Interesting discussion!
Some insight into the question of the conservation of energy of red shifted EM spectra may be found in extending Einstein's approach in considering a spherical "volume" containing a "light complex" which he discusses in his now famous 1905 paper "On the Electrodynamics of Moving Bodies".
If we consider a four dimensional volume in space-time which is defined as containing the energy of a single monochromatic EM wave cycle at the time/place of propagation, that same volume will contain the same energy of the same wave cycle at the point it is observed, (assuming the light path is otherwise field free, etc.). However, if the observer is moving with respect to the light source, the volume will appear to be compressed or expanded depending on the direction of the observer's relative motion.
For the astronomer, it comes down to counting photons. A monochromatic light wave which has its wavelength shifted to twice its original length will be understood to have one half the energy compared to original signal.
If it is understood that the metric of space-time in which light propagates is governed by a parameter that is isomorphic to Hubble's constant, there is no "lost energy". To compensate, the local observer would simply re-calibrate his instrument to account for the discrepancy between observations made in local Minkowskian space-time and the physical space-time in which the light is propagating. Doing so would permit an analysis of the existence of other sources of red shift associated with the object under observation, including a true doppler shift, a cosmological shift. etc. (One supposes that the contribution of these other sources of red (or blue) shift to the observed spectra might be challenging to resolve.)
For the purposes of this thread, the governing principle is a somewhat elementary consequence, (if not a trivial restatement) of Einstein's analysis in Section 8 "Transformation of the Energy of Light Rays...", of his 1905 paper. There he makes the intriguing observation that "it is remarkable that both the energy and the frequency of a light complex vary with the motion of the observer in accordance with the same law."
@surajt: That is to say, a local observer in relative motion to the source will detect a frequency shift (and a change in the energy of the photon), which is a function of the observer's relative velocity to the source. It is probably worthwhile to note here that in concluding his analysis of the "theory of Doppler's principle" in Section 7 of the same paper, Einstein makes the observation that it follows that "to an observer approaching a source of light with the velocity c, the source of light must appear of infinite intensity." [Maybe that's where the term "blinding speed" came from!]
Einstein's approach with respect to the application of Maxwell's equations to moving bodies is straight forward (for his purposes). However, the implications that can be drawn from it are not, and no further mention of it appears in the paper. Treating the energy of a "light complex" as contained in a volume informs the interpretation of observed spectra from plane waves in Minkowski space, as well as in space-times defined by other metrics, the relevance of which has been all but overlooked. [But see Francis, et als., Expanding Space: the Root of all Evil? arXiv:0707.0380v1 at p.7].
In this later case, if the value of the metric parameter is equivalent to the value of Hubble's constant, red shifts in spectra observed locally would be interpreted to be velocity dependent, when the phenomena would be better understood as reflecting a time/distance dependency (to the second order), allowed by Maxwell's equations. This is important and is not well understood primarily because few astrophysicists and cosmologists are familiar with relevance of the Bateman-Cunningham conformal group to the physical behavior of light. No matter how many books, treatises, monographs and papers one reads on modern cosmology, it appears that there is completely absent from the literature any fundamental treatment which examines Maxwell's equations to determine whether they exclude the possibility that, to use Humason/Hubble and Milne's terms, the observed red shift is an intrinsic characteristic of EM radiation.
Nevertheless, astronomy, astrophysics and cosmology would be well served if the a priori assumption that Minkowski's metric is the metric of physical gravitation-free space-time received experimental verification on a scale of, say 80 AU(+/-). In absence of such an experiment, (to the extent of my understanding of the subject), the issue of the cosmological red shift will remain unsettled, and stand on nothing more than an assumption based on what our model's tell us, informed only by what we know about the behavior of light on, in cosmological terms, a nano scale.