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Increased adoption of EMS would be essential to unlocking the energy efficiency improvements in the 66% 2°C Scenario. This is not just for motor-driven systems, but across all industrial subsectors. |
Improvements in resource efficiency will be important drivers of future efficiency gains. Secondary production routes, such as the production of steel, aluminium, paper and plastics from collected scrap or waste products, are significantly less energy intensive than primary production routes. |
Policy makers need to exercise caution with such an approach to ensure that the realisation of projects with short payback periods do not undermine the business case for more extensive projects (with a longer payback times) that can deliver significant energy savings. |
To be eligible the CRC must include at least one Australian industry association and one Australian research organisation. |
CRC-P’s provide successful applicants with grant funds for up to three years and must include two Australian industry associations, including one small or medium-size enterprise (SME), and one Australian research organisation. |
The work of CRC ORE is supported by seven mining companies, seven technology providers and ten research organisations. |
To date the CRC ORE has gathered support of more than AUD 110 million in investment, with AUD 34.4 million from the Australian government and the remainder from other participants. |
Therefore, policy measures aimed at increasing scrap collection and recycling rates can assist in shifting production towards less energy-intensive secondary production routes. |
Measures aimed at incentivising or encouraging the consumption of recycled products, such as labelling or standards requiring the inclusion of a percentage of recycled materials in standard product mixes, can also increase market demand for recycled products and drive higher output through more efficient secondary production routes. |
Improvements in materials efficiency – delivering the same material service with less overall production of materials – also contribute to better resource efficiency. |
Efficiency gains are possible through the use of improved product designs, which reduce raw material input. |
Policy action on resource efficiency has included the launch of the G7 Alliance on Resource Efficiency, which is a forum for sharing knowledge and promoting best practice established by G7 leaders. |
Innovation is necessary to improve the design and operation of industrial equipment and production processes, and to reduce the capital cost of energy-efficient equipment, making investment more attractive. |
At present, support for industrial R&D and innovation includes government funding for universities and research centres, and internal research conducted by industrial firms. |
Partnerships between government, industry, and universities have also been effective at driving innovation within industry, an example being Australia’s Co-operative Research Centres (Box 3.6). |
Some governments have implemented subsectoral and company-level targets to drive improvements in industry energy efficiency. |
The Chinese Top 10,000 Programme, which built on the previous Top 1,000 Programme, is mandatory for the largest 10,000 energy-using enterprises in China. |
In India, the Perform, Achieve, Trade Scheme sets mandatory energy performance improvement targets for designated consumers in select energy-intensive sectors. |
Companies that exceed their targets generate energy savings certificates, which can be sold to companies that are not able to meet their specified targets. |
In Japan, a mandatory energy efficiency benchmarking policy was implemented in 2010, which requires large energy users to set efficiency targets by subsector, with an obligation to improve efficiency by 1% per year. |
Voluntary agreements have been a component of industrial energy efficiency policies in Europe for many years. |
Companies can voluntarily agree to Climate Change Agreements (CCAs), which involve either energy or GHG emissions reduction targets. |
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Energy efficiency targets for industrial sectors and companies provide policy makers with greater certainty that efficiency improvements will be achieved. Mandatory targets provide the greatest certainty, but are not politically feasible in all jurisdictions and can lead to a minimal compliance approach, where companies only achieve what is required, unless incentivised to seek further improvements. |
Voluntary schemes can lead to companies pursuing ambitious improvement objectives, but policy makers need to consider what type of incentives are most effective at encouraging participation. The ability to set strong company or subsector level targets is also complicated by the fact that many industrial firms operate in multiple countries and outputs are traded across national borders. |
Over 90% of transport energy use is dependent on oil products, with transport accounting for 28% of global final energy consumption in 2016. Less than 30% of global transport energy use in 2015 is covered by mandatory energy performance standards (IEA, 2017d). |
The formulation of long-term transport efficiency targets is essential to provide certainty to the market on the direction of policy. A series of specific policy measures will be needed to bring forward the efficiency gains across the various transport modes. |
Regulation - Ratcheting up fuel efficiency standards (such as corporate average fuel efficiency, and zero-emission mandates). This will be the most important policy tool to encourage future efficiency improvements beyond the initial market introduction of fuel saving technologies and to ensure that efficiency targets are being met. |
The decline in average fuel consumption of new light-duty vehicles (LDVs), which include passenger cars, light trucks and sport utility vehicles (SUVs), has slowed in recent years, reflecting increasing sales of bigger passenger cars and SUVs. The decline may be influenced by relatively low gasoline prices in recent years. |
The required upfront investment for vehicle efficiency measures pays back during the lifetime of all vehicles, as shown in Chapter 2. However, such a payback may still be beyond what most consumers would deem acceptable, and thus represents a barrier to efficiency uptake. Well-designed policy interventions therefore are essential. |
To support such standards, information on the running costs of cars, for example by energy labels, can facilitate a fairer comparison across a range of vehicles. Such information, while useful to consumers, also allows policy makers to track progress and guide future incentives and finance models linked to efficiency. |
As EVs are currently more expensive to purchase than conventional cars, in the short term, additional incentives may be necessary to develop the market. Public procurement is important to support early market development. Beyond this initial phase, incentives making plug-in electric vehicles (PEVs) competitive with their conventional alternatives have been shown to effectively stimulate market uptake. |
All these instruments can be reinforced by local incentives for EVs, for example, preferential parking rates, free charging and priority access to parts of the road network. Norway, which currently has the highest market share of EVs (39% of vehicle sales in 2017), provides an excellent case study on how such measures can be combined to generate rapid uptake of EVs (IEA 2017 f; IEA 2018a). |
Although the sales of EVs are rising rapidly, further development in battery life and performance is still needed to ensure this transition continues, spreading from the early adopters to the rest of the market. This requires a focus on innovation and R&D investment, which is also important to support the deployment of smart grids and other infrastructure that will enable the widespread adoption of EVs. |
Perspectives for the Energy Transition: The Role of Energy Efficiency support the development of competitive industrial clusters in a field that requires significant changes with respect to incumbent technologies. Such developments can be aided by public procurement and R&D to help create new market demand, and also bring down future costs. |
Scrappage schemes are another measure that has been used in recent years to incentivise the replacement of old vehicles with more efficient new ones. While past schemes have been challenged due to their high cost (Foster and Langer, 2011) and potentially negative life cycle assessments (Brand, Anable and Tran, 2013), their main role for increasing energy efficiency can be where a rapid change and early replacement of an inefficient stock is required. |
A move towards electrification of the vehicle stock may also be expedited through other societal and technological developments which aid the capitalisation of these new technologies. Examples include the increased use of shared vehicles or autonomous vehicles. Such developments may be a result of new business models around mobility, which could increase the earlier adoption of EVs (and their “capitalisation”), to allow them to be more cost-effective, with shorter payback periods, enabling a faster uptake, with consequential benefits for energy efficiency and carbon dioxide (CO2) emissions. |
The IEA is part of the Global Fuel Economy Initiative (GFEI), together with five other organisations: International Transport Forum; United Nations Environment Programme; International Council on Clean Transportation; University of California Davis and the International Automobile Federation (FIA) Foundation. At COP21 in Paris in 2015, the GFEI committed to extending practical support to 100 countries to implement policies to promote cleaner, more efficient vehicles. |
GFEI is accelerating policy change and expanding its focus to support efforts to improve the fuel consumption of heavy-duty vehicles and to integrate EVs into vehicle fuel-economy policy frameworks. The GFEI provides governments with capacity building support and guidance that is tailored to the vehicle fleet and patterns of sales in each country, and in the context of wider sustainable transport initiatives. |
Heavy-duty vehicles: policy implications and best practice Heavy-duty vehicles, i.e. trucks and freight, account for around 40% of total oil consumption for road transport, with significant opportunities to improve efficiency. There are two main approaches to realising this potential: first, through improving the efficiency of the trucks themselves (e.g. fuel-economy standards, information and incentives), and, second, through systemic (logistical) efficiency improvements. |
Improving truck efficiency is important as mandatory energy efficiency policies only covered 16% of worldwide energy for trucks in 2016. |
As with passenger cars, the key policy for improving efficiency of heavy-duty vehicles is fuel-efficiency standards coupled with energy labelling to provide information to market actors. |
A number of other major truck markets such as the Association of Southeast Asian Nations (ASEAN), Brazil, Korea, Mexico, and South Africa are planning vehicle efficiency and/or GHG standards on new sales and their early adoption should be priority. |
As an alternative, or a complement, to fuel efficiency standards, there is a role for ZEV mandates pioneered in California for the light-duty vehicle market and now used for medium-duty vehicles, their use has spread to several other US states, along with some parts of Canada and China. |
Care needs to be taken on the design of fuel-economy or GHG regulation as trucks tend to be more diverse than cars; there are different types, operations, and sizes. |
The provision of robust and reliable information on energy efficiency of trucks is important. Not only will this allow operators to make judgements on the benefits of energy efficiency, it will also allow policy makers to develop incentive schemes based on efficiency ratings. |
Innovation will be required to support a rapid transition to more efficient trucks. Research, development, and demonstration support will be required to narrow the performance and cost gaps between incumbent and alternative technologies. |
Improving systemic efficiency will be needed to deliver more sustainable freight and trucks, such as using complementary measures to develop an appropriate infrastructure, such as for electric charging. |
Further, improving the logistics of freight is a major opportunity to improve the overall efficiency of freight transport. There are several considerations to enable this to happen. First, collecting better data on truck operations will allow operators to exploit such opportunities to improve systems and logistics efficiencies. |
Non-road transport encompasses aviation, shipping and rail. To increase the efficiency of these transport modes as in the 66% 2 °C Scenario would require an additional USD 1.3 trillion investment, cumulative to 2050, beyond the investment in the New Policies Scenario. |
As in aviation, efficiency measures for shipping are undertaken by an international organisation, in this case, the International Maritime Organization (IMO). |
Robust and transparent information on the energy use of ships offers an opportunity to stimulate investment from ship owners to improve vessel efficiency, as it would improve the competitiveness of vessels with good GHG ratings to earn higher time charter rates than those with poor GHG ratings. |
Such information would also be useful as a first step for addressing the principal agent issue where ship owners pay for efficiency improvements, while ship operators reap the benefits of the lower running costs. |
Separately, a mechanism to enable a CO2 price for fuel used in shipping would provide an additional incentive to move towards a low-carbon pathway, such as incentives to develop wind assistance for ships. |
Examples include incentivising low-carbon transport by investing in bicycling infrastructure and public transport as well as promoting ride-sharing schemes. |
For example, the City of Orlando, Florida began a project in 2013 to: 1) increase the percentage of trips made by carpool, public transit, bicycling or walking from 20% to at least 50%; 2) double the amount of streets that are accessible to pedestrians; and 3) eliminate pedestrian and bike fatalities by 2040. |
The project involves investments for sidewalks, bike racks, electric vehicle charging stations and other infrastructure. |
Other systemic strategies seek to reduce congestion through land-use and teleworking options, and implement pricing mechanisms to support automated, electrified and smaller vehicles. |
Public transport schemes need to be affordable and more convenient than private transportation for significant modal shifts to occur. |
The United Nations estimates that an additional 2.5 billion people will live in urban areas by 2050, 6.4 billion in total. |
As such, there is a significant role for policy makers at the municipal and regional levels to deliver liveable and sustainable infrastructure within cities and urban spaces. |
Transportation planning policies can also support innovative business models that accelerate the capitalisation of EVs, thus shortening payback periods and enabling a faster uptake by consumers. |
But amid the revolution of automation, electrification and ride-sharing, it is important to be discerning about which business models are effective at achieving decarbonisation. |
Perspectives for the Energy Transition: The Role of Energy Efficiency Cross-cutting economic measures to drive energy-efficient investment In addition to the ambitious policy measures discussed, a range of economic measures could be used to drive increased investment to improve the energy efficiency of goods and services in all sectors of an economy. |
Such measures can be classified into two main types: financial and market-based instruments. Financial measures to increase efficiency usually encompass private institutions and government-run financial institutions providing loans and grants to consumers and businesses, specifically aimed at increasing efficiency of equipment purchases, buildings or plants. |
For the period 2014-20, almost 60% of all energy efficiency investment is estimated to be through self-financing from savings, revenues or tax revenues (IEA, 2014b). For households, much of this investment is undertaken without external financing, though consumer loans (unsecured debt) are regularly used for purchasing vehicles, appliances and heating, ventilation and cooling (HVAC) systems, including more efficient models. |
With energy prices being a large business cost, the industrial sector currently finances many of its energy efficiency improvements without using third-party financing. However, to increase energy efficiency investment significantly will require additional financial products to be made available, including to less energy-intensive industries where energy costs make up a lower proportion of operating costs. |
An increasing number of institutions are providing finance for energy efficiency and related projects. These include multilateral banks, national development banks, foundations and investment funds. These institutions make use of a variety of financing instruments, depending on their respective markets, conditions, clients and types of project. |
The types of financing instruments vary widely, such as grants, bonds, green loans, carbon financing and market-rate loans. A challenge in this context has been overcoming asymmetric information (e.g. where investors do not sufficiently understand what is meant by “green”, compared to potential clients and efficiency practitioners who have a better understanding. |
Most of the institutions predominantly finance projects that are not climate or efficiency specific. |
However, energy efficiency is increasingly seen as providing worthwhile opportunities for investment as the risk perception surrounding energy efficiency investment begins to change, thanks to the growing (yet still small) evidence base supporting energy efficiency returns. |
Despite recent progress and an increase in efficiency-related funding, if the 66% 2°C Scenario is to be realised, the amount of activity and funding from these institutions and their instruments will need to ramp up significantly. |
Even if the cost-effectiveness of energy efficiency projects is present, barriers remain to adopting such projects and rapidly expanding their energy efficiency portfolios (Box 3.10). |
While public funding is made available to finance energy efficiency, it is often oriented towards vulnerable consumers or specific market failures. |
Public financing will not be sufficient to address the energy efficiency needs in the private sector, nor will it provide the majority of support needed |
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Perspectives for the Energy Transition: The Role of Energy Efficiency for a mature and fully investible market. That said public money can be used to reduce the cost of capital, provide loans with longer maturities, or lower collateral requirements. |
Globally, efforts are underway to develop tools and networks that better address the barriers faced by the private sector investment community to energy efficiency project development. |
Benchmarking information is important to allow financial institutions to better understand the risks and rewards around projects. |
Their de-risking energy efficiency platform (DEEP) is an open source database for energy efficiency investment performance monitoring and benchmarking, which supports the assessment of related benefits and financial risks. |
The data platform provides an operational risk management benchmark, which should help project developers, financiers, and investors to better assess the risks and benefits of energy efficiency investments. |
Market-based instruments for energy efficiency set a policy framework specifying the outcome (e.g. energy savings, cost-effectiveness) to be delivered by market actors, without prescribing the delivery mechanisms or the measures to be used. |
If the current programmes maintain their level of ambition over the next decade, by 2025 this impact will double to 3 EJ, more than the current final energy consumption of Poland (IEA, 2017a). |
Owing to a lack of evaluation evidence, there is no conclusive proof that, in practice, obligation and auction schemes deliver efficiency outcomes more cost-effectively than equivalent options, such as grants allied with information programmes. |
However, experience has shown that opening delivery channels to market discipline, supported by strong monitoring and verification has enabled efficiency gains to be made at a cost well below the typical cost of supplying energy (IEA, 2017a). |
Allowing private sector actors the freedom to innovate and discover technologies and delivery routes that work best in the market is a principal advantage of these types of instruments. |
The risk for policymakers is that, if designed or implemented poorly, the market will find ways to “game” the system or to focus delivery of the specified outcome in ways that policymakers would prefer to avoid. |
Sensible limits can be applied for special groups (e.g. vulnerable customers) and special policy goals (e.g. deep renovation), and other design elements can be imposed to mitigate risks of overpayment and high administrative costs (e.g. set maximum price caps, establish project size criteria, allow aggregation across smaller projects). |
However, imposing too many restrictions on the choices available to market participants weakens the ability of these instruments to take advantage of the power of market forces. |
In addition, market-based instruments are not sufficient on their own to drive the uptake of cost-effective energy efficiency potential. |
They must be designed to work within existing policy frameworks, such as rewarding savings above MEPS levels or addressing behavioural measures where sufficient standards already exist. |
They must also be designed to complement or extend the benefits from other schemes (e.g. system adequacy, environmental goals) while at the same time avoid double-counting. |
Business models to deliver additional investment The nature of energy efficiency investments – often upfront investments to deliver future financial savings and other benefits – means that there is significant scope for innovative business models to increase the flow of investment and finance for efficiency. |
Financial innovation has been occurring for some time, and there are financial products that are already considered mature, such as dedicated credit lines, energy performance contracting, green bonds and leasing. |
Additionally, in the residential sector, unsecured finance and secured finance (e.g. re-mortgage) have long been used for financing energy-efficient homes. |
New financial products and business models are emerging that may provide additional funds and investment for energy efficiency. |
These could play an important role in overcoming barriers related to long payback periods, such as in industry where the majority of energy efficiency investment is made through on-balance payments using a company’s own funds. |
A bulk procurement and distribution scheme in India is now being expanded from LED lighting to cover other products, such as room air conditioners, smart meters and electric vehicles. |
Citizens financing – community energy finance (usually a local community using a co-operative structure) and crowd-funding (using the internet to aggregate small investors). |
Energy service companies (ESCOs) enable industrial firms to use off-balance sheet financing for energy efficiency projects, increasing the likelihood of uptake. |