Market barriers to energy efficiency

Discussions of energy policy in an environmentally constrained world often focus on the use of tax instruments to internalize the external effects of energy utilization or achieve specified reductions in energy use in the most cost-effective manner. A substantial literature suggests, however, that significant opportunities exist to reduce energy utilization by implementing technologies that are cost-effective under prevailing economic conditions but that are not fully implemented by existing market institutions. This paper examines the theory of the market for energy-using equipment, showing that problems of imperfect information and transaction costs may bias rational consumers to purchase devices that use more energy than those that would be selected by a well-informed social planner guided by the criterion of economic efficiency. Consumers must base their purchase decisions on observed prices and expectations of post-purchase equipment performance. If it is difficult or costly for individuals to form accurate and precise expectations, the level of energy efficiency achieved by competitive markets will vary from the socially efficient outcome. Such ‘market barriers’ suggest a role for regulatory intervention to improve market performance at prevailing energy prices.     

Transaction costs of Tradable White Certificate schemes: The Energy Efficiency Commitment as case study

This paper analyses the nature and scale of transaction costs (TCs) borne by obliged parties under a “Tradable White Certificate” (TWC) scheme. Taking the first phase of the Energy Efficiency Commitment (EEC1) in Great Britain as a case study, several sources of TCs were considered, such as search for information, persuasion of customers, negotiation with business partners, and measurement and verification activities. Information was obtained through interviews and a questionnaire distributed to obliged parties. Results show that the most significant sources of TCs were related to search for information, persuading customers and negotiating with managing agents/contractors to implement energy efficiency measures. Perceived high TCs related to contract negotiation and liability risks slightly reduced the low trading level. The scale of TCs was estimated to be around 10% and 30% of total investments costs for the lighting and insulation segments, respectively. The results indicate that, despite the presence and scale of TCs, the EEC1 scheme generated energy savings that yielded net societal benefits. Estimated financial benefits range from 0.6 to 6 p/kWh for insulation and lighting savings, respectively. When avoided external costs due to electricity savings are included, estimated economic benefits range from 3 to 8 p/kWh. Several lessons from the EEC1 can be drawn for TWC schemes. Among others, it is found that informative policy instruments to raise awareness among end-users are critical if a TWC scheme is to deliver cost-effective energy savings. In all, the nature and scale of TCs under TWC schemes will differ because of a number of endogenous and exogenous determinants.     

Warm homes: Drivers of the demand for heating in the residential sector in New Zealand

New Zealand houses are large, often poorly constructed and heated, by OECD standards, and consequently are colder and damper indoors than recommended by the World Health Organisation. This affects both the energy consumption and the health of households. The traditional New Zealand household pattern of only heating one room of the house has been unchanged for decades, although there has been substantial market penetration of unflued gas heaters and more recently heat pumps. This paper describes the residential sector and the results of two community-based trials of housing and heating interventions that have been designed to measure the impact of (1) retrofitting insulation and (2) replacing unflued gas heaters and electric resistance heaters with heat pumps, wood pellet burners and flued gas heaters. The paper describes findings on the rebound effect or ‘take-back’—the extent to which households take the gains from insulation and heating improvements as comfort (higher temperatures) rather than energy savings, and compares energy-saving patterns with those suggested by an earlier study. Findings on these aspects of household space heating are discussed in the context of the New Zealand government's policy drive for a more sustainable energy system, and the implications for climate change policy.     

Uncertainty, loss aversion, and markets for energy efficiency

Increasing energy efficiency is critical to mitigating greenhouse gas emissions from fossil-fuel combustion, reducing oil dependence, and achieving a sustainable global energy system. The tendency of markets to neglect apparently cost-effective energy efficiency options has been called the “efficiency gap” or “energy paradox.” The market for energy efficiency in new, energy-using durable goods, however, appears to have a bias that leads to undervaluation of future energy savings relative to their expected value. This paper argues that the bias is chiefly produced by the combination of substantial uncertainty about the net value of future fuel savings and the loss aversion of typical consumers. This framework relies on the theory of context-dependent preferences. The uncertainty-loss aversion bias against energy efficiency is quantifiable, making it potentially correctible by policy measures. The welfare economics of such policies remains unresolved. Data on the costs of increased fuel economy of new passenger cars, taken from a National Research Council study, illustrate how an apparently cost-effective increase in energy efficiency would be uninteresting to loss-averse consumers.     

Policies to reduce energy use and environmental emissions in the transport sector : A case of Delhi city

This paper aims to analyze factors influencing energy consumption pattern and emission levels in the transport sector of Delhi, and extrapolates total energy demand and the vehicular emissions, using a computer-based software called ‘Long Range Energy Alternative Planning’ (LEAP) and the associated ‘Environmental Database (EDB)’. The study is restricted to passenger modes of transport in Delhi and does not include the freight model. Travel demand is first estimated by analyzing data on vehicle population, average distance travelled, and occupancy level. Next, data on travel demand, proportion of travel demand catered by road and rail, modal split, occupancy and fuel efficiency are compiled within the LEAP framework, in order to estimate the energy demand in Delhi. In addition, emission factors are compiled under EDB module of the LEAP structure to estimate the resultant pollution loading. The LEAP model is run under five alternative scenarios to estimate the current consumption of gasoline and diesel oil in Delhi and forecast the same for the years 1994/1995, 2000/2001, 2004/2005 and 2009/2010, respectively. Under each scenario, the model also estimates emissions of CO, HC, NO_x, SO₂, Pb and TSP. The total emissions are translated into concentration levels attributable to the passenger transport to get an indication of air quality in Delhi. This is accomplished by the use of proportional air quality model. Finally, scenario results are analyzed to study the impact of different urban transport policy initiatives that will reduce the growth of fuel demand and emissions. The prime objective is to arrive at an optimal transport policy that limits the future growth of fuel consumption as well as air pollution.     

Rural household energy consumption with the economic development in China: stages and characteristic indices

This paper discusses history variance and general features on rural household energy consumption with the economic development in China. Energy shortage has been a long-standing problem in rural areas of China. The average effective energy consumption was 0.46–0.54 kgce per day per household in the 1960s and 1970s. The reason for this is that the rural household energy supply mainly relies on the available amounts of local natural energy resources. The problem of cooking fuel shortage was basically solved in the early 1980s since more straw and stalks were produced due to the rapid development of agriculture. The process of energy commercialization also started from the early 1980s due to the availability of coal, fuel oil and other energy sources in the market, and the reconstruction of rural power supply network. Energy consumption was 369.8 kgce per capita with 30% of commercial energy consumption and the effective heat per capita per day was 0.64 kgce in 1995. A closer relationship was found between household energy consumption level/structure and family income along with the economic development. This paper analyzed the rural household energy consumption of three typical regions, i.e., out-of-poverty, well-off and rich regions, in terms of effective heat per capita per day, percentage of commercial energy consumption in total effective heat, electricity consumption per capita and room temperature of northern areas in winter.     

Interactions of white certificates with other policy instruments in Europe

In a tradable white certificate (TWC) scheme, each certificate issued represents a certain amount of energy saved. Used in conjunction with an energy-saving obligation on certain parties in the energy supply chain and with rules for trading, monitoring and verification established, an efficient market for energy savings in sectors not covered by the European Union (EU) Emissions Trading Scheme can be established. However, a plethora of other mechanisms are already in place to promote a more sustainable use of energy in Europe. This paper analyses the interactions (both potential and realised in existing schemes) between TWCs and other policy instruments including tradable green certificates, the European Union Emissions Trading Scheme, the European Union Energy Performance in Buildings Directive as well as taxes, subsidies and loans. Measures implemented through a TWC scheme that reduce the consumption of electricity can make targets under a tradable green certificate scheme easier to attain. Where a tradable green certificate scheme contains relative targets, the target should be increased to achieve the same absolute amount of renewable power. A TWC scheme can also reduce the number of allowances electricity generators will need to surrender under the EU Emissions Trading Scheme. By reducing the available emission rights in the National Allocation Plans, this effect is possible to counteract.

An ex-ante evaluation of a White Certificates scheme in The Netherlands: A case study for the household sector

Increased efficiency of energy demand is generally recognized as a very cost-effective strategy to reduce energy requirements and the related environmental impacts (e.g. the greenhouse effect). In order to improve energy efficiency the use of innovative market mechanisms, such as the White Certificates (WhC), has been proposed. The basic idea underlying this policy instrument is that specific energy saving targets are set for energy suppliers or energy distributors. These requirements must be fulfilled in a predefined time frame. The focus of this paper is on the effect on energy efficiency improvement, on the behavior of the end consumers and the market of energy efficiency measures. Furthermore, we study the possible effects of WhC in The Netherlands by means of a theoretical analysis and an empirical bottom-up model. We compare concrete energy efficient technologies in terms of cost-effectiveness and energy efficiency improvement. In combination with existing Dutch policies for energy efficiency improvement in the built environment, the contribution of this innovative scheme could enhance the accomplishment of energy efficiency targets. In this paper, two packages of energy saving measures of a WhC scheme are studied for Dutch households. The costs of these technologies are estimated through the use of different discount rates, which imply overcoming of the market barriers through the use of the WhC. A scheme that includes all available technologies as flexible options appears as a realistic solution and can generate cost effectively up to 180 PJ primary energy savings and 4550 M€ cumulative net savings in the year 2020, at a discount rate of 5%, under the precondition that the policy and administrative costs can be kept low.     

Energy and exergy utilization efficiencies in the Japanese residential/commercial sectors

Unlike the manufacturing sector, the residential/commercial sectors of Japan struggle to meet their environmental requirements. For instance, their CO₂ emission levels have increased tremendously since 1990. This research estimates energy and ‘exergy (available energy)’ efficiencies in Japan's residential/commercial sectors during the period 1990–2006. Since an exergy analysis reveals ‘available energy losses’, it is an effective tool to achieve sustainable societies. The primary objective of this paper is to examine the potential for advancing the ‘true’ energy efficiency in Japan's residential/commercial sectors—by observing energy and exergy efficiency disparities. The results show large differences between the overall energy and exergy efficiencies in the residential (60.12%, 6.33%)/commercial sectors (51.78%, 5.74%) in 2006. This implies great potential for energy savings in both sectors. Furthermore, this research suggests that the residential sector may face more difficulties than the commercial sector, although the latter appears to be less energy-efficient, according to recent statistics. This is because the disparity between energy and exergy efficiencies has expanded in the residential sector since 2000. This study illustrates the importance of exergy analyses in promoting sustainable energy policies and new adaptation strategies.     

Rebound and disinvestment effects in refined oil consumption and supply resulting from an increase in energy efficiency in the Scottish commercial transport sector

In this paper, we use an energy–economy–environment computable general equilibrium (CGE) model of the Scottish economy to examine the impacts of an exogenous increase in energy augmenting technological progress in the domestic commercial Transport sector on the supply and use of energy. We focus our analysis on Scottish refined oil, as the main type of energy input used in commercial transport activity. We find that a 5% increase in energy efficiency in the commercial Transport sector leads to rebound effects in the use of oil-based energy commodities in all time periods, in the target sector and at the economy-wide level. However, our results also suggest that such an efficiency improvement may cause a contraction in capacity in the Scottish refined oil supply sector. This ‘disinvestment effect’ acts as a constraint on the size of rebound effects. However, the magnitude of rebound effects and presence of the disinvestment effect in the simulations conducted here are sensitive to the specification of key elasticities of substitution in the nested production function for the target sector, particularly the substitutability of energy for non-energy intermediate inputs to production.     

Development of a modelling framework in response to new European energy-efficiency regulatory obligations: The Irish experience

Momentum has been building for an EU-wide approach to energy policy in which energy end-use efficiency is regarded as one of the main planks. Member States are already obliged to plan for the achievement of energy savings targets in respect of the period 2008–2016 and they now face additional economy-wide targets for 2020. Efficiency investments are widely regarded as capable of improving industrial competitiveness, security of energy supply and the abatement of greenhouse gas emissions. Nevertheless, the design of policy packages may involve trade-offs between these objectives. The challenge for energy modellers is to quantify future energy savings associated with combinations of efficiency measures. This paper draws on the international experience in energy modelling and tracks recent progress that has been made towards a harmonised European framework for verification of savings. It points to the significant development work that remains to be done, particularly to enable an increased reliance on bottom-up evaluation methods. One significant gap in our knowledge relates to the required adjustment of technical savings due to behavioural factors such as rebound effects. The paper uses one country (Ireland) as a case study to demonstrate how a framework is being developed to respond to these new requirements.     

Measured energy savings due to photocell control of individual luminaires

The results of a series of measurements into the electrical energy savings achieved by PIR and photocell control of individual fluorescent luminaires are presented. Two versions of the PIR/photocell control system (referred to as ‘intelligent’ luminaires from here on) were tested. The results are compared with estimates of the performance of switchstart and ‘standard’ high frequency fluorescent luminaires.The results show that the original ‘intelligent’ control system installed achieved electrical savings of around 10% when compared to ‘standard’ high frequency fittings. An improved version of the ‘intelligent’ system achieved energy savings averaging around 80% when compared to ‘standard’ high frequency fittings. This latter result is in line with the savings predicted by BRE Digest 272⁽¹⁾ for photoelectric dimming control. The study also showed that these fittings need proper commissioning to return their full potential savings.     

Market imperfections and economic efficiency of white certificate systems

This paper takes the view that energy markets and markets for energy efficiency have significant imperfections, including ones that cannot be repaired through prices alone. The acknowledgement of the various market imperfections, however, does not endorse automatically the use of various instruments, such as tradable white certificates (TWC). Therefore, it is necessary to clarify under what conditions a TWC system can have equal or superior effectiveness and economic efficiency as compared to other instruments. The article explains the principles of a TWC system in terms of market functioning and price formation. It also highlights some key assumptions regarding additionality of energy savings, transaction cost, free riding, target setting and regulatory predictability. Subsequently, the paper illustrates how a TWC system interacts with other energy efficiency policy instruments, in particular standards and taxes. After these explanatory sections the article turns to the modelling of actual TWC price formation in selected countries and subsequently presents a comparative assessment of a TWC system with an energy tax for Finland and the Netherlands.

US energy conservation and efficiency policies: Challenges and opportunities

Expanding energy conservation and efficiency in every sector nationwide is one of the most cost-effective instruments for reducing US energy imports, the trade deficit and energy’s environmental impacts. For these reasons, energy conservation and efficiency have been essential elements of US energy policy since the oil embargos and price spikes of the 1970s. The Energy Independence and Security Act of 2007 (EISA) is the latest federal legislation to expand and strengthen US energy conservation and efficiency policies, programs, and practices. Specifically, EISA and its recent predecessor, the Energy Policy Act of 2005 (EPAct05), contain almost 200 titles with new provisions for energy conservation and efficiency aimed at improvements in vehicle fuel economy. These provisions include efficiency of appliances and lighting; energy savings in residential, commercial, and government buildings; the efficiency of industrial manufacturing plants; and the efficiency of electric power delivery and end-use. These actions have begun to contribute to new federal, state, and local policies, programs, and practices across the US, and expectations are high for increases in the level of energy savings. This paper summarizes the history of US energy conservation and efficiency policies, outlines EISA’s and EPAct05’s key provisions, and considers prospects for the future.     

On policy instruments for support of micro combined heat and power

The performance of residential micro combined heat and power (micro-CHP)—a technology to provide heat and some electricity to individual dwellings—is generally dependent on the magnitude of household thermal energy demand. Dwellings with larger and more consistent thermal consumption perform well economically and achieve greater greenhouse gas emissions savings. Consequently, the performance of micro-CHP is dependent on the level of thermal insulation in a dwelling. Therefore, emerging policy approaches regarding energy use in the residential sector, which generally support both energy efficiency measures such as thermal insulation and adoption of micro-CHP, may inadvertently incentivise micro-CHP installation where CO₂ reductions are meagre or not cost-effective. This article examines this issue in terms of the changes in economic and environmental performance that occur for three micro-CHP technologies under changing patterns of residential thermal insulation in the United Kingdom. The results of this analysis are used to comment on the structure of policy instruments that support micro-CHP. It is found that simultaneous support for energy efficiency measures and micro-CHP can be justified, but care must be taken to ensure that the heat-to-power ratio and capacity of the micro-CHP system are appropriate for the expected thermal demand of the target dwelling.     

Transforming shortcomings into opportunities: Can market incentives solve Lebanon's energy crisis?

Over the past decades Lebanon's energy sector has been largely ignored and this has led to high economic and environmental costs. The sector is characterized by electricity poverty, an expanding and mainly unregulated transport sector and a lack of energy savings spanning through all sectors of the economy. Recently, the Government of Lebanon has committed to increase the share of renewable energy to 10% of the total energy supply by 2013 and to 12% by the year 2020; it also aims at reducing energy consumption by 6% by the year 2013. This paper aims at contributing to the formulation of a more comprehensive energy strategy for Lebanon by analyzing the recent changes in policy direction and by recommending legal, regulatory and policy measures in order to transform current shortcomings into opportunities allowing the country to become a regional ‘success story’ in the deployment of renewable energy and energy efficiency.     

Voluntary agreements with white certificates for energy efficiency improvement as a hybrid policy instrument

In this paper we examine the implementation of a combined policy scheme that consists of a traditional instrument, the voluntary agreements (VAs), and an innovative one, the white certificates (WhC). The basic structure of this scheme is that energy suppliers who undertake an energy efficiency obligation under a white certificate scheme can make use of voluntary actions to enhance investments in innovative energy savings projects. Energy suppliers and other market parties can additionally or in parallel participate in voluntary agreements and set energy efficiency targets. For fulfilling their voluntary agreement target, these market parties can receive tax exemptions or receive white certificates that they can sell in the market. Transaction costs and baseline definition for demonstrating energy efficiency improvement deserve special attention. This policy can assist a country to enhance energy efficiency improvement while it stimulates innovation. Cost effectiveness can be higher than the case of stand-alone policy instruments, since more financing options are available for more expensive projects. Nevertheless, the added value of the scheme lies more in the implementation of innovative measures for enhanced energy efficiency. Furthermore, market parties can discover more business opportunities in energy efficiency and establish a green image; hence an integrated scheme should achieve higher political acceptability.     

Liberalisation of the UK energy market: An opportunity for green energy

1998 is a year of considerable change and opportunity for the energy sector in the UK, with government policy reviews of generation, renewables, utility regulation and climate change. In addition, the UK electricity market and gas markets will be opened up to full competition. This could boost renewable energy and the formation of Energy Services Companies as environmentally-aware consumers become able to choose ‘green’ energy from more progressive suppliers. Friends of the Earth has researched the environmental performance of the main electricity suppliers in the UK and the potential for consumer pressure. However, competition must exist within a framework of government regulation and additional support mechanisms if environmental and social objectives for the energy sector are to be met     

Energy saving and CO2 mitigation through restructuring Jordan's transportation sector: The diesel passenger cars scenario

The transportation sector is responsible for 37% of the total final energy consumption in Jordan, with passenger cars taking a share of 57% in this sector. Improvement of the energy efficiency of the transportation sector can help in alleviating socio-economic pressures resulting from the inflating fuel bill and in lowering the relatively high CO₂ emission intensity. Current legislations mandate that all passenger cars operating in Jordan are to be powered with spark ignition engines using gasoline fuel. This paper examines potential benefits that can be achieved through the introduction of diesel cars to the passenger cars market in Jordan. Three scenarios are suggested for implementation and investigated with a forecasting model on the basis of local and global trends over the period 2007–2027. It is demonstrated that introducing diesel passenger cars can slow down the growth of energy consumption in the transportation sector resulting in significant savings in the national fuel bill. It is also shown that this is an effective and feasible option for cutting down CO₂ emissions.     

Dynamic life cycle assessment (LCA) of renewable energy technologies

Before new technologies enter the market, their environmental superiority over competing options must be asserted based on a life cycle approach. However, when applying the prevailing status-quo Life Cycle Assessment (LCA) approach to future renewable energy systems, one does not distinguish between impacts which are ‘imported’ into the system due to the ‘background system’ (e.g. due to supply of materials or final energy for the production of the energy system), and what is the improvement potential of these technologies compared to competitors (e.g. due to process and system innovations or diffusion effects). This paper investigates a dynamic approach towards the LCA of renewable energy technologies and proves that for all renewable energy chains, the inputs of finite energy resources and emissions of greenhouse gases are extremely low compared with the conventional system. With regard to the other environmental impacts the findings do not reveal any clear verdict for or against renewable energies.Future development will enable a further reduction of environmental impacts of renewable energy systems. Different factors are responsible for this development, such as progress with respect to technical parameters of energy converters, in particular, improved efficiency; emissions characteristics; increased lifetime, etc.; advances with regard to the production process of energy converters and fuels; and advances with regard to ‘external’ services originating from conventional energy and transport systems, for instance, improved electricity or process heat supply for system production and ecologically optimized transport systems for fuel transportation.The application of renewable energy sources might modify not only the background system, but also further downstream aspects, such as consumer behavior. This effect is, however, strongly context and technology dependent.