Energy efficiency is about doing more with what we have. It thus touches on every industry sector and has huge potential to contribute to energy savings and a reduction in carbon emissions. This potential is welldocumented from the release of McKinsey’s abatement curve to the efforts by the International Energy Agency (IEA) and other international organizations, and yet it continues to be raised as a critical issue to address. This is because despite the potential there is a substantial gap, and energy efficiency measures are still not being implemented at scale, indicating a significant opportunity is being missed. The reasons behind this range from market to institutional failures and the need to be overcome if we are to use energy efficiency to effectively meet rising energy demand, support economic development and meet the critical challenges of climate change, energy security and economic competitiveness.
Energy efficiency is the cornerstone to meeting our climate change goals and in enabling us to meet growing energy needs. If per capita energy demand continues unabated:
• Energy demand is expected to increase by 40% by 2050.
• Carbon emissions are expected to increase to 34.5 GT CO2 by 2020 and 40.2 GT CO2 by 2030.
• The estimated capital required to meet projected energy demand through to 2030 is huge, amounting in cumulative terms to US$ 26 trillion
(in 2008 dollars).
The increasing consensus that we need to limit the global temperature increase to two degrees means that this situation is not sustainable and must be averted. Research by the International Energy Agency (IEA) estimates that to avoid this and cap the earth’s temperature at two degrees, a total reduction
of 3.8 GT CO2 by 2020 and 13.8 GT CO2 by 2030 against a 2005 baseline is required. The latter is close to three times as much as the US emits in one year and close to 40% of the expected emissions increase in a business as usual scenario. With the majority of estimated demand increase expected to come from non-OECD countries and 1.5 billion people worldwide still without energy access, a huge challenge presents itself as these countries cannot be denied their development rights. Energy efficiency is therefore recognized to be the most cost-efficient and effective way in which to enable economic growth and competitiveness in both developed and developing nations while meeting rising energy demand and combating climate change.
The World Energy Council (WEC) highlights Europe as an example which has seen significant improvements in energy efficiency from 1990 to
2006, achieving a 40% average decrease in final energy consumption per unit of GDP (a measure often used to calculate energy efficiency). The WEC estimates that if all regions of the world had the same energy efficiency performance as the EU in 2006, a total 420 Mtoe of fuel could have been saved, avoiding 1.3 GT CO2 emissions. The recognition of the potential of energy efficiency is well-known (either as a contribution to energy savings or emissions reduction) and shared across stakeholder groups. Within the public sector over 70% of countries have developed energy efficiency targets and implemented a wide range of policy
measures from mandatory targets to incentives and subsidy schemes. International organizations, NGOs and academia have also been instrumental in quantifying the potential and encouraging action with the International Energy Agency (IEA) estimating a potential 8.2 GT CO2 emissions reduction each year by 2030, over half of the potential emissions savings required by 2030. The private sector has also been active with the most energy-intensive industries implementing energy efficiency targets and incorporating it into business decision-making, while other industry players are working to develop innovative business models and capture business opportunities.
Residential electricity prices are expected to increase by 12% in real terms in the US. In the EU, prices are expected to continue to increase until 2020 and then drop to levels similar to today’s prices by 2040. Subsidies for renewables have increased by about 20% per annum for the last 6 years in the EU, and are expected to rise about another 20% over the next 6 years. Many factors have contributed to the increase of electricity prices, including renewables’ support, network costs, taxes (VAT, industrial and excise taxes) and other levies (policy support for nuclear decommissioning, energy efficiency or CHP).
In addition to underlying costs rising, governments in many markets still use the regulated electricity price to raise tax
revenues for activities outside of the sector such as social costs or debt repayment. These trends exacerbate already significant differences in industrial power prices across developed countries, with implications for global economic competitiveness.
US Energy Secretary Steven Chu said in July 2009: “The quickest and easiest way to reduce our carbon emissions is to make our appliances, cars, homes and other buildings more efficient. In fact, energy efficiency is not just low-hanging fruit; it is fruit that is lying on the ground. And energy efficiency means money back in your pocket because you pay less on your energy bills,” recognizing that with the lack of implementation of energy efficiency measures, a significant opportunity is being missed. Indeed, despite the recognized potential of energy efficiency, a gap remains between policy and implementation indicating that capturing this “low-hanging fruit” is not as easy as expected. Policy is not always being implemented with the IEA, identifying that of its 25 policy recommendations only 57% have been fully implemented. Organizations and agencies are still operating at a project level versus a programmatic level and institutional and market failures are preventing the private sector from implementing and investing in energy efficiency at scale. Energy
efficiency initiatives are not yet mainstream in all sectors and developing the investment case for efficiency projects at scale remains difficult. While
they are independently taking various steps, the public and private sectors are not recognizing and acting on each other’s needs effectively. This text
investigates how to bridge this gap and capture this opportunity, scaling up successful energy efficiency implementations globally. The text outcomes are
based on interviews conducted across stakeholder groups.
The research identified three clear areas of activity which can capture the opportunity and frame a scalable, public-private energy efficiency initiative for 2011.
• First, to develop a comprehensive energy efficiency ecosystem within and across the main emitter countries by developing a platform that brings together key public, private and expert actors from across the value chain to co-design scalable projects, programmes and policy enablers as well as common metrics and standards. The Clean Energy Ministerial Process could be a useful vehicle in this regard.
• Second, and related to the public-private platform mentioned above, to create a set of actionoriented private sector networks within some key
industry sectors, each focused on developing a set of specific actions during 2011 and delivering on them, so as to create a step change in energy efficiency outcomes within their particular sector. A model such as the Cement Sustainability Initiative of the World Business Council for Sustainable Development could be a useful one to work from. An energy-intensive sector may be a good place to start.
• Third, and related to the two activities above, a public-private initiative led by international organizations/NGOs and academia to develop for the corporate sector during 2011 a set of harmonized international standards on measurement and reporting for energy efficiency that can sit alongside carbon emissions reporting
Introduction to the Research...
Energy efficiency is a critical component of the energy landscape and a necessary condition to meet the challenges of climate change, energy security and economic competitiveness against a backdrop of population and demand growth. Energy efficiency should therefore be recognized as an integral aspect
of industrial and development plans going forward. However, despite widespread acknowledgement of this potential, a gap remains both in understanding
the challenges of energy efficiency and the barriers to implementation. Over the past couple of years, the Forum has actively contributed to progress this
agenda item through various platforms, including:
• The Low-Carbon Prosperity Task Force (LCPT) which was convened by the World Economic Forum following the appeal by then United Kingdom Prime Minister Gordon Brown in January 2009 and was made up of leading policy-makers, business leaders and experts from international organizations and academia.
The task force made specific recommendations regarding the issue of energy efficiency – the need for the private sector to play a greater role in shaping the agenda, improving and harmonizing standards and the creation of a global network of centres of energy efficiency excellence, presenting these to the then United
Kingdom prime minister and other world leaders at the United Nations Climate Week in September 2009.
• Energy Vision Update 2010: Towards a More Efficient World, a focused publication produced in collaboration with IHS CERA, which highlighted
the potential, challenges and barriers to energy efficiency to provide a level of clarity for solution building going forward.
The World Economic Forum’s 2010 energy efficiency research agenda, in partnership with Accenture, seeks to continue to move the public-private cooperation on energy efficiency forward, providing a forum for solution building; where the two sides can identify and act on key interventions that will help drive industry momentum. This year’s activity explores how the public and private sector can work together more effectively as well as the potential for multilateral agencies and non-governmental organizations to catalyse the process. The research builds on the work already completed by the Forum as well as other industry players, including:
• The International Energy Agency’s (IEA) identification of 25 policy recommendations to obtain 8.2 GT CO2 savings each year by 2030, measurement against implementation of these recommendations and recent launch of their Policy Pathways to support implementation
• The United Nations Foundation’s urging of G8 countries to double current annual energy efficiency improvements – reaching a rate of 2.5% per year – and the launch of their initiative “Efficiency First” to encourage greater international cooperation within this space
• The World Business Council for Sustainable Development’s development of a roadmap to improve efficiency in building space and the development of their “Cement Sustainability Initiative” to share leading practice and accelerate progress across the cement industry
• The Inter-American Development Bank’s funded initiatives across Latin America and the recent launch of their “Energy Innovation Centres”
• The European Climate Foundation’s “Energy Efficiency Initiative” supporting EU member states in creating regulatory and market frameworks for large-scale efficiency investments and in promoting energy efficiency in buildings and appliances By combining research and dialogue the study aims to maintain the position of energy efficiency on the global agenda and continue to shape this agenda through the Forum’s relationships, and in particular the following:
• Identify where we are today; gaining a robust understanding of the current energy efficiency landscape – key dimensions, what is working, what is not working and identifying those global leading practices that should be shared
• Challenge the concept of energy efficiency as “low-hanging fruit”, highlighting the implementation barriers which are limiting large-scale implementation of energy efficiency measures and approaches to overcoming those barriers and identify a set of practical recommendations across sectors (public, private and the multilateral agencies, NGOs and academia) to help clarify roles and responsibilities and to strengthen the business case for energy efficiency measures, driving adoption
• Recommend concrete action throughout 2011, identifying three initiatives that are actionable and could lead to significant progress in bridging the gap
This study has been compiled from a set of deepdive interviews with key stakeholders from the public sector, international organizations and academia and from the private sector. A total of 23 interviews were conducted with the breakdown by sector as follows:
• Public Sector: 5
• International organizations, NGOs, academia: 7
• Private Sector: 11
The study is global and cross-sector in remit, focusing much more on the roles that the varying stakeholder groups can play rather than identifying
industry-specific recommendations in an effort to provide cross-sector market clarity and identify market accountability.
To Be Continue...