# **1 Introduction**

Mitigating global emissions of greenhouse gases (GHGs) to levels that avert the threat of dangerous climate change requires the active participation of developing nations. Projected 21<sup>st</sup> century economic growth and population expansion in non-OECD countries are associated with substantial increases in GHG emissions and radiative forcing of climate which cannot be completely offset by GHG abatement in the developed world—even if the latter countries stop emitting entirely (Jacoby et al, 1997). This state of affairs has led to increasing calls for industrializing countries to take on binding emission reduction commitments. Thus far, developing nations have generally been reluctant to accept abatement targets, citing resource constraints that limit their ability to lift their burgeoning populations out of poverty, let alone incur the opportunity costs of curtailing emissions. These constraints, developing countries argue, mean that that they will only be able to pursue substantive emission reductions if the necessary technology and financial resources are provided by industrialized countries—an issue which is at the crux of ongoing international climate negotiations. A temporary compromise solution is for developing countries to identify and pursue activities that slow the growth rate of their emissions, but do not hinder their expected economic growth.

Assessing the viability of such “low-carbon economic growth” strategies is the objective of this paper. As noted by Jacoby et al (1998), Steward and Weiner (2001) and Aldy et al (2003) among others, the goal is to allow for a transition path in which developing countries have the “headroom” to continue economic expansion over the next two or three decades, but with declining rates of increase in emissions. For low-carbon growth to be feasible there must be activities which avoid GHG emissions but also provide “win-win” economic benefits, and large-scale deployment of energy efficient devices and processes are of particular interest in this regard (Hallegate et al, 2011; Rozenberg et al, 2013). The latter investments are typically more costly compared with conventional technology, but they enable firms and households to use less fossil energy, simultaneously lowering emissions and generating offsetting savings on energy and other operational costs. Crucially, since a key benefit of these cost savings is improved productivity at the micro-level, sufficiently widespread deployment of efficiency-enhancing technology within a country could in principle generate an aggregate gross productivity gain. And if, in turn, the resulting stimulus to the growth of output at the macro level is large enough that it exceeds the economy-wide opportunity costs of additional expenditure on energy-efficiency investments, the result will be a net increase in GDP.

How might such an auspicious outcome arise? Simple intuition suggests that the largest potential for win-wins should come from intensive investment in technology options which have a high elasticity of energy efficiency improvement with respect to the incremental cost of their acquisition. Engineering assessments (e.g., McKinsey & Co., 2010) are the key data source on technologies’ performance and direct cost characteristics which allow us to identify such options. But these assessments frequently uncover what appear to be large “energy efficiency gaps” in which technical potentials for efficiency remain unrealized due to factors such as imperfect information or institutional constraints, which cause economic actors to systematically overlook making energy efficiency investments that are privately 1