Demand Reduction, Energy Efficiency and Policy

Effectiveness: What Works?

Nick Eyre, Edinburgh 13th December 2013

UK energy use trends

-

20

40

60

80

100

120

140

160

180

1970 1975 1980 1985 1990 1995 2000 2005 2010

M

toe

Total UK Energy Use 1970-2011

Industry Transport Domestic Other

Drivers of UK carbon emissions Kaya identity values 1971-2008

Based on IEA data

0

0.5

1

1.5

2

2.5

19

71

19

73

19

75

19

77

19

79

19

81

19

83

19

85

19

87

19

89

19

91

19

93

19

95

19

97

19

99

20

01

20

03

20

05

20

07

C/E

E/GDP

GDP/P

P

…and efficiency is likely to make a key contribution to future decarbonisation

IEA ETP, 2010

Gas in power generation

Zero carbon supply

Changes in energy demand

Energy efficiency as a ‘cost reducer’ in carbon abatement

Taken from IEA, 2010

CERT

CESP

ECO

GD

0

10

20

30

40

50

60

70

80

1994-1998 1998-2000 2000-2002 2002-2005 2005-2008 2008-2012 2013-2015

EESoP 1 EESoP 2 EESoP 3 EEC 1 EEC 2 CERT/CESP Green Deal/ECO

Mt

CO

2 (

life

tim

e)

pe

r a

nn

um

…but in buildings energy efficiency we are reducing the level of ambition

Source: Rosenow and Eyre (2013)

Carbon savings from the principal buildings energy efficiency policies

Energy efficiency as a ‘cost reducer’ in carbon abatement

Taken from IEA, 2010

Barriers to energy efficiency

Deficient

information

Incorrect or insufficient knowledge at the point of

decision-making biases decisions against efficiency

Access to

capital

Constraints on borrowing, including higher interest rates

than justified by the risk of the project

Split

incentives

Investors cannot always appropriate the benefits of

energy efficiency investments (e.g. landlords)

Risk Perceived technical and financial uncertainties, including

trust in delivery agents.

Bounded

rationality

Energy consumers do not make the choice identified as

optimal by economic analysis

Based on Sorrell et al, 2004

Energy efficiency is economically and environmentally beneficial, but it still needs strong policy intervention

Two key hypotheses for energy efficiency policy

It is a socio-technical innovation problem – so a package of different policy instruments is needed

It is a multi-level governance problem – so policy action is needed at different levels of government

Market transformation: Innovation stages and polices

Research

Early

adoption

Mass

adoption

Late

adoption

R, D and D

support

Incentives and

engagement

Regulation

Time

Mark

et

penetr

ation

Policies

Innovation stage

An example: UK fridge/freezer sales

Source: EST, 2008

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

1996-97 1997-98 1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 2005-6 2006-7 2007-08

G

F

E

D

C

B

A

A+

A++

Incentives

for B

Minimum

standard C

Incentives

for A only

40 years of energy efficiency policy: What have we learnt?

Energy prices make a difference

but pricing policies are constrained by concerns about competitiveness and equity

Regulation works well

but only for ‘mass products’, and where well-signalled and enforced

Investment incentives can be very effective

but they cost money – Government’s or consumers’

People matter

but do not trust, or even expect, Government or energy companies to engage them very effectively

Based on Mallaburn and Eyre, 2013

Energy efficiency as a multi-level governance problem Governance level

Global

EU

National

Country/region

Local govt

Civil society organisations

Households and businesses

Govern

ance

pow

ers

Ability

to e

ngage

Energy efficiency as a multi-level governance problem Governance level Governance levers

Global UNFCCC

EU Carbon markets; product standards; RE/EE targets

National Energy policy; fiscal; spending; energy market regulation

Country/region Housing and fuel poverty policy; building regulations; transport policy; business support

Local govt

Civil society organisations

Housing/ transport services; energy advice; community projects and engagement

Households and businesses

Personal action

Govern

ance

pow

ers

Ability

to e

ngage

UKERC Contact Details

UK Energy Research Centre

+44 (0)20 7594 1574

www.ukerc.ac.uk

Nick Eyre

+44 (0)1865 285129

http://www.eci.ox.ac.uk/people/eyrenick.php