California Institute for Energy and Environment (CIEE)

Markets represent both the site of important energy-related transactions and a potential venue for reshaping energy-related behaviors. Market interventions aimed explicitly or implicitly at market transformation are frequently part of utility and government energy-efficiency programs.However, these interventions are rarely grounded in knowledge of the workings of real markets.As a result, potential energy savings are foregone and program resources are wasted. We have suggested elsewhere that better theory and models are needed to support market transformation (Blumstein, Goldstone and Lutzenhiser 2000). This paper attempts to advance that agenda. The central themesareto highlight the shortcomings of the most commonly employed frameworks for understanding energy-related markets and to emphasize the need for research on actual market conditions, contexts, and players.We begin with a discussion of how common conceptualizations of the market shape our thinking about market characteristics,consumer choice sets, and approaches to market transformation initiatives. The following section discusses innovation and the role of innovation in market transformation.Thepaper concludes with recommendations for market-related research topics.