An Introduction to Energy Efficiency Amit Bando & Thibaud Voïta, IPEEC

October 2012HEC, Paris

2

The World Today1.

Climate Change: Evolution of World Temperature (1889- 2009)

Source: NASA

Worldwide Final Energy Consumption1990-2008

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 20080.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

9.0

Ener

gy c

onsu

mpti

on (G

toe)

Mining and construction

Agriculture, forestry, fishing

Commercial and public services

Energy sector

Residential

Transport sector

Industry sector

Source: IEA 2010c.

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 20080.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

Ener

gy c

onsu

mpti

on (G

toe)

Developing Countries’ Final Energy Consumption

1990-2008

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Mining and construction

Agriculture, forestry, fishing

Commercial and public services

Energy sector

Residential

Transport sector

Industry sector

Source: IEA 2010

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Other Worrying Trends

Population growth: 9.2 billion by 2050, 2 billion new consumers in emerging economies by

2050;Natural resources depletion:

1.1 billion people lack access to safe drinking water in 2012,

Deforestation: 80,000 square km every year, Food security:

Food prices x 2 by 2030,1.5 bilion people with no access to electricty in 2012,

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Geopolitical Changes in the Energy Sector

80% of the current oil reserves have been discovered before 1979,

75% of these oil reserves will need to be replaced by 2035, it represents:

50 million barrels of oil per day, 4 time Saudi Arabia’s current production.

But shale gas can flood the market, thanks to fields located in:

The USA, Argentina, China, Canada, France, Israel.

Today, Europe pays USD 14/1000 cubic feet of gas from Russia, the USA produces shale gas at USD 2/ 1000 cubic feet.

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What is Energy Efficiency?2.

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“Something is more energy efficient if it delivers more services for the same energy input, or the same services for less energy input.”

What Energy Efficiency (EE) Relates to

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Agriculture

Utilities

Transportation

Buildings & Appliances

Industry

Cities

Definitions of Energy Efficiency Potential

National Action Plan for Energy Efficiency (2007). Guide to Resource Planning with Energy Efficiency. Prepared by Snuller, Price et al., Energy and Environmental Economics, Inc. p. 2-2. <www.epa.gov/eeactionplan> 11

Technical feasibility Cost

EffectivenessMarket & Adoption Barriers

Program design, budget, staffing & time

constraints

Technical Potential

Economical Potential

Achievable Potential

Program Potential

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What is IPEEC?3.

IPEEC is a high level international forumProvides global leadership on energy efficiency by

identifying and facilitating government implementation of policies and programs that yield high energy-efficiency gains.

Aims to promote information exchange on best practices and  facilitate initiatives to improve energy efficiency.

Formally established in 2009 at the G8 summit in L'Aquila, Italy and resulting from the Heiligendamm Dialogue Process.

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1414

IPEEC is an Autonomous Entity

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The IPEEC Secretariat is located in Paris, France

Members account for over 75% of world GDP and energy use.

Italy

Russia

Japan

Republic of KoreaChina

India

Australia

GermanyUnited

KingdomFrance

Canada

USA

Mexico

Brazil

EU

IPEEC - guiding principles Improving energy saving and energy efficiency is one of the

quickest, greenest, and most cost-effective ways to address energy security and climate change as well as to ensure sustainable economic growth 

All countries, both developed and developing, share common interests in improving their energy efficiency performance

There is abundant potential for international cooperation among them

Will contribute to improvement of energy efficiency at the global level

Developed countries need to play an important role in cooperation with developing countries

Accelerating dissemination and transfer of best practices, efficient technologies and capacity building in developing countries

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Basic research

Technologyjourney

Applied research Early demonstration Full demonstration Marketed product Warranted product

Proofof...Principle Concept Validity Viability Value Quality

Individual innovators

Companyjourney

Small group: start-up/unit in a company

Medium-size operation Large scale operation

Owncapital Venturecapital Revenues Prof it

s

Demonstration& sample distribution

Market journey

Early adopters & niches Rational economic purchase Technology& market evaluation

Awareness Positivepotential Marketpull Feedback

General regulation

Regulation journey

General regulation Specific regulation General regulation General regulation

Negativeoftenunintended Neutral Positive Positive Neutral orpositive

Transition Technologies, Productsand Services Follow Parallel Journeys

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Examples of Energy Efficiency Policies

Case studi

es

USA’s Refrigerator Program

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1945 1978 2010

• Standards, labels & incentives led to EE improvement without interrupting long-term decline in real purchase price: from $1,000 to $600 (2009$)

• Government action has led to savings of about $20 billion/year in 2010 and $300 billion cumulative since 1978

Annual Energy Used a by a

refrigerator X 4

Introduction of refrigerators standards

Annual Energy Used declines: reaches 1945 levels by 2010

Promoting a low carbon economy

China 11th - Five-Year Plan (2006 – 2011)

Government sets policies & objectives to promote a low carbon economy

Top 1000 enterprises

Ten key projects

Closure of inefficient

plants

2006 2011

Results:

Energy intensity

- 19.1%

Chemical oxygen demand

- 12.45%

SO2 emissions

- 14.29%

Japan’s Top Runner Program

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EE standards for appliances/vehicles Standards - set higher than the best performance

value of each product currently on sale in the market

Standard takes into account technological development 21 products are included, low technology products

are phased out Passenger vehicle

standards

In 1999, target: By 2010, fuel economy improvement would be 22.8%Target reached in 2005

Air conditioners

EE improvement of 67.4% (1999-2004)Companies used technologies that they may otherwise have waited to commercialize Improved consumer and retailer awareness accelerated pace of market penetration

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What Can Energy Efficiency Bring? 4.

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Energy Savings: Less GHG EmissionsMitigation potential of energy efficiency can be

substantial since: Building account 40% of energy use, 25% of water use &

1/3 of all GHG emissions (UN estimates) industry accounts for 25% of all GHG emissions manufacturing and construction directly and indirectly

account for 37% of CO2 emissions (developing countries 47%)

Industrial energy efficiency can help reach CO2 reductions of around 1.3 Gtoe equivalent to global emissions reductions of 4% from 2006 levels

Chemical and petrochemical, aluminum, iron and steel, cement and paper and pulp alone would reduce 12% of CO2 emissions

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Financial SavingsMcKinsey estimates:USD 250 – 325 billion annual financial

savings or avoided energy costs (2009 – 2030)USD 900 billion annual savings: investing

USD 170 billion annually in EE worldwide could generate an average rate of return of 17% and produce energy savings up to USD 900 billion per year.

ACEEE estimates:In the US alone, USD 12 - 16 trillion of

possible energy savings (2012 – 2050)

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Green Jobs

General estimates: EUR 1 million spent in EE generates 17 to 19 jobs (as compared to 9 jobs in the renewable industry)

The leverage of public & private funding varies from 5 to 1 to sometimes 10 to 1, meaning EUR 1 million of public money can lead to investments of between EUR 5 and 10 million. That means between 85 to 190 jobs for EUR 1 million of public money. 

According to ACEEE, if the US chooses to cut energy consumption, it can create 2 million jobs in 2012 - 2050

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Enhanced Distribution: Energy Access

About 1.5 billion people worldwide, more than one in five, lack electricity,

The UN Secretary-General Ban Ki-Moon has called to double the global rate of improvement in EE by 2030 in order to provide energy for all.

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Enhanced Energy Use: Energy Security

Enhanced energy security in order to: Rely less on foreign supplies from unstable regions of

the world Decrease the influence of energy prices on the

economy Address national security issues (embargo, war, etc.)

By reducing the energy use, EE helps improving energy security

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Water & Energy Efficiency

According to the UN:By 2030: almost 50% of the population will be

living in regions with high water-stress,Water and EE:Between 2 & 3 % of the world's energy

consumption is used to pump and treat water for urban residents & industry.

Energy consumption in most water systems worldwide could be reduced by at least 25 percent through cost-effective efficiency actions.

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Other Benefits

Source: IEA

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Opportunities in Key Sectors5.

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Global CO2 Emissions by Sector (MtCO2)

Source: Lawrence Berkeley National Lab

Industry: Global Energy Intensity Trends

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0

20

40

60

80

100

120

140

160

180

200

Energy MVA EI

Ind

ex (

19

90

=1

00

%)

Manufacturing valued added, 20087.35 trillion $

Industrial energy consumption, 20082.54 gigatonnes of oil equivalentIndustrial energy intensity, 2008

0.35 tonnes of oil equivalent per US$1,000

Note: Industrial energy intensity in 2000 US dollars. Source: UNIDO 2010; IEA 2010.

1990-2008

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Industrial EE: Combined Heat & Power (CHP)• Thermal power emits heat that can be recycled, • CHP consists the use of a heat engine or a power station to

generate both electricity & useful heat.• These applications produce energy where it is needed, avoid

wasted heat, and reduce T&D network and other energy losses. Other benefits cited by policy makers and industry include:• Cost savings for the energy consumer;• Lower CO2 emissions;• Reduced reliance on imported fossil fuels;• Reduced investment in energy system infrastructure;• Enhanced electricity network stability through reduction in

congestion and ‘peak-shaving’; and• Beneficial use of local & surplus energy resources

(particularly through the use of waste, biomass, & geothermal resources in district heating/cooling systems).

• CHP is one of the most cost-efficient EE measures

Motors Account for 60% of industrial electricity consumption and about 15%

of final energy use in industry worldwide (IEA 2007). By 2030, if BAU, energy consumption will rise to 13 360 TWh per

year and CO2 emissions to 8 570 Mt per year. End‐users now spend USD 565 billion per year on electricity used in

motors; by 2030, that could rise to almost USD 900 billion.* Electronic motor controls that allow for variable speed drives (VSD)

have good market potential. Using the best available motors will typically save about 4% to 5% of

all electric motor energy consumption. Linking these motors with electromechanical solutions that are cost‐optimised for the end‐user will typically save another 15% to 25%.

The potential exists to cost‐effectively improve energy efficiency of motor systems by roughly 20% to 30%, which would reduce total global electricity demand by about 10%.

Smart Meters

In 2008, less than 4% of the global installed base of 1.5 billion electricity meters could be considered “smart” but 4 years later this penetration has grown to over 18%, and is expected to exceed 55% by 2020.

The North American market has already peakedEuropean market has begun its growth period. The Asia Pacific region will continue to outpace all

other regions driven by major deployments in China, utilizing a different breed of smart meter technology.

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Enhanced Energy Use: BuildingsEnergy use in « buildings » means energy use of

the building themselves and of the electric appliances. Together they account for 40% of the world GHG emissions,

Measures to enhance EE in buildings can mean: Improving EE of appliances, Refurbishing:

Commercial buildings, or Residential buildings;

Building new EE houses.Buildings situation change depending on the

climate zone,EE in buildings is a sensitive topic with social

implications.

Zero Energy Building

Zero energy buildings market remains a small fraction of the overall building construction industry.

Technologies required to make zero energy buildings possible, add significant upfront cost.

Worldwide revenue from zero energy buildings will grow rapidly over the next two decades, reaching almost $690 billion by 2020 and nearly $1.3 trillion by 2035 (Annual growth rate of 43% - mostly in the EU).

EU’s Energy Performance of Buildings Directive (EPBD) will require nearly zero energy construction in public buildings by 2019 and in all new construction by 2021.

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Buildings Energy Consumption in the US

Source: DOE (2008)/Center for Climate & Energy Solutions

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Residential Buildings Total Energy End Use in the US (2006)

Source: DOE (2008)/Center for Climate & Energy Solutions

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 Commercial Sector Buildings Energy End Use in the US (2006)

Source: DOE (2008)/Center for Climate & Energy Solutions

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Improving EE in Buildings: Cool Roofs

A cool roof has a white or special cool color that absorbs less sunlight, staying cooler in the sun and transmitting less heat into a building. Substituting a cool roof for a conventional roof can:• Reduce the annual air-conditioning energy use of a

single-story building by up to 15%• Cool interior spaces in buildings that do not have

air conditioning, • Reduce carbon emissions,• Reduce peak demand for electricity, • Potentially slow global warming.(Source: DOE)

Enhanced Energy Use: At Home

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What can enhanced energy efficiency bring to households?

Reduced energy bill, Enhanced comfort

An example of energy savings: Compact Fluorescent Lamps (CFL) consume 1/5 to 1/3 less electricity than the traditional incandescent lamp & lasts 8 to 15 times longer.

LightingEnergy-efficient products are still for Asia Pacific customersSales of LED lighting systems will increase rapidly over the

next 10 years, accelerating sharply after 2015.  Unit shipments (lamps, luminaires) will rise from 66 million

in 2011 to 542 million in 2021 – a 700% increase.Translating into cumulative revenues of $11 billion from

2011 through 2021 for LED lighting in Asia Pacific

Japan’s 21st Century Light Project; China’s commitment to LED is enormous – ex: Shenzhen plans to install LED’s in more than 90% of public lighting applications, street lighting, and commercial spaces in the next decade

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Other Areas

Energy efficiency in transportation; Fuel efficiency, Urban planning.

Energy efficiency in agriculture: Equipment, Water use.

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Government, the Motivator 6.

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International & Regional Organisation Need to Coordinate EE PoliciesGovernments need to exchange:

Their resources (technologies, know-how, finance), Their experiences & best practices,

They need to establish: Standards (see the International Standard Organisation), EE Indicators, Monitoring & Verification Process…

Multilateral institutions implement various type of projects (training, capacity building, technical support): World Bank, regional banks, UN organisations;

IPEEC promotes international cooperation;NGOs implement similar kind of projects on a larger scale

(ClimateWorks network, International Copper Association, Alliance to Save Energy).

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Governments Need to Promote Energy Efficiency

Government

EE policies:- subsidies, - incentives, - standards, - outreach…

Banks,Households,

Industry, Local

governments.

EE investments are costly and involve long-payback periods.

• Loans to promote EE

• Investments in EE equipment,

• Adoption of best practices,

• New projects.

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… but a Top-Down Process is not Enough

Households, Industries

To be effective, EE measures need to be widely adopted.

Investments in EE products

EE measures succeed when government action is combined with market incentives

Market Transformation

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Sustainable Housing Policies in Mexico

Case Stud

y

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Sustainable Housing in Mexico

REGIONAL PLANNING

SUSTAINABLE HOUSING

URBAN DEVELOPMENT

Sustainability

Sustainability

Social Sustainability

Environment

Economic Sustainability URBAN DESIGN

Source: CONAVI

Strategy directed at strengthening Municipal and State legislation in order to promote “Smart city growth”.

• Optimum use of existing infrastructure

• Reclaiming of urban voids• Density increase

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Climate Finance Strategy

DUIS8 certified , 18

in process:800,000 new units in 15

states

“Ésta es tu casa”258,329 subsidies

POAGenerate

CER’s from Green

Mortages

Housing

NAMAPenetration

Fovissste, SHF and upscale

Green Mortgag

e725,740

green credits

DURBAN /COP 17

Urban NAMA (midterm)

Investment in efficient

infrastructureNegotiation with Annex I countries and multilateral

organisms

Source: CONAVI

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Penetration & Scaling-Up

Housing NAMA

Penetration and Scaling up

Green MortgageFOVISSSTE

•Pilot 2012 in hand Green Mortgage Penetration

PENETRATION

Aguascalientes Pilot Project

SCALING UP

&

Source: CONAVI

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The Role of Local Governments

Local governments can: Implement innovative EE measures,

Reach people at the local level,Generate competition in terms of EE policies with other regions.

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Private Sector, the Key Innovator7.

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Utility Companies & EE: an Ambiguious Relation

Utility & energy delivery companies are the best-positioned in the energy marketplace,

Contact with power generation industry & customers (individual & industries)

Key actors in EEBut: they earn money by delivering

energy: by promoting EE, they are being asked to sell less of their product!

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Energy Efficiency Obligations (EEO) for Energy Providers

All EEOs exhibit three core elements: 1. A multi-year energy savings target, shared between the

parties; 2. Penalties for noncompliance; and 3. A measurement, verification and quality assurance

system. The popularity of EEOs stems from their flexibility. Tradable EEOs are usually called White Certificates

CountryObligated

Entities Eligible Sectors Administrator

2011 Spending (€ millions)

Belgium - Flanders

Electricity distributors

Residential, non energy-intensive industry

Flemish Government

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FranceRetailers incl. transport

All except large industry Government

300

ItalyElectricity & gas distributors All incl. transport Regulator (AEEG)

200

Great BritainElectricity & gas retailers Residential only

Regulator (Ofgem)

1,200

Denmark

Electricity, gas & heat distributors All except transport

Danish Energy Authority

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EEO in Europe

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Appliance ManufacturersResidential energy use: 14% of

world delivered energy consumption (2008),

Likely to increase middle classes grow & adopt new types of consumption in emerging countries

Appliance manufacturers are now expected to produce EE products

Standards & labelling is a key tool to reduce appliances energy consumption

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Financial Institutions The role of financial institutions is critical to

promote loans for EE investments.Some international & bilateral organisations

organise training on EE loans for banks: International Finance Corp., Agence France Developpement,

Some countries have developed specific schemes that facilitate EE investments: KfW in Germany on EE in buildings, SIDBI in India for SMEs.

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Heavy Industry & Others

Industrial processes are most of the time energy intensive (iron & steel, cement, aluminium, petrochemical, textile, paper & pulp),

Most of the companies are committed to significantly reduce their energy use.An example of a succesful EE plan: Lafarge as a WWF

Climate SaversLafarge’s objectives:• Reduce its GHG emissions to 33 % per t. of cement below 1990

levels by 2020,• Develop sustainable construction initiatives by 2015 to achieve a

lower carbon footprint and greater EE, • Contribute to the design of 500 sustainable buildings (2015),• Advocate for ambitious climate change policies, through trade

associations and international organisations as well as for post-2020 climate policies.

Between 1990 & 2010, reduction of: • 21.7% of its net CO2 emissions/t of cement,• 36.5% of its absolute CO2 gross emissions in industrialized

countries.

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Energy Service Companies (ESCOs)

Financial Institution Contractor Customer

Service:- financing,- planning & installation of

energy saving measures- energy savings guarantee

Loan & interest payments

Loan(s)

Remuneration

Energy Performance Contracting

Source: Berlin Energy Agency

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The en.lighten initiative

Case Stud

y

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Light Bulb & Energy UseElectricity for lighting accounts for almost 20% of

global power consumption and close to 6% of worldwide GHG emissions.

If a global transition to efficient lighting occurred, these emissions could be reduced by half.

Few actions could reduce carbon emissions as cheaply and easily as the phase-out of inefficient lighting, making it one of the most effective and economically advantageous ways to combat climate change.

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The En.lighten Initiative

The en.lighten initiative has been established by Philips, Osram, the China National Lighting Test Center, UNEP & the Global Environment Facility

en.lighten assists countries in accelerating market transformation with environmentally sustainable, efficient lighting technologies by: Promoting high performance, efficient technologies in

developing countries. Developing a global policy strategy to phase-out

inefficient and obsolete lighting products. Substituting traditional fuel-based lighting with modern,

efficient alternatives.

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Challenges for Energy Efficiency8.

Assessment of Potential

Strengths• Increased sustainability• Increased energy security• Creation of market leader• Increased energy access

Weaknesses• Cost of investments• Lack of skilled people • Lack of awareness of

need of EE amongst consumers

• Weak in-country R & D

Opportunities• Increased value and

lifespan• Investment relief (tax)• Market for new

innovations• Socio-economic influence• Competitive advantage

Threats• Rebound effect (effort

does not reduce energy consumption as planned)

• Fall in energy prices leading to “expensive” conservation

Moving Forward

Governments need to commit and also provide the following:

Overarching policy framework combining mandatory and voluntary policies and strengthening enforcement;

Promote greater awareness of EEPlay an essential role as integrator of the value chain Establish funding mechanisms to jump-start EE financing,

particularly in the short term. Institutionalize standard-selling and enhance

professionalism within the industry by creating proper accreditation and certification standards,

Publicizing more accurate information about EE product suppliers and ESCOs.

Remove other barriers that distort markets such as energy subsidies

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Moving Forward - 2And Business needs to Move towards an integrated value chain approach where

suppliers extend their service portfolio to offer complete solutions (auditing, installation, maintenance and financing solutions).

Develop innovative financing vehicles for EE projects by collaborating with financial institutions and by developing expertise in EE project financing.

Increase awareness of EE and enhance professionalism of the industry from within.

EE suppliers and ESCOs should adopt a more active role in promoting EE and in professionalizing the industry from within by setting standards and benchmarks.

Multinationals should act as catalysts by bringing in the best practices from their experiences in other countries.

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The Political ChallengeEE needs strong

government support,EE requires a long-

term vision: how governments in place for only 4–5 years can impose it?

In a time of economic slowdown, how to enhance the EE position in the political agenda?

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Technical & Know-How ChallengesTo be implemented, EE measures require:

Access to technology, Know-how.

How can emerging and developing economies have access to this knowledge?

Example: the massive need for energy auditors in countries such as China & Russia• How to select them? • How to train new auditors?• Which technology should they use?

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The Finance Challenge

EE requires long-term investments with uncertain payback

How to finance energy efficiency in the context of global crisis?

How to limit the social impact of enhanced EE standards?

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The International Cooperation ChallengeDifferent resources in different parts of the world :

Lack of standard measures for energy efficiency e.g.: EE indicators, standards.

Technical Knowledge

Money to implement it

Developed Economies Yes No (crisis!)

Emerging crisis Not yet Yes

Developing economies No No

Need for enhanced international cooperation in order to:• Address global issues,• Share lessons learnt, best practices & technologies,• Enhance the measurement of EE.

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The Social Challenge

Implementing EE measures can be costly,When designing policies, governments need to

take into account the potential social impact of: Refurbishing requirements in the building

sector, New equipment standards, The price of energy.

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The Communication Challenge

EE is not trendy: It requires long-term investment, It is technical, It does not result in visible results (as

compared to wind mills in the renewable sector).

At the same time, climate change & energy issues are not priorities on the political agenda anymore because of the economic crisis.

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The Rebound Effect Challenge (?)

What is the rebound effect? When an energy-using technology or process

becomes more efficient, the user can take advantage of the increased service delivered, rather than accepting the same service at a lower energy or financial cost.

Is the rebound effect an issue? Not an issue in the long term? It exists but seems to be limited, Reinvestment of energy savings can act as a driver for achievements of Other policy goals

(source: IEA)

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Questions?