfield, D. F. (2016). An introduction to cost and production functions. Macmillan International Higher Education.
Noble, D. (2017). Forces of production: A social history of industrial automation. Routledge.
Wishlade, F., Michie, R., & Vernon, P. (2017). Research for REGI Committee-Financial Instruments for Energy Efficiency and Renewable Energy.