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Previous studies have proven that many consumers investing in energy efficiency gain high implicit discount rates that substantially exceed market interest rates for borrowing and saving. This observation has been explained by applying the concept of option value adapted from the finance theory. However, the concept does not provide adequate explanation for the pattern in energy-efficiency investments.

A framework for identifying technical evidence of market failures on energy-efficient improvements is developed. The methodology is applied to examples of cost-effective, energy-efficient technologies hampered by market imperfections, thus demonstrating the presence of market failures. This empirical evidence that reinforces skepticism about the efficacy of the market mechanism in the adoption of energy-efficient improvements can be used by economists, policy analysts and technologists examining market failures related to energy efficiency and thus, in formulating policy that tackles these failures.

The debate between 'engineering' and 'economic' approaches to energy analysis clouds major issues concerning the cost-benefit analysis of policies that encourage the adoption of energy-efficient technologies. The engineering approach, however, has economic basis as it is grounded on the least-cost provision of energy and the potential economic gains from energy-efficient technologies. Thus, the existence of market failures is suggested by evidence that 'market barriers' hamper the adoption of cost-effective and energy-efficient technologies.