A subsidy is a market-based instrument and is often central measures in energy efficiency policy. Such instruments reinforce prices, create the appropriate market for energy efficiency and drive consumer choices towards the most socially cost effective solutions. One merit of market-based incentives is that they are more cost-effective than some non-market solutions.

By lowering the costs of investing in industrial energy efficiency, subsidies are designed to mobilize investment, prepare for new regulations or promote energy-efficient technologies by expanding markets. Subsidies can be paid directly from public funds to firms investing in energy-efficient technology or related services, such as audits, or they can be provided as tax credits and allowances or reductions in value added taxes.