Towards effective implementation of the energy efficiency first principle: a theory-based classification and analysis of policy instruments

The energy efficiency first (EE1st) principle, embedded in the European Union's (EU) recast Energy Efficiency Directive, aims to prioritise cost-effective energy efficiency solutions over new energy supply infrastructure. These solutions encompass not only end-use energy efficiency, but also, notably, demand-side flexibility. This research bridges the gap between the theoretical underpinnings of the principle and practical policy implementation. Drawing on market failure theory, it identifies an inherent bias in EU energy markets in favour of energy supply infrastructure. By highlighting the correction of market failures – from externalities to transaction costs – through targeted policy instruments, it presents a theoretical policy intervention logic for EE1st. Based on this, it offers a set of twenty-nine established and emerging policy instruments linked to specific market failures, thus providing a systematic roadmap for EE1st application. The study concludes that levelling the playing field between energy efficiency and energy supply requires a broad policy response. This extends beyond traditional energy efficiency policy of standards and public financing, and includes instruments such as electricity market design, remuneration schemes for network operators, and emissions pricing.