The sustainability challenges outlined in Chapter 1 are enormous and will require major changes, not only in the way energy is supplied but in the way it is used. Efficiency improvements that reduce the amount of energy required to deliver a given product or provide a given service can play a major role in reducing the negative externalities associated with current modes of energy production. By moderating future demand growth, efficiency improvements can also ‘buy time’ to develop and commercialize new energy-supply solutions; indeed, enhanced efficiency may be essential to making some of those solutions feasible in the first place. The infrastructure hurdles and resource constraints that inevitably arise when scaling up new energy systems become much more manageable if energy losses are minimized all the way down the supply chain, from energy production to the point of end use.
The argument for end-use efficiency improvements is especially compelling when such improvements can (a) be implemented cost-effectively—in the sense that investing in the efficiency improvement generates returns (in future energy-cost savings) similar to or better than that of competing investments—and (b) result in the same level and quality of whatever service is being provided, whether that is mobility, lighting, or a comfortable indoor environment. In such cases, boosting energy efficiency is (by definition) less costly than procuring additional energy supplies; moreover, it is likely to be even more advantageous from a societal perspective when one takes into account the un-internalized environmental and resource impacts associated with most supply alternatives. Past studies, many of them based on a bottom-up, engineering analysis of technology potential, have concluded that cost-effective opportunities to improve end-use efficiency are substantial and pervasive across a multitude of energy-using devices—from buildings to cars and appliances—that are already ubiquitous in industrialized economies and being rapidly acquired in many developing ones. Skeptics caution, however, that such studies have often failed to account for, or have accounted only inadequately for, the power of human preferences and appetites, as well as for the complicated trade-offs and linkages that exist between the deployment of energy-saving technologies and long-term patterns of energy consumption and demand.
A comprehensive treatment of these trade-offs and linkages, together with a detailed analysis of how much end-use efficiency improvement could be achieved in different parts of the world within specified cost and time parameters is beyond the scope of this study. Such assessments must be approached with humility under any circumstances, given the difficulty of anticipating future technological advances and their impact on human behavior, tastes, and preferences. Modern life is full of examples of technologies that have improved quality of life and enhanced productivity for millions of people, while also directly or indirectly creating demand for wholly new products and services. Rapidly advancing frontiers in electronics, telecommunications, and information technology have had a particularly profound influence in recent decades and can be expected to continue generating new opportunities for efficiency gains along with new forms of economic activity and consumption. As noted in Chapter 1, over the last two decades, technology improvements have produced a modest (somewhat more than 1 percent per year on average) but steady decline in the energy intensity of the world economy—where intensity is measured by the ratio of economic output (gross world product) to primary energy consumption. This decline, however, has not been sufficient to offset growth in economic output and worldwide energy consumption in absolute terms has continued to rise.
Chapter 2 reviews, in broad terms, some of the technology opportunities that exist for boosting energy efficiency specific end-use sectors, along with some of the chief policy mechanisms that have been used at different times and in different contexts to promote such improvements14. It should be acknowledged at the outset that because the best data available on these topics are from Europe, Japan, and the United States much of the discussion in this chapter reflects an industrialized country bias. Nevertheless, the findings presented here are likely to be broadly relevant given similarities in the energy conversion and end-use technologies that have tended to be widely adopted around the world as economies industrialize and as personal incomes, at least for wealthy elites, rise. Around the world, people turn out to want much the same things—from refrigerators and air conditioners to televisions and cars. The near-universal desire for similar goods and amenities creates both a challenge and an opportunity to transfer technology improvements and lessons learned. Rapidly developing economies, in particular, have an opportunity to ‘leapfrog’ to more efficient technologies, which tend to produce larger benefits and be more cost-effective when they are incorporated from the ground up rather than being retrofitted at a later date in existing buildings, infrastructure, equipment, or processes. Moreover, the economic rationale for incorporating efficiency improvements is likely to be especially compelling—despite the fact that this is frequently disregarded—in the early phases of industrialization when energy-intensive basic materials tend to consume a larger share of economic resources.
In both industrialized and developing country contexts, however, market drivers alone are unlikely to deliver the full potential of cost-effective, endues efficiency improvements, in part because of the well-documented existence of pervasive informational, organizational, behavioral, and other barriers. Real-world experience suggests that these barriers can be substantially reduced if the political will exists to shift the balance of information and incentives. How much of the gap between realized efficiency gains and engineering estimates of cost-effective potential can be explained by true market failures has been extensively debated, but it is clear that energy-saving opportunities often remain untapped, even in instances where efficiency improvements are cost-effective and offer favorable payback periods or high rates of return. It is already technically possible and cost-effective, for example, to construct buildings that meet or exceed modern standards of illumination, temperature control, and air quality using one-half the energy of conventional buildings. With further research and development to reduce costs and improve systems integration, the closer to 90 percent energy savings that have been achieved in individual demonstration buildings could likely be achieved in many new commercial structures. But wholesale changes in construction practices are unlikely to occur (or will occur only gradually) without concerted policy interventions.
In sum, efforts to improve the efficiency of downstream energy use must be seen as an essential complement to the transformation of upstream energy production and conversion systems. Both will be necessary to achieve sustainability objectives and both require action by governments to better align private incentives with public objectives.15 As a first step it will be important to recognize that opportunities for change on the demand-side are as rich as opportunities on the supply side and can produce equal or even larger benefits in many cases. Methods for directly comparing supply- and demand-side options have been developed for the electric utility sector under the rubric of integrated resource planning; in principle such methods could be applied in other planning contexts and in corporate decision-making. (An important supporting development in the utility sector has been the effort, in some jurisdictions, to de-couple profits from energy sales so as to better align the incentives of energy-services providers with societal objectives.) At present, however, no industry is organized to deliver energy-efficiency improvements on the scale that exists for delivering energy carriers (such as oil, gas, or electricity). Finding business models for investing in and profiting from efficiency improvements therefore remains a key challenge. Energy services companies may fill some of this need.16 In addition, several large corporations have recently initiated substantial in-house efforts to improve efficiency and reduce their energy costs.
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