policy recommendations
towards an efficient global energy market
Policies and measures to promote energy efficiency exist in many countries. Energy and information labels, mandatory minimum energy performance standards and voluntary efficiency agreements are the most popular measures. While effective government policies usually contain two elements, those that push the markets (such as standards) and pull the market (incentives), efficiency standards have proven to be an effective, low cost way to coordinate a transition to more energy efficiency. The Japanese top-runner program - a regulatory scheme with mandatory targets subject to ongoing revision - which allows for continuous modifications of target values, gives incentives to manufacturers and importers of energy-consuming equipment to continuously improve the use-phase energy efficiency of products within selected market segments. It can be characterised as a modified fleet average standard scheme whereby today's best models on the market set the level for future standards, i.e. the efficiency levels of the products available at the time of revision are chosen as prospective efficiency standards.
support innovation in energy efficiency, low-carbon transport systems, and renewable energy production Innovation will play an important role in making the energy revolution more attractive, and is needed to realise the ambition of having ever-improving efficiency and emissions standards. Program supporting renewable energy and energy efficiency development and diffusion are a traditional focus of energy and environmental policies because energy innovations face barriers all along the energy-supply chain (from R&D, to demonstration projects, to widespread deployment).
set stringent and ever-improving efficiency and emissions standards for appliances, buildings and vehicles In the residential sector in industrialised countries, standby power consumption ranges from 20 to 60 watts per household, equivalent to 4 to 10% of total residential energy consumption. Yet the technology is available to reduce standby power to 1 watt and a global standard, as proposed by the IEA, could mandate this reduction. Japan, South Korea and the state of California have not waited for this international approach and have adopted standby standards.
develop and implement market transformation policies that overcome current barriers and other market failures to reduce energy demand Additional to setting and implementing standards, market transformation policies promote the manufacture and purchase of energy-efficient products and services. The goal of this strategy is to induce lasting structural and behavioral changes in the marketplace, resulting in increased adoption of energy-efficient technologies. A key element is overcoming market barriers. These market barriers inhibit the manufacture and purchase of energy-efficient products.
no fuel, no emissions, no problems: renewable energy
At a time when governments around the world are in the process of liberalising their electricity markets, the increasing competitiveness of renewable energy should lead to higher demand. Without political support, however, renewable energy remains at a disadvantage, marginalised by distortions in the world’s electricity markets created by decades of massive financial, political and structural support to conventional technologies. Developing renewables will therefore require strong political and economic efforts, especially through laws which guarantee stable tariffs over a period of up to 20 years.
At present new renewable energy generators have to compete with old nuclear and fossil fuelled power stations which produce electricity at marginal costs because consumers and taxpayers have already paid the interest and depreciation on the original investments. Political action is needed to overcome these distortions and create a level playing field.
Renewable energy technologies would already be competitive if they had received the same attention as fossil fuels and nuclear in terms of R&D funding, subsidies, and if external costs were reflected in energy prices. Removing public subsidies to fossil fuels and nuclear and applying the ‘polluter pays’ principle to the energy markets, would go a long way to level the playing field and drastically reduce the need for renewable support. Unless this principle is fully implemented, renewable energy technologies need to receive compensation and additional support measures in order to compete in the distorted market.
Support mechanisms for the different sectors and technologies can vary according to regional characteristics, priorities or starting points. But some general principles should apply to any kind of support mechanism. These criteria are:
effectiveness in reaching the targets The experiences in some countries show that it is possible with the right design of a support mechanism to reach agreed national targets. Any system to be adopted at a national level should focus on being effective in deploying new installed capacity and meeting the targets.
long term stability Whether price or quantity-based, policy makers need to make sure that investors can rely on the long-term stability of any support scheme. It is absolutely crucial to avoid stop-and-go markets by changing the system or the level of support frequently. Therefore market stability has to be created with a stable long-term support mechanism.
simple and fast administrative procedures Complex licensing procedures constitute one of the most difficult obstacles that renewables projects have to face. Administrative barriers have to be removed at all levels. A ‘one-stop-shop’ system should be introduced and a clear timetable set for approving projects.