Energy Efficiency Policies around the World: Review and Evaluation

4.3 General Conclusions and Recommendations: Energy Efficiency Policies: a win-win strategy

The introduction and/or strengthening of energy efficiency policies is becoming a top priority and a sustained effort for energy efficiency will be required over the long term, for several reasons.

The present high oil prices and their impact on the balance of payments and the prospect of even higher price levels in the future, should lead governments to design efficient policies in order to prepare economies for an increasing cost of energy;
The huge need of investment for expanding energy supply (in production, transport, distribution and storage of energy) in emerging countries by electrification of households currently without electricity and the spreading of electric appliances, could be reduced. If demand growth slowed down, reducing investment needs through energy efficiency policies will free capital for other purposes or avoid shortages of capital for the required investment in energy supply, which may constrain economic growth.
Many households in Africa and South Asia still do not have access to modern fuels and have to rely on fuel wood and waste for cooking. This represents a heavy burden in terms of time and money spent to obtain these fuels. In addition, reliance on fuel wood contributes to deforestation. Policies aiming at the distribution of more efficient cooking stoves could alleviate some of these tensions.
The growing consensus among the experts of the International Panel on Climate Change about human induced impacts on the temperature increase has led several governments and institutions to consider drastic reductions of GHG emissions , which can mainly be achieved by vigorous energy efficiency improvements. Several promising studies point to the role of energy efficiency in reducing greenhouse gas emissions: by 2020, energy efficiency could make up half of the reduction needed in scenarios with strong CO2 constraints .

Energy efficiency improvement is a priority that also brings multiple benefits (i.e. a "win-win" strategy):

It limits the macro economic impact of oil price fluctuations for oil importing countries
It can extend the availability of fossil resources
It lowers tensions in domestic energy supply
It reduces local pollution and CO2 emissions
It enhances economic development by reducing energy shortages
It increases competitiveness by reducing the energy costs
It contributes to poverty eradication
Finally, it reduces deforestation
To be successful energy efficiency programmes and projects need appropriate strategies, including:
Incentive prices that reflect the real costs;
The establishment of appropriate institutional and regulatory frameworks;
The use of complementary instruments ("package of measures");
A collaboration between the public and private sector to develop complete energy efficiency services offer, including access to funding;
Good planning, a regular strengthening and proper enforcement of regulations;
An exemplary role of the public sector;
A quality control of equipment, certification processes.
The promotion of innovative measures;
The need to address all end-uses with an energy efficiency potential;
The adaptation of measures for each national circumstance;
A co-ordination at international level;
The integration of energy efficiency concerns in other policies;
An ex-post evaluation of implemented measures and a monitoring of their impacts using indicators.

Fiscal and pricing policies are, of course, the strongest instrument to internalise long-term costs and benefits in energy markets. The general unpopularity of taxes should not prevent the careful design of new taxation schemes, taking into account international competition and the disruptive impact on low-income households. A progressive increase of energy prices even at a low rate, announced publicly, can have, in the long-term, a large impact on technological innovation.

The establishment of energy efficiency institutions such as agencies is necessary to design, coordinate/implement and evaluate programmes and measures, as well as to contract various types of stakeholders, such as companies or banks for instance. A proper regulatory framework with an energy efficiency law and official quantitative targets of energy efficiency improvement adopted by the Government can provide a long lasting context for energy efficiency policies and avoid the negative effect of "stop and go" actions.

The greater impact will come from the implementation of several complementary measures (package of measures) that need to be tuned to national circumstances. Good information is a necessity, but should be complemented with financial incentives or with both regulations and financial incentives. These complementary measures should be implemented simultaneously and not one after the other.

Public-private partnerships between public institutions and private companies, such as banks or private ESCOs are becoming necessary elements of public policy to account for the scarcity of public funds and the competition between diverse public needs (e.g. employment, education, health, security). These partnerships often rely on new and innovative funds that use tools traditionally used by the private sector (e.g. loans, equity participation, and venture capital). Energy efficiency services could provide a new field of activity for companies (ESCO's). However governments need to introduce some incentives (soft interest rates, tax credits, etc.) or mandatory targets, (quotas or commitments). In addition, the involvement of private actors is only possible if there is a stable regulatory environment. Availability of funding from private sources or international donors and financial institutions is not an issue. What is more important is to convince organisations of the advantages of their involvement in energy efficiency investments and in a support to ESCO through a dissemination of positive experiences.

Policy makers should give advance signals of future regulations to both consumers and manufacturers/constructors so that they can adapt in advance of these, especially with respect to mandatory efficiency standards.

To be effective, standards must be regularly updated. Indeed, there is no incentive for manufacturers/constructors to go beyond what is required if no stricter standards have been planned for the future. It is therefore essential to review and reinforce standards at regular intervals as a way to stimulate technical progress and to ensure a steady improvement in energy efficiency.

The experience shows that technologies and buildings corresponding to future standards (i.e. that are more efficient than what is being sold or built with current standards) are in general a few percent more costly than the market average; however, this extra cost drops rapidly with the implementation of upgraded standards, due to learning effect. Therefore complementary policies aiming at an increase in the market share of the most efficient appliances and buildings are highly effective to reduce the cost and to make easier the implementation of the new regulations.

There is a strong need to develop energy efficiency norms for appliances and equipment consuming energy: norms allow a differentiation between low and high efficiency equipment and could be used as labels to inform consumer and to implement incentive policies (tax credit, eligibility to funding schemes etc.). Equipment complying with energy efficiency norms could benefit from public procurement, allowing new efficient technologies to penetrate the market. There is a developmental need for internationally recognised norms through ISO or regional bodies such as CEN in Europe but governments should be able to implement such norms alone, since it is not a protective measure against imported goods.

Regulations on buildings or equipment are effective as long as they are properly

could be used as labels to inform consumer and to implement incentive policies (tax credit, eligibility to funding schemes etc.). Equipment complying with energy efficiency norms could benefit from public procurement, allowing new efficient technologies to penetrate the market. There is a developmental need for internationally recognised norms through ISO or regional bodies such as CEN in

Europe but governments should be able to implement such norms alone, since it is not a protective measure against imported goods.

Regulations on buildings or equipment are effective as long as they are properly enforced. This is often an aspect that is insufficiently addressed by policies, because of budget limitations. Enforcing existing regulations may be in some case as efficient as strengthening further these regulations.

The positive impacts of the public sector in the development of the ESCOs market as well as the role of public procurement of energy efficient equipment show that the public sector can contribute to promote and consolidate a market for energy efficient equipment and services.

The public sector should be involved at all levels of decisions: national, regional and local.

Policy measures should promote quality by supporting only equipment and services that have a recognised standard. For equipment, this can be obtained through norms, as indicated earlier, and certification of equipment. This implies the existence of certification and testing facilities, which may be a constraint in many developing countries (especially for small countries); regional centres could be a solution in that case. These testing and certification facilities are essential for the development of norms on equipment. Accreditation of consultants can guarantee the quality of the services offered.

Innovative high impact measures should be promoted in emerging and developing countries based on the experience of the most advanced policies such as:

Efficiency standards for buildings and buildings certificates
Energy performance contracting and results guarantee
Labelling and standards for cars
Reduced or credit tax on energy efficient equipment
Energy efficiency obligations

To be effective, co-operation/twining programmes should accompany such a transfer of experience between energy efficiency agencies, including technical assistance and know-how.

The analysis of energy efficiency indicators has shown that the best results in terms of energy efficiency progress were generally obtained in the industry sector. This sector is first of all the most sensitive to market forces. It has also been the target of multiple types of measures, ranging from financial and economic incentives, to various regulations (e.g. mandatory energy managers, mandatory energy consumption reporting, mandatory audits) and, more recently, to voluntary / negotiated agreements and mandatory targets for CO2 reduction. On the other hand, passenger transport and households record lower achievements, as increased income and lifestyle changes have offset part of the technical energy efficiency gains. Transport of goods is also a sector with a rapid energy demand growth in which few real measures have been implemented so far. Finally, in many developing countries, the power generation sector has a large potential (electricity production and T&D) that cannot be left aside and represents often a very cost-effective strategy.

In the transport and household sector, improving the efficiency of new equipment, vehicles and building is important. But it is equally important to maintain the equipment and vehicles to avoid a progressive loss of efficiency. Policy measures also need to focus on maintenance.

In these two sectors, the impact of regulation is often partly offset by more energy intensive behaviour (e.g. higher heating temperature, longer utilisation of efficient lamps)("rebound effect"). To reduce the effect of behaviour, policies should promote technologies that limit these rebound effects (e.g. speed limiters, thermal regulation of room temperature, automatic switch off of lights in unoccupied rooms, light sensors etc.).

Although some convergence can be observed in the policy measures across countries, many differences still exist. They reveal that there is not a single model measure, or mix of measures, that can be considered as the most effective one in all circumstances: different sets of measures have to be adopted in different countries, and in a given country, new measures and new combinations of measures have to be designed to accompany market change.

The energy price and taxation context, the degree of market development for energy efficient devices and services and the level of integration between energy efficiency policy and other sectoral policies (transport, buildings etc.) are the primary factors behind such differences. Differences in countries' circumstances certainly play a role too, such as demography (age of population, size of households, growth rate of the dwelling stock), the climate, the level of economic development and the structure of economic activities, the degree of decentralisation of public administration, and, finally, the strategy of the energy producers and distributors.

Although differences exist in the implementation of measures, a greater role is now given to the coordination of policies, especially in Europe with the various EU Directives that also affect non-EU countries. In general, co-ordination at international level could be reinforced to help overcome obstacles to the implementation of both standards and price signals.

Development of benchmark values could help each country set up its own target taking into account its national condition.

National governments, as well as regional and local administrations, should incorporate energy efficiency into all main sectoral public policies (environmental policies, land planning, transport infrastructure, housing policy, urban planning etc.). Infrastructure investment decisions should incorporate the expected growth in energy prices and constraints on CO2 emissions. The mitigation of CO2 emissions in the transport sector is particularly suited to this approach. A carbon value could be defined, which would be taken into account in public decisions to direct choices toward energy efficiency (with a low initial value which is expected to grow). An integration of energy efficiency and other public policies will make the mix of market instruments more efficient.

Monitoring the impact of measures through ex-post evaluation, as well assessment of energy efficiency trends through indicators should continue and be strengthened so as to reveal possible shortfalls. Skillful evaluations could improve the impact of measures and guarantee reliable utilisation of public funds.

Energy efficiency/ CO2 indicators are increasingly used to monitor targets of energy efficiency gains or CO2 abatement. Indeed, most governments and the European Commission are setting quantitative targets and need to monitor the progress achieved on a yearly basis. This is also true at the sectoral level in the framework of voluntary/negotiated agreements or sectoral regulations. Indicators allow first to verify whether the objectives have been fulfilled and secondly to identify, through a set of more detailed indicators, why the objectives may not be reached. The European Commission is making use of ODYSSEE and Eurostat indicators to monitor the impact of several Directives. IEA has also published several reports containing a variety of energy efficiency indicators . All these experiences with indicators clearly show that energy efficiency indicators are useful tools to assess the countries' situations and developments with respect to energy efficiency.

The benchmarking approach, which is often used at the sectoral level, can also be useful at the country level to compare the relative performance of different countries, starting from indicators well adjusted for national circumstances . In this respect physical indicators should be used whenever possible, as economic indicators, even corrected for differences in purchasing power parities, always have a bias.

Nevertheless, data collection still needs to be improved in many countries. As a matter of fact, energy and economic statistics remain limited in assessing energy demand trends. The experience of the EU and Norway with the ODYSSEE database should be extended to other regions. APERC's first experience for the member economies within the industrial sector needs to be updated and extended to other sectors. In Latin America, the comprehensive energy database of OLADE (SIEE) need to be completed with additional energy consumption by sub-sector and end-use and with data on the economic and technical determinants of energy use. Undoubtedly, poor data drastically limits the applicability of the indicators and therefore the scope and relevance of country energy efficiency assessments.

There is an urgent need to define, at the international level, the basic minimum data requirements that would allow relevant country evaluations and cross-country comparisons on energy efficiency, in particular in view of international discussions on CO2/GHG effects. The recent efforts of EUROSTAT and IEA could help define such minimum requirements.

To be fully relevant, evaluation of policies should include effective criteria for the use of public funds in the economy and demonstrate how public expenditures on energy efficiency would benefit the economy? Such criteria are almost never available or public, which makes it difficult, for example, to judge if the taxpayer's money is better used when spent on energy efficiency measures than, for instance, on subsidies for public transport or agriculture or in energy supply infrastructure ("eviction effect").

Countries around the world can benefit from the exchange of information and experiences on the "best measures". Benchmarking of measures implementation should be promoted.