Energy Efficiency

According to Godemberg, technology solutions for the low carbon energy system includes higher energy efficiency, increased usage of renewable energy sources, implementation of new energy technologies, and policies to accelerate the adoption of these new technologies.

All of these solutions are complementary, which means that it is possible to develop a new technology for obtaining renewable energy with simultaneous gains in efficiency

(Goldemberg 2012, 105.)

Saving energy is one of the most important 𝐶𝑂₂ emission reduction measures. Saving the energy will not affect only on 𝐶𝑂₂ emission reductions but it is also expected to contribute to sustainable energy use. Energy efficiency has been improved in most countries and sectors even without climate change mitigation policies, and will be expected to improve more in the future. However, there are still several additional opportunities in the energy efficiency improvements to be achieved (Akimoto 2012, 161.)

The concept of energy efficiency is controversial and the definition varies depending on the person who is defining it. Often the concept of the energy efficiency is defined either in a technical sense or in a more broad and subjective sense. Many times, energy efficiency is used to describe what actually can be termed as energy conservation. However, in general, energy efficiency describes the relation of an activity or service and the energy that is used for this purpose (Reddy et al. 2009, 77.) Essentially, energy efficiency means using less energy to provide the same service (Rathore and Panwar 2007, 7).

Current energy efficiencies differ greatly among the countries and obtaining detailed knowledge of the energy efficiency by country and sector is therefore the first step to improve the efficiency throughout the world. Industrial structural changes are important for low carbon societies and for low energy consumption inside the nations. However, global changes are also needed in a battle against the climate change (Akimoto 2012, 161.) Reddy (et al. 2009, 78-79) suggests that nearly all the devices and systems are less energy efficient in practice than their maximum efficiency in theory. That is to say, there is always potential for improvement. The size of energy efficiency potential is not stable and it varies among the different sectors, energy prices and technological developments. The estimates of energy demand reduction through efficiency improvements rests on assumptions about technical factors, equipment costs, rates of market penetration, consumer behavior and policy measures.

The power sector is still one of the biggest 𝐶𝑂₂- emitting sectors. In 2008, 𝐶𝑂₂ emissions from the power sector were as high as 37.3% of total energy related 𝐶𝑂₂ emissions in the world. Therefore, energy efficiency improvements in the power sector, especially in the gas and coal power plants, will be necessary in order to achieve large emission reductions.

Other sectors that might have potential for the large emission reductions by increasing the energy efficiency are iron and steel sector, cement sector, transportation sector and

residential and commercial sector (Akimoto 2012, 163-172.)

The significant benefits of energy efficiency would be the decrease in the amount of energy resources needed to provide a certain level of energy service, with the

corresponding implications on resource depletion, energy security, monetary savings and environmental effects such as reduction in carbon emissions. Nevertheless, even though the environmental and economic advantages are clear, the level of investment in energy

efficiency and conservation does not reach the levels which would correspond to such benefits. This paradox is called energy efficiency gap and solving it in the future will be necessity in order to make the current energy system more sustainable (Linares and Labandeira 2010, 575 - 576.)

However, the energy efficiency gap and the energy efficiency barriers inside it, is a complex problem to solve. According to Yang (2013, 11-12), these barriers are causing market failures and are leading to inadequate investment in energy efficiency. The market barriers in many different forms have hindered energy efficiency improvements and they include for example inadequate access to capital, isolation from technologies and price signals, information asymmetry, and the lack of knowledge about the costs and benefits of such investments. Because of the complex nature of the problem, there is no consensus about which government interventions are required in order to overcome these market barriers and different opinions about the nature of these barriers are still remaining.

The second paradox that energy efficiency is facing is the so-called rebound effect. The rebound effect refers to the situation when the improvement in energy efficiency does not bring a proportional reduction in energy demand. In other words, the rebound effect implies that there is no direct causal relationship between improvements in efficiency and reductions in demand. There are three different reasons for the rebound effect which are often used to classify its modalities. Linares and Labandeira (2010, 581) are summing up these factors accordingly:

 direct or price effect,

 indirect or income effect and

 macroeconomic effects.

The direct or price effect means that when the energy efficiency of a process or product has increased, its implicit cost decreases. So, if the demand is price-elastic, the decrease in the energy price will lead to an increase in its consumption Then again, the Indirect or income effect refers to the assumption that if the effective price of energy decreases because of the improvements in the energy sector, the available income increases. This increased income might allow for consuming other energy-consuming products, and therefore, would result again in an increase in energy demand. Finally, the macroeconomic

effects means that when the effective prices of energy change, relative prices of the productive inputs of the economy follow and in that case, there would be change in their use (favoring for example those sectors that are more intensive in energy use).

Additionally, an increase in efficiency may stimulate economic growth. This implies that individual energy savings might not be translated into overall savings, but in to an

increased energy demand (Linares and Labandeira 2010, 581.)

Under these circumstances, it looks like the improvements in the energy efficiency field would encounter at least some rebound effects. These effects are considered to be serious and in order to limit their effects they will have to be taken into account in the energy efficiency policies (Sorrel 2007, 92.) Energy efficiency may be encouraged through policies that would raise energy prices, such as carbon taxes, or through non-price policies such as building regulations. Both of these options should play an important role in the energy and climate policies in the future (Sorrel 2007, viii.)