Arbitrage between energy efficiency and carbon management

Global climate change represents the greatest economic, political, developmental, and environmental challenge the world has ever faced. There is no longer a question of whether the world should act-it is clear that we must and we will act. In doing so, new markets, new jobs, and new opportunities will be created that will advance the common economic and environmental aspirations of all nations.

International Journal of Economics and Finance, 2022

The number of countries that have pledged to uphold the 2050 decarbonization targets is constantly growing, and many have established strategies and planned related investments for the coming years. The economic impact of decarbonization and energy efficiency policies has become a major topic of discussion in the global effort to mitigate climate change and contain the temperature rise to less than 2 degrees. Previous literature has identified the risks and opportunities of decarbonization policies, especially concerning the rebound effects and the situation that may arise if, due to persistent biases and the costs of fulfilling climate policies, industries were to transfer production to countries where laxer emission constraints are in force. At the core of the 2030 Agenda for Sustainable Development is the Sustainable Development Goals, which are a global call for action regardless of countries' level of economic development. With Goal 12 on sustainable production and consumption and Goal 14 on climate change mitigation in mind, we provide an economic impact analysis of decarbonization and energy efficiency policies. We compare two scenarios based on the Italian context. The reference scenario is a simulation that shows the development of energy-efficient technologies if the targets set in the national energy strategy were to be met without additional binding targets being added. The policy scenario sees energy efficiency as the principal driver of decarbonization in the presence of a national emissions constraint lasting until 2030, as envisaged by the European Commission. The results confirm that certain risks and opportunities arise from effective policymaking. The effects of decarbonization and energy efficiency policies in the reference scenario would increase final demand by approximately €278.34 billion and the policy scenario would increase it by approximately €380.36 billion by 2030.

2005

Abstract Under the framework of the UN framework convention on climate change (UNFCCC) and its Kyoto Protocol the targets and strategies for the second and third commitment period (“post-2012”) have to be discussed and set in the near future.

2015

In line with the Energy Union strategy, the EU 2030 climate and energy policy framework sees energy saving as Europe's first fuel in 2030. Making energy efficiency the mechanism for delivering moderation of demand will enable the EU to meet its objectives in terms of security of supply, climate change, jobs, growth and competitiveness. The decarbonisation of the EU energy system is under way. Energy-related greenhouse gas (GHG) emissions fell by 19% between 1990 and 2013. The power generation and energy-intensive industries covered by the EU Emissions Trading Scheme (ETS) are responsible for 45 % of total EU GHG emissions and for 23 % of the emissions reduction achieved between 2005 and 2013. The end-use sectors, such as buildings and transport, covered by the Effort-Sharing Decision (ESD) contributed 13 % of emissions reduction over the same period. Emissions reduction in the EU is a result of economic restructuring, the economic crisis and the EU 2020 climate and energy policy package. With the post-2020 climate and policy package, the Energy Union is seeking to develop a more reliable and transparent governance system. Reporting on progress towards climate and energy targets will be streamlined through integrated national energy and climate plans. Indicators will be developed to ensure consistency and better interaction between the various climate and energy policy instruments. For decarbonisation to be made cost-neutral, a strong signal is required from the 2015 Paris Climate Summit (COP21)giving a value to the carbon saved by pricing GHG emissions, so that energy saving become the niche fuel for investors. At EU level, a framework for "De-risking Energy Efficiency Investments (DEEI)" is needed to ensure that energy saving compete on equal terms with generation capacity. The framework should include setting-up guarantees for loans related to energy efficiency investments; this would lower capital cost by reducing investors' perceived risk. Cost/benefit analysis of energy efficiency investments should consider using "Levelised Cost of Conserved Energy (LCCE)", as a financial metric given that this metric allows for risk and basic rate components to be separated. The aim is to make mitigation of the risk premium related to energy efficiency investments possible via the DEEI framework. Figure ES.2 Net energy trade balance, non-energy trade balance and energy-related GHG emissions by Member State (2013) Key point: Fossil fuel imports exacerbate most Member States' trade deficits and increase their contribution to global warming.

IEEE Cando Conference 2020, 2021

For many years, the European Union has been designing and constantly reformulating various energy policies for the reduction of energy consumption and greenhouse gas (GHGs) emissions in order to contain the effects of climate change. These policies are transposed and expressed in the legislation of each Member State which establishes national objectives and specific intervention measures for the national context. In this work, incentive policies are compared according to the actual state of achievement of defined targets. Following the definition of the criteria for the classification of incentives, the SCORE investment calculator is presented. This online tool compares the economic convenience of different incentive policies and it represents a useful operational tool for the beneficiaries of the investment, but also to verify the effectiveness of the incentive policies themselves and, if necessary, redefine them.

Energy, 1991

This study indicates that improvements in the efficiency

The purpose of this research is to examine the role of energy efficiency in the residential, public and commercial sectors as a climate mitigating factor; to address the impact of possible deficits in energy savings (rebound effect in consumption); to study issues with the economic valuation of energy efficiency; to address agent-principal problems and to try and uncover behavioral drivers that could impact its adoption. The sector could learn and benefit from the recent developments in the solar industry, where third party ownership, leasing of equipment and no-money-down installation have greatly expanded the solar PV market. Energy efficiency so far has largely been “program-driven” through utility-, state- and federal rebates, mandates, incentive programs and tax credits. If it is to succeed in the face of a non-supportive Federal government, it needs to move to a “performance-based” model. It also needs to become much more user-friendly and start proposing solutions, rather than selling equipment and retrofits. In a low price environment, curbing energy use is generally a low priority for individual customers and the industry needs to simplify its services in order to become “more like an Uber®” rather than a car dealership, offering questionable bargains. Consolidating the sector, making efficiency upgrades convenient and easy, simplifying the overwhelming choices facing the customers and building a long-term relationship with them, could allow the market to realize its full potential, which will also result in the additional benefit of reducing CO2 emissions. Promoting efficiency through the opportunity costs framework, by quantifying the cost of delay, rather than the usual framework of savings, might have a better chance of translating general concerns into action. In order to motivate principals to undertake necessary upgrades, the sector needs a paradigm shift in communication, emphasizing urgency through economic losses incurred from inaction. This paper will be an effort to address the gap in our understanding of the topic by reviewing existing literature on barriers to its adoption, rebound effect, energy efficiency gap, issues with financing and behavioral modification. It will highlight policy advancements in the State of New York (NYS) and New York City (NYC), as one of the premiere urban areas driving energy and environmental policy. For this purpose, it will examine State and City energy regulations, open source data published by NYC and NYS, as well as case studies from the public and private sectors. Energy efficiency, or lowering of energy consumption through demand-side management, offers a partial solution to the pressing issue of climate change. Its major appeal to the wider public lies in offering reduction of energy bills through buildings retrofits and use of more efficient appliances. Studies point that more than 90% of customers undergo upgrades motivated by economic and not environmental considerations. The challenge with energy efficiency is that it represents a highly fragmented market, which has not been able to realize its full potential. Of the estimated $279 billion efficiency market size in the U.S., only a small fraction ($7 billion/year) has been realized to date (2016). According to market analysts, if all of the projected investments are made over the next 10 years, they could yield up to $1 trillion in energy savings for the U.S. population, create 3.3 million job-years of employment and lower CO2 emissions by 10 percent.

International consensus is growing that a transition towards a low carbon society (LCS) is needed over the next 40 years. The G8, the Major Economies Forum on Energy and Climate, as well as the Ad Hoc Working Group on Long-term Cooperative Action under the United Nations Framework Convention on Climate Change, have concluded that states should prepare their own Low-emission Plans or Low-emission Development Plans and such plans are in development in an increasing number of countries. An analysis of recent long-term low emission scenarios for Germany shows that all scenarios rely heavily on a massive scale up of energy efficiency improvements based on past trends. However, in spite of the high potential that scenario developers assign to this strategy, huge uncertainty still exists in respect of where the efficiency potentials really lie, how and if they can be achieved and how much their successful implementation depends on more fundamental changes towards a more sustainable society (e.g. behavioural changes). In order to come to a better understanding of this issue we specifically examine the potential for energy efficiency in relation to particular demand sectors. Our comparative analysis shows that despite general agreement about the high importance of energy efficiency (EE), the perception on where and how to achieve it differ between the analysed scenarios. It also shows that the close nexus between energy efficiency and non-technical behavioural aspects is still little understood. This leads us to the conclusion that in order to support energy policy decisions more research should be done on energy efficiency potential. A better understanding of its potential would help energy efficiency to fulfil its role in the transition towards a LCS.

Our present economy is high-energy and demand-intensive, demand met through the use of high energy yield fossil fuels. Energy efficiency and renewable energy sources are proposed as the solution and named the ‘twin pillars’ of sustainable energy policy. Increasing energy efficiencies are expected to reduce energy demand and fossil fuel use and allow renewables to close the ‘replacement gap’. However, the simple fact is that fossil fuel use is still rising to meet increasing global demand and even when demand is stabilised, the substantial energy efficiencies achieved are not delivering the expected reductions in energy demand. The net effect is that efficiencies are gained and renewable energy use is increasing, even though the replacement of fossils is not an immediately plausible possibility. This points to the under-theorised problems in the ‘efficiency and replacement’ formula. We argue the need to pay closer attention to the ‘systemicity’ of the problem and to the technical and practical systems involved in energy demand. There are a number of detailed reasons why the ‘efficiency and replacement’ equation has become problematic (‘globality’, energy yield, ‘rebound’ and ‘momentum’ effects) and we include a short review of these and relate them to our ‘systemicity’ argument. We argue there is a need for better thinking, but also for a new primary instrument to drastically reduce energy demand and fossil fuel use. Attention should be urgently shifted from gains in energy efficiency to substantial year-over-year reductions in demand.