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Kick-Starting the Energy Efficiency Sector

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To tackle climate change, energy efficiency could be expected to be one of the front-running sustainable energy solutions. Unlike other technologies, investing in energy efficiency delivers financial returns as spending on energy is reduced. Energy efficient measures could also make massive cuts to global carbon emissions. They could potentially reduce the global emissions output by more than half by 2030.1

To date, however, the energy efficiency sector – which designs, markets and implements energy efficiency measures to the residential and commercial sectors – has failed to develop a significant market share of the sustainable energy industry, let alone the energy industry as a whole. Investment in this sector trails behind other sectors. This disparity prompts two questions. Firstly, given that energy efficiency measures are the most cost-effective method of reducing emissions, why are they not more successful? And secondly, what is needed for them to succeed and therefore to deliver low-cost emissions reductions?

The answer to the first question is deceptively simple. There are significant barriers to entry in existing markets which prevent energy efficiency being taken up by consumers and therefore prevent energy efficiency business growing. A large body of knowledge exists about these barriers, and they will be dealt with in greater detail below. Policy intervention can prove effective in overcoming these barriers, although past efforts are not so encouraging: many attempts in the past have failed. This is in part why the sector to date is still so underdeveloped. It is clear that new policy intervention will be needed to deliver energy efficiency on the scale necessary to tackle climate change.

In answer to the second question posed above – that is “what is needed for them to succeed?” – this chapter argues that market-based obligations and/or trading schemes (market-based schemes) offer an effective form of policy intervention that can also stimulate innovation and entrepreneurialism in the sector. It looks at why these schemes have encouraged participation from business, what results they deliver and how to increase their numbers and efficiency.

Document Type: Research Article

Publication date: January 1, 2011

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