The value of a particular action that produces an economic benefit by reducing costs. Avoided costs are used for many purposes. In California, avoided costs are used to evaluate the relative costs and benefits of a wide variety of policies, programs and practices. In the energy sector, avoided costs are used as a benchmark for the level of incentives that could be provided to encourage participation in energy efficiency, demand response, and production of renewable and other clean and/or distributed energy resources. Avoided costs are used for similar purposes by the water sector.