Governments can create financial incentives to promote
energy efficiency. These can be directed at consumers or
manufacturers, and are normally achieved through taxation and/or
subsidies.
Examples of incentives for consumers include lower sales taxes on
more energy efficient products, or loans and grants for insulating
houses. Governments can also provide incentives to companies by
subsidising research and development of more energy efficnent
products and services.
Although subsidies and taxation can have a positive impact on
energy efficiency, they can also have negative consequences.
Subsidising the wrong thing can increase energy consumption, and
bad implementation or removal of subsidies can have negative
economic impacts on consumers.