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2.5 Barriers to Energy Efficiency

2.5.1 Definitions and Background

Sorrell et al. (2004) define a barrier to energy efficiency as a postulated mechanism that inhibits a decision or behavior that appears to be both energy efficient and economically efficient.

To determine the existence of barriers empirically we need to ask (Sorrell et al.

2011; Weber, 1997):

1. What is the barrier? This can be persons or organizations, regulations, patterns of behaviors and attitudes, hidden costs, risk, lack of capital, lack of information, inadequate financial incentives etc.

2. Who or what is it an obstacle to? This can be consumers including firms, public

organizations, departments within organizations, individuals, etc.

3. What does it prevent? This can be purchasing of more efficient equipment, retrofitting, decreeing an energy tax or establishing a monitoring and targeting scheme.

The barriers to be discussed later on are based on the answers to the following questions (Sorrell et al. (2004, 2011):

• Why do organizations impose very stringent investment criteria for projects to improve energy efficiency?

• Why do organizations neglect projects that appear to meet these criteria?

• Why do organizations neglect energy-efficient and apparently cost-effective alternatives when making broader investment, operational, maintenance, and purchasing decisions?

There is a large body of literature on energy efficiency barriers, which according to Schleich (2009) draws on concepts from neo-classical economics, institutional economics (principal-agency theory and transaction cost economics), behavioral economics, sociology and psychology. Barriers to energy efficiency are very diverse and are classified in a variety of ways, see for example Jaffe and Stavins (1999), IEA (2009) and Sorrell et al. (2004, 2011).

The above literature tries to explain why organizations fail to invest in energy efficiency even though it is or, more specifically, it is perceived to be profitable under current economic conditions to do so—a “phenomenon” that has also been referred to as the “energy efficiency gap” (Jaffe & Stavins, 1994).

Jaffe and Stavins (1994) make a distinction between market barriers and fail-

ures. Market barriers refer to any factor, which explains why technologies, which appear cost effective at current prices, are not taken up. Market failures to those barriers correspond to the instances indicated above and which therefore might justify a public policy intervention to improve energy efficiency. In addition, there may be market failures that do not explain the energy efficiency gap, but which may nevertheless justify public intervention. The obvious example is environmental externalities, which are currently not reflected in energy prices (Sorrel, 2004).

'Energy efficiency gap' is the lag between the time an energy efficient tech-

nology is available and the time that it gets implemented. On this basis, debate has raged about the extent to which there are low-cost or no-cost options for reducing fossil energy use through improved energy efficiency. According to Jaffe and Stavins (1994) this is a debate between the so called 'economists' and 'technologists'. They characterize 'technologists' as believing that there are many opportunities for low-cost, or even 'negative-cost' improvements in energy efficiency, and that realizing them will require a market intervention to help overcome barriers in order to use more efficient technologies. On the other hand, most 'economists', acknowledge that there are 'market barriers' to the adoption of various technologies but that only some of these barriers represent real 'market failures' that reduce economic efficiency. This view emphasizes the tradeoffs between economic efficiency and energy efficiency. This perspective suggests that reducing emissions is more costly than the technologists argue, and it puts relatively more emphasis on market-based emission control policies like taxes and tradable permit systems.

Thus, their analysis suggests two distinct notions of economic potential and two distinct notions of social optimum. First of all, by using 'economic potential' they describe the degree of energy efficiency that would be achieved if various economic barriers were removed. Further, they describe the scenario in which we can eliminate market failures in the energy technology market as the economists' economic potential. If we were also to remove non-market failure market barriers, we would achieve the technologists' economic potential.

Fig. 2.11 Alternative notions of the energy efficiency gap. Source: Jaffe et al. (2004)

Concluding, to understand the basic elements of the debate, one should distinguish first between energy efficiency and economic efficiency as illustrated in Fig. 2.11, which is taken from Jaffe, Newell, and Stavins (2004). The horizontal axis measures the increasing economic efficiency (decreasing overall economic cost per unit of economic activity) and the vertical one measures the increasing energy efficiency (decreasing energy use per unit of economic activity). Possible energy-using technologies can be shown as points in this diagram and indicated by their energy and economic efficiency.

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