In this chapter, we present the major market failures and behavioural anomalies that are relevant to analyse energy and climate issues from an economic point of view. We start with a discussion on positive and negative externalities; next we discuss the public goods and common resource problem, followed by a presentation of the principal–agent and information problems, and then we provide a summary of the role of lack of competition in energy and energy-related markets. An important aspect described in this chapter is the role of behavioural anomalies, such as bounded rationality and bounded willpower. At the end of the chapter, we describe the most important energy and climate policies as well as the concept of sustainable development that should guide policy design. We also discuss issues in developing countries related to the topics discussed in the chapter.