Lighting the Way: Toward a Sustainable Energy Future

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  • 2.2 Barriers to realizing cost-effective energy savings

    New technologies or methods for improving the efficiency of energy use are often not adopted as quickly or as extensively as might be expected based on cost-effectiveness considerations alone. In some cases, more efficient models may not be available in combination with other characteristics that consumers value more; in other cases, a company may forego efficiency improvements that would have very rapid economic payoffs because of the risk of interfering with complex manufacturing processes. Entrenched habits and cultural and institutional inertia can also present formidable barriers to change, even in relatively sophisticated companies with substantial energy expenses. Regulatory or market conditions sometimes create additional impediments: for example, rules that forbid small-scale end-users from selling power they generate back to the grid may inhibit the deployment of efficient technologies for on-site co-generation of heat and electricity. In sum, institutional, behavioral, or other barriers to the adoption of cost-effective, energy-efficient technologies are widespread and have been extensively documented in the energy-policy literature. Because most policy options for promoting energy efficiency are aimed at addressing one or more of these barriers, it is important to understand where and why they arise and where the most effective points of leverage for overcoming them might lie.

    The role of institutional or other non-economic barriers to energy efficiency varies greatly between sectors. Large industries that are directly involved in energy production or conversion (such as the electric utility industry) and other industries that use energy intensively (such as the aluminum, steel, and cement industries) typically possess the institutional capacity to analyze their energy use, assess the potential impact of new technologies, and implement cost-effective improvements. Moreover, their motivation to understand and manage their energy needs is usually stronger because energy accounts for a larger share of their overall production costs. In such industries, the uptake of new energy technologies includes such salient barriers as the following:

      Complexity of process integration coupled with the high cost of system outages. The managers of large complex facilities, such as steel factories, place a very high value on reliability and may be reluctant to assume the operating risks associated with adopting new technologies.
      Regulatory hurdles, such as the necessity of complying with new environmental and safety permits, which may limit the adoption of new technologies. In the United States, some utilities have asserted that permitting requirements slowed the introduction of new technologies for coal-fired power plants.
      Existence of disincentives to capital investments in efficiency-enhancing retrofits compared to investments in new production capacity.
      Slow pace of turnover for some types of capital stock, arising in part from the two factors listed above, which plays a role in limiting the uptake of new technologies.

    In contrast to energy-intensive industries, individual consumers, small businesses, and other end-users (including industries with low energy intensity) often lack the information and institutional capability to analyze and manage their energy use. Moreover, they are unlikely to acquire this information and capability because energy—in terms of cost and importance—often rates fairly low relative to other considerations. For individual consumers and small businesses, in particular, prominent barriers to the uptake of new energy technologies include the following:

      Split incentives and lack of clear market signals. Homebuilders and developers often do not include cost-effective energy technologies because real estate markets lack effective means to quantify resulting energy savings and efficiently recoup the added capital cost from buyers. Similarly, landlords lack incentives to invest in more efficient appliances if their tenants will be paying building energy costs. The same problem accounts for the fact that many electronic devices consume unnecessarily large amounts of power even when turned off or in stand-by mode. Manufacturers have no incentive to reduce these losses when the resulting impact on energy use and operating costs is invisible to the consumer at the point of purchase.
      Lack of information and analytical capacity. This lack may prevent end-users from effectively managing their energy consumption even when markets for applicable energy technologies exist. For example, if more end-users of electricity had access to real-time metering and faced real-time pricing they would shift consumption to off-peak hours. This would allow for more efficient utilization of generation resources and enhance grid reliability; it could potentially also facilitate increased reliance on certain low-carbon energy sources, such as wind and nuclear power, that would otherwise be underutilized at night.21
      Lack of access to capital. The adoption of high-capital-cost technologies could slow without access to capital. Many low-income families in North America continue to use relatively costly and inefficient electric heat and hot water systems, even though switching to natural gas could pay for itself within a few years. In many cases, these families lack the up-front capital to purchase new gas appliances. Capital constraints are, of course, also likely to be an issue in many developing country contexts where poor households may face discount rates as high as 60 percent or more.
      The difficulty of integrating complex systems. The difficulty of integrating complex systems might create impediments for small users. Designing and operating highly efficient buildings requires tight integration between various building subsystems, both during the design phase and in later operation.

    A variety of policies have been developed and implemented to address these barriers, including building and appliance standards, targeted technology incentives, research and development initiatives, consumer-information programs, and utility-sponsored demand-management programs. These options are reviewed in the sector-specific discussions that follow.