# **5 Discussion and Conclusions**

A recent paper by Fowlie et al (2014) notes that “Widely publicized engineering estimates [ _. . ._ ] suggest that consumers are systematically bypassing opportunities to invest in costeffective energy efficiency improvements that lower their energy expenditures and reduce externalities associated with energy production. As a result, many policymakers are championing programs designed to encourage energy efficiency as a cost-effective strategy to confront climate change.” Like these authors, we find that bottom-up estimates tend to overstate the benefits of energy efficiency mandates in terms of energy and emissions savings. But our analysis comes at this issue from the opposite direction, examining the aggregatelevel environmental and economic effects of technology deployment strategies for low-carbon economic economic growth. Building on the fundamentals of engineering cost assessments, we develop a stylized bottom-up/top-down general equilibrium model which accounts for the several influences: the opportunity costs of increasing the installed base of energy efficient technology-specific capital, the direct productivity benefits to economic sectors of the resulting increases in energy efficiency, and the broader impact of rebound effects. We then implement this model as a CGE simulation which integrates energy technology data into the system of open-economy input-output accounts for Armenia and Georgia.

Our main finding is that mandated increases in the penetration of bottom-up energy efficiency technology options can mitigate CO2 up to around 4 % of baseline emissions without adversely impacting real GDP or welfare. Even so, as capacity in these more efficient but relatively expensive technologies expands, the productivity benefits to technology-rich sectors are progressively diminished by increasing opportunity costs. The good news for transition economies such as Armenia and Georgia is that even modest increases in energy efficiency (e.g., our 1% or 2% per annum deployment rates) appear to generate both welfare improvements and reductions in the rate of growth of emissions—albeit small in magnitude. The bad news is that, depending on the structure of the economy, the direct abatement realized by higher energy efficiency tends to be undermined by substantial emission leakage—due to increased fossil fuel use by less efficient conventional technologies in both target and non-target sectors. Moreover, despite the usefulness of our methodology for using abatement costs and potentials to identify technology options whose energy productivity response is elastic relative to opportunity costs, these options’ potential contributions to abatement or national income growth are unknown ex ante and remain an emergent property of the economy-wide simulation. Overall outcomes depend critically on the structure of the economy (particularly the fuel- and capital-intensities of sectors targeted for deployment) as well as the abatement technology portfolio, which together shape the general equilibrium effects that determine technologies’ macroeconomic costs, output demand, and leakage. All these considerations suggest that our findings, rather than being viewed as the definitive conclusion, should be seen as marking the start of a research program to rigorously assess the potential of a range of template low-carbon economic growth strategies in different country settings.

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