Barriers to energy efficiency: International case studies on successful barrier removal

Abstract

Industry uses nearly 40 percent of worldwide energy to produce materials and products consumed by us all on a daily basis. In the process it contributes almost 37 percent of global greenhouse gas emissions (GHG). Globally, and in most countries, CO2 accounts for more than 90 percent of CO2-eq GHG emissions from the industrial sector, and energy use is the key source of the emissions. Energy intensity of industry has steadily declined in most countries since the oil price shocks of the 1970s, as evidenced by studies from around the world. Historically, industrial energy efficiency improvement rates have typically been around 1 percent/year. However, various countries have demonstrated that it is possible to double these rates for extended periods of time (i.e., 10 years or more) through the use of policy mechanisms. Still, large potentials exist to further reduce energy use and GHG emissions in most sectors and economies, if these are successful in reducing barriers that limit the uptake of energy efficient practices and technologies. Barriers in the end-use of energy are defined as forces or mechanisms that can be observed to operate in specific markets in such a way as to inhibit behaviours or investments that would increase the efficiency of energy use. In the context of classical economics, market failures occur when barriers are found to inhibit actions that would increase both energy efficiency and economic efficiency. In this context, if a barrier is found to inhibit investments that would be cost effective in a generally accepted economic framework, it is termed a market failure. Some barriers may be observed to inhibit investments in energy efficiency, but unless these investments are economically efficient, they cannot be termed market failures. Another way to view this issue is that an energy efficiency policy invention is economically efficient if its benefits outweigh the costs of intervention. A wide body of literature has documented the existence of barriers. Classical economic theory admits to relatively few types of market barriers that can lead to market failures (Sorrell, 2005). Different classifications exist for barriers that impede energy efficiency improvement (see, e.g., IPCC, 2001; IEA, 2007). A typical classification may be: 1. Principal-agent barriers 2. Information/transaction cost barriers 3. Externality cost barriers 4. Other barriers.