The potential for energy efficiency investments following COP 21

Any global deal means significant mitigation measures. Strangely, over the years, improved energy efficiency has been neglected or downplayed even though study after study has shown its cost-effective potential. Richard Black writes a good article on the BusinessGreen website that a global climate deal will boost investment in ‘low carbon stuff’.


What could a Paris climate deal do for energy efficiency?

Logically, a deal at this December’s UN climate summit in Paris should lead to different stuff being built, compared with a future without a climate deal. (Practically, that’s largely how climate change gets dealt with – building low-carbon stuff rather than high-carbon stuff.)

And much of that stuff should be lower-carbon simply because it uses energy more efficiently. Most developing country plans for decarbonising their economies rely heavily on reducing energy waste so every joule goes further – and why not, it’s a sensible strategy, with wins for energy security, cost and carbon emissions.

The UN climate convention’s boffins have just analysed the potential place for energy efficiency improvements in urban environments worldwide to restrain climate change. By implication, what they’re also looking at is the possible opportunity for the energy efficiency industry of a low-carbon deal.

And while the experts don’t come up with concrete numbers for the added value compared with progress expected without a climate deal, the analysis is still interesting.

Last year, the IEA concluded the global market in energy efficiency goods and services was worth $310bn per year, and noted that many countries now see it as their “first fuel” when contemplating a low-carbon transition.

The IEA also says that if governments agree a deal to keep atmospheric levels of carbon dioxide below 450 parts per million, that will create a market for energy efficiency investments totalling $8.1-11.2tr over 15 years – an average of $540-747bn per year.

So that deal, already, would double the size of the global market.

And the range of the market is of course wide, including buildings, appliances and transport.

In its analysis, the UN climate convention (UNFCCC) remarks that new incentives will be needed to drive this upscaling.

Perhaps oddly, it doesn’t explicitly mention regulation, even though respected economists such as Professor Michael Grubb argue this has proven to be an effective driver for energy efficiency improvements. Nor does it mention behavioural factors.

But it does highlight the role for economic sticks and carrots, including taxes and fees on one side, and subsidies and grants on the other.

Somewhat ironically given recent post-VWgate revelations, it also mentions the valuable role of energy labelling for appliances. (Presumably the update will mention the importance of authorities mandating test and inspection regimes that keep manufacturers honest.)

So – a doubling of the global market from a 450ppm CO2 climate deal.

However, governments are not pursuing that deal – they’re after a tighter one capable of keeping global warming below 2 Celsius since pre-industrial times. The details are a bit anoraky but in essence it means keeping CO2 concentrations some way below 450ppm because we’re also putting other greenhouse gases into the atmosphere.

Which suggests that even greater opportunities for energy efficiency may lie ahead if governments eventually reach that deal.

It won’t come in December – but within the climate change community, the hope is that a Paris deal will accelerate investments in low-carbon stuff, which will then make it easier for governments to tighten the deal, and so on.

Two other factors are worth looking at here. One is where the big opportunities will lie. There’s no map readily available but some conclusions are easily made.

One derives naturally from the New Climate Economy observation that the cities of the fast-developing world hold the key to a successful low-carbon transition. It’s here that most of estimated $90tr invested in stuff over the next 15 years will go. Or, as India’s climate plan submitted to the UNFCCC puts it: “More than half of the India of 2030 is yet to be built.” India’s submission includes three pages on plans to make energy use more efficient in houses, transport and businesses.

Meanwhile, China’s plan to cut emissions intensity (carbon emissions per unit of GDP) by 60-65 per cent (from 2005 levels) by 2030 hinges largely on using energy more efficiently; and the IEA calculates that of all countries, China has the biggest potential for reducing emissions this way.

The second factor is that many developing country plans for introducing a low-carbon transition either hang on the West providing financial and technical help, or become more ambitious if such help is forthcoming. (By dint of having signed the UN climate convention, all developed nations have agreed that they should provide this assistance.)

For example, Bangladesh will reduce emissions from power, transport and industry by five per cent below a business-as-usual trajectory. But if it receives adequate levels of international assistance, that increases to 15 per cent. And the bigger the ambition, the bigger the market for energy efficiency and other low-carbon industries.

So the exact size of the market isn’t yet clear – it hangs on several factors, including the outcome of talks this week in Bonn, the last preparatory round before the Paris summit. Overall, things here are looking quite optimistic – and if I were in the energy efficiency business, I’d hoping they stayed that way.

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