This paper argues that the development of energy systems rests on a combination of three different domains of socio-economic processes and associated modes of decision-making. For shorthand these are termed ‘satisficing’, ‘optimising’, and ‘transforming’ domains, with corresponding underpinnings found in behavioural, neoclassical, and evolutionary economics respectively. Each domain operates at different scales of time and personal/organisational/societal decision-making, and explains different characteristics of how energy systems develop. At least since the industrial revolution, the nature of energy systems has depended on government policy, and each domain implies a need for different policy instruments; the combination of all three lays the foundations for far more coherent, effective, and mutually reinforcing policies, including those required to transform energy systems in the light of environmental constraints. The approach also provides a coherent theoretical framework for understanding the conditions under which co-benefits and ‘green growth’ may emerge from environmental policy.
Keywords: Behavioural economics, Evolutionary economics, Energy innovation, Sustainable development, Energy transitions, Three Domains, Climate policy