Working Group III: Mitigation

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In addition to the problems identified above, other important barriers include (1) the “invisibility” of energy efficiency measures and the difficulty of demonstrating and quantifying their impacts; (2) lack of inclusion of external costs of energy production and use in the price of energy, and (3) slow diffusion of innovative technology into markets (Fisher and Rothkopf, 1989; Levine et al., 1994; Sanstad and Howarth, 1994). Regulation can contribute to more successful innovation (see above), but sometimes, indirectly, be a barrier to implementation of low GHG emitting practices. A specific example is industrial co-generation (CHP), which may be hindered by the lack of clear policies for buy-back of excess power, regulation for standby power, and wheeling of power to other users (Box 5.5). Co-generation in the Indian sugar industry was hindered by the lack of these regulations (WWF, 1996), while the existence of clear policies can be a driver for diffusion and expansion of industrial co-generation, as is evidenced by the development of industrial co-generation in the Netherlands (Blok, 1993). Finally, firms typically under-invest in R&D, despite the high paybacks (Nelson, 1982; Cohen and Noll, 1994), but recent analyses seem to suggest that public and private R&D funding for sustainable energy technologies is decreasing in developed countries (Kammen and Margolis, 1999).

Box 5.5. Combined (Cooling) Heating and Power or Cogeneration

Co-generation is applied in utility district heating and in distributed on-site power units. Most barriers to on-site co-generation are the same barriers as the ones that impede the development of other types of distributed and/or independent power generation projects. The most important barriers are related to information, technology character, regulatory and energy policy.

Informational barriers
The significant technological advances of recent years (Major, 1995; Rohrer, 1996) are not spread widely enough. This barrier is the most stringent in developing countries and in small institutions and companies, especially when the latter have no technical background. When donors, international institutions, lending banks, etc. are not familiar with the co-generation technology, it will not be implemented by developing and transitional economies (Dadhich, 1996; Nielsen and Bernsen, 1996). Additionally, the economics of co-generation is relatively complex (Verbruggen et al., 1992; Hoff et al., 1996; Verbruggen, 1996). Optimization of co-generation projects requires extensive information about many determinants of profitability. This span of know-how makes its availability to small-scale independent projects exceptional. Finally, uncertainty about the main determinants like fuel prices, fuel availability, regulatory conditions, environmental legislation, contract terms with the power grid, etc. constitutes a significant barrier.

Decentralized character of the technology
Private investors impose high profitability standards on distributed generation projects. This payback gap is mainly due to a risk-averse attitude regarding non-core business activities. The distances to the energy grids (electricity, natural gas) limit the capacity or co-generation opportunities. Unequal treatment with respect to fuel supplies, authorization and licensing arrangements, and environmental and emissions regulation, constitutes an additional set of barriers that especially affect the small-scale distributed generation projects and add to the costs of the technology (COGEN Europe, 1997).

The terms of grid connection
In several countries, the position and attitude of the grid operator have been hostile towards distributed generation initiatives (Rüdig, 1986; Dufait, 1996). Incumbent power companies sometimes impose heavy regulations on producers or industries that file for a connection to the electricity grid, imposing technical prescriptions that cannot be set in standard packages. Tariff conditions are a particularly difficult issue, because the value of the kWh is dependent on time, place, quality, and reliability of supply, and differs for the three types of power flows that can be exchanged: surplus power that the co-generator delivers to the grid, shortage or make-up power bought by the co-generator at the grid, and back-up power (Verbruggen, 1990). Although there are widely accepted principles to fix the tariff for the different transactions, theoretical and practical difficulties in defining and measuring the costs constrain the development of contracts (Dismukes and Kleit, 1999). In many countries high tariffs on wheeling of electricity act as an additional barrier. In several countries the opportunities for small-scale distributed power generation are improving because grid connection is provided at neutral or even subsidized terms (the Netherlands and Japan; Blok and Farla, 1996).

Energy policy
Utility co-generation requires long-term planning from an integrated point of view (WEC, 1991). Very few nations own the intellectual and administrative capacity to realize an integrated energy policy plan that preserves the place for district heating and related co-generation. Some countries (e.g., Denmark) and international organizations have favoured the development of CHP (EC, 1997). Firm public policy and regulatory authority is necessary to install and safeguard harmonized conditions, transparancy and unbundling of the main power supply functions, and the position of independent players (Fox-Penner, 1990).

Programmes and Policies for Technological Diffusion
A wide array of policies, to reduce the barriers or the perception of barriers has been used and tested in the industrial sector in developed countries (Worrell et al., 1997), with varying success rates. With respect to technology diffusion policies there is no single instrument to reduce barriers; instead, an integrated policy accounting for the characteristics of technologies, stakeholders, and countries addressed would be helpful.

Selection of technology is a crucial step in any technology transfer. Information programmes are designed to assist energy consumers in understanding and employing technologies and practices to use energy more efficiently. Information needs are strongly determined by the situation of the actor. Therefore, successful programmes should be tailored to meet these needs. Surveys in western Germany (Gruber and Brand, 1991) and the Netherlands (Velthuijsen, 1995) showed that trade literature, personal information from equipment manufacturers and exchange between colleagues are important information sources. In the United Kingdom, the ‘‘Best Practice’’ programme aims to improve information on energy efficient technologies, by demonstration projects and information dissemination. The programme objective is to stimulate energy savings worth US$5 for every US$1 invested (Collingwood and Goult, 1998). In developing countries technology information is more difficult to obtain. Energy audit programmes are a more targeted type of information transaction than simple advertising. Energy audit programmes exist in numerous developing countries, and limited information available from 11 different countries found that on average 56% of the recommended measures were implemented by audit recipients (Nadel et al., 1991).

Environmental legislation can be a driving force in the adoption of new technologies, as evidenced by the case studies for India (TERI, 1997), and the process for uptake of environmental technologies in the USA (Clark, 1997). Market deregulation can lead to higher energy prices in developing countries (Worrell et al., 1997), although efficiency gains may lead to lower prices for some consumers.

Direct subsidies and tax credits or other favourable tax treatments have been a traditional approach for promoting activities that are socially desirable. An example of a financial incentive programme that has had a large impact on energy efficiency is the energy conservation loan programme that China instituted in 1980. This loan programme is the largest energy efficiency investment programme ever undertaken by any developing country, and currently commits 7% to 8% of total energy investment to efficiency, primarily in heavy industry. The programme contributed to the remarkable decline in the energy intensity of China’s economy. Since 1980 energy consumption has grown at an average rate of 4.8% per year (compared to 7.5% in the 1970s) while GDP has grown twice as fast (9.5% per year), mainly thanks to falling industrial sector energy intensity. Of the apparent intensity drop in industry in the 1980s, about 10% can be attributed directly to the efficiency investment programme (Sinton and Levine, 1994).

New approaches to industrial energy efficiency improvement in developed countries include voluntary agreements (VA). A VA generally is a contract between the government (or an other regulating agency) and a private company, association of companies or other institution. The content of the agreement may vary. The private partners may promise to attain certain energy efficiency improvement, emission reduction target, or at least try to do so. The government partner may promise to financially support this endeavour, or promise to refrain from other regulating activities. Many developed countries have adopted VAs directed at energy efficiency improvement or environmental pollution control (EEA, 1997; IEA, 1997; Börkey and Lévêque, 1998; OECD, 2000). There is a wide variety in VAs, ranging from public and consumer recognition for participation in a programme (e.g., Energy Star Program in the USA) to legally binding negotiated agreements (e.g., the Long-Term Agreements in the Netherlands). Voluntary agreements can have some apparent advantages above regulation, in that they may be easier and faster to implement, and may lead to more cost-effective solutions. Initial experiences with environmental VAs with respect to effectiveness and efficiency varied strongly, although only a few ex-post evaluations are available as most voluntary approaches are recent (EEA, 1997; Worrell et al., 1997, Börkey and Lévêque, 1998). The Dutch long-term agreements on energy efficiency in industry have been evaluated favourably, and are expected to achieve the targets for most sectors (Universiteit Utrecht, 1997). The evaluation highlighted the need for more open and consistent mechanisms for reporting, target setting, and supportive policies. Preliminary evaluations show that VAs are most suitable for pro-active industries, a small number of participants, mature sectors with limited competition, and long-term targets (EEA, 1997). The evaluations also show that VAs are most effective if they include clear targets, a specified baseline, a clear monitoring and reporting mechanism, and if there are technical solutions available with relatively limited compliance costs (EEA, 1997). In some cases the result of a VA may come close to those of a regulation, i.e., in the case of negotiated agreements as used in some European countries. Outside developed countries, also some NICs, e.g., Republic of Korea, consider the use of VAs (Kim, 1998), while the Global Semiconductor Partnership is an example of an international voluntary agreement to reduce PFC emissions.

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