2015 – an important year for climate action
2015 represents a crucial juncture for global climate governance. This year, signatories to the UN Framework Convention on Climate Change will meet at the climate summit in Paris to negotiate a legally binding and universal agreement to keep global warming below two degrees. In addition, the Millennium Development Goals (MDGs) – agreed by 189 United Nations member states in 2000 to address global poverty, hunger, disease, education, gender inequality and environmental sustainability – expire in 2015. Following and expanding on the MDGs, a new set of universal goals, the Sustainable Development Goals (SDGs), will be adopted by the UN members in September. From January 2016 until end of 2030 the member states of the United Nations are expected to frame their agendas around those goals. Up to now, the improvement of global living standards has been targeted by the MDGs mainly through the transfer of relevant technologies (e.g. electrification, telecommunications, medicine) from high-income to low-income economies. Meeting the SDGs will require a more universal approach. These goals aim at improving the lives of people worldwide while respecting ecological limits. New technologies, business models and social concepts – in both developing and developed countries alike – will play a key role to ensure a sustainable development. The SDGs are focused around six elements: (1) Dignity, (2) Basic needs of people, (3) Prosperity, (4) Planet, (5) Partnerships and (6) Justice. Around these six elements there are currently 17 suggested goals with 169 targets. Energy supply is inevitably linked to this challenge. Energy and its appropriate availability to all people can boost economic development and human well-being (e.g. cooking, heating, cooling, lighting, transportation). But it could also worsen the adverse impacts such as climate change, air pollution, and regional disparities.
Global energy supply under stress
The world’s energy demand is forecast to increase by 37% by 2040 (International Energy Agency (2014): World Energy Outlook 2014). Most of this rise will come from Asian countries, where energy consumption is driven by strong economic and demographic growth. With the worldwide energy consumption based primarily on oil, “the global energy system is in danger of falling short of the hopes and expectations placed upon it”, as states the International Energy Agency (IEA) in its World Energy Outlook 2014 report. The majority of the world’s energy sources is concentrated in few geographical locations. Hence, political and economic events in these regions play a predominant role in the global energy system. Since the 1930s the Middle East has become the world’s dominant source of low-cost oil and Russia holds among the world’s largest oil and gas resources. Recent events in these politically volatile areas have reignited worldwide concerns about energy security. Additionally, the future of nuclear energy – that was expected in the 1970s to rise rapidly as the primary source of electricity – is unclear. High capital costs and rising safety requirements, particularly after several nuclear accidents (e.g. Three Mile Island, Chernobyl, Fukushima), stopped the quick growth of this source of energy. Without improvements in energy efficiency and cost development of new energy technologies such as Photovoltaics, the global energy system would be even more under stress. Hence, changes in global trends to a decentralized low-carbon energy system are inevitable to ensure access to affordable, reliable and sustainable energy for all.
Promoting energy efficiency
The IEA sees energy efficiency as “a critical tool to relieve pressure on energy supply”. New pathways will be required to master the challenge of promoting energy efficiency: a complex combination of research and development, public and private investments in energy infrastructure, new regulations and urban planning. To promote more efficient use of energy, international and national policies remain crucial. Yet, market-based approaches can be an effective element to channel private decisions in the right direction. All activities of economic agents – individuals, businesses, governments – require energy. Therefore, market mechanisms and new business models play a significant role in helping to achieve energy efficiency improvements.
“Energy efficiency represents around 40 percent of the greenhouse gas reduction potential that can be realized at a cost of less than EUR 60 per metric ton of carbon dioxide equivalent” (“Pathways to a Low-Carbon Economy: Version 2 of the Global Greenhouse Gas Abatement Cost Curve”, at globalghgcostcurve.bymckinsey.com) . In 2012, investments in energy efficiency are estimated between USD 310 and 360 billion representing a very significant and growing market opportunity for investors and businesses. Energy savings from energy efficiency exceeded the total final consumption from any single fuel source in 2011. Energy efficiency offers an immense low-cost energy resource – but only if innovative business models can be developed to unlock its entire potential. Energy efficiency is often still underestimated by public institutions and private businesses and a number of persistent barriers need to be addressed to enable the large-scale implementation of energy efficiency initiatives.
Barriers to implementing energy efficiency measures
Different factors prevent widespread investment in energy efficiency measures. Below is a brief overview of the key barriers.
Lack of expertise and information: The implementation of energy efficiency improvements is often prevented due to the lack of expertise and information. Insufficient information and a highly technical nature make it difficult for non-experts to understand the significant potential of such measures. Information obstacles exist particularly because of poorly synthesized information regarding financial solutions. These information barriers lead to a lack of awareness amongst industrial companies for the significant financial benefits that energy efficiency projects offer.
Low priority of energy efficiency projects: Energy efficiency almost always, sits outside the core competencies of most businesses. As a result, the company’s core business activities are prioritized when determining annual budgets. Having comparably long paypack periods (> 3 years) many companies prefer other internal investments generating shorter-term profits – even though cost reductions from lower energy intensity are significant and predictable.
Size of energy saving projects: The size of energy saving projects is relatively small in comparison to other investments. Therefore, energy efficiency enhancements in industrial facilities or private and public buildings are associated with high transaction costs and corporate entities generally prefer to finance other projects with better replicability.
Access to capital: Access to capital is cited as the most important barrier to the deployment of energy efficient technologies (Prognos (2009): Rolle und Bedeutung von Energieeffizienz und Energiedienstleistungen in KMU). Energetic retrofits often require high upfront investment南京spa