Due to increasing public concern about climate change, policy makers are now considering targets for reducing CO₂ and other greenhouse gas (GHG) emissions. In developing climate mitigation strategies, one typical goal is to adopt the most cost-effective and reliable policy measures.  Studies reveal that mitigation technologies from the energy supply side, such as carbon capture and sequestration, solar power, and wind energy, usually have very high costs. In contrast, energy efficiency and other demand-side management options are widely seen as least-cost solutions for climate mitigation that usually generate more energy savings than costs. A review of marginal abatement cost curves suggests that over half of the GHG abatement potential can only be achieved with high cost solutions more expensive than the market acceptable price for carbon (i.e., the average price of carbon permit in several regional trading systems). Important questions emerge for policy makers: how to design effective programs/policies to reduce GHG emissions through low-cost energy efficiency measures? What is the policy pathway for reducing carbon abatement cost?

This paper argues that regulatory, financial and information policies can effectively promote energy efficiency adoption and reduce carbon dioxide emissions in the U.S. Engineering-economic analysis of eleven representative policies in the buildings and industrial sectors was conducted based on energy modeling with the National Energy Modeling System (NEMS). Evidence of technology shifts suggests that energy efficiency policies can shift markets away from, for instance, low-efficiency furnaces and boilers to high-efficiency heat pumps, and from incandescent lighting to LED lighting. These policies can also cost-effectively improve the average efficiency of water-heating, ventilation and refrigeration in buildings. In addition, the market uptake of industrial combined heat and power systems and NEMA premium motors are observed under policy scenarios.

Analysis of the levelized cost of electricity (LCOE) saved from these policies indicates that regulatory and information policies have large GHG abatement potential, which can be achieved with costs lower than their energy saving benefits. However, the average LCOE of financial policies exceeds the market price of carbon permits due to high monetary requirements for providing financial incentives. Based on the cost estimations of eleven representative energy efficiency policies, a policy supply curve was constructed to illustrate the policy pathway toward low-cost abatement.

Overall, the policies decrease the economy-wide energy intensity by 5%, while residential buildings experience a 15% increase in energy efficiency in 2035. Energy efficiency policies can significantly increase the stock average efficiency of commercial building appliances and equipment. The nation as a whole is projected to save 326 million tonnes of CO₂, resulting in a 5% decrease in carbon intensity in 2035. Our results suggest that building energy codes, appliance standard, and information policies such as benchmarking and market priming are among the most cost-effective U.S. mitigation policies.