2016/53 Supported by k nKonw A A weldegdeg e ol n oNtoet e s eSrei r e ise s f ofro r p r&a c t hteh e nEenregryg y Etx itcrea c t i v e s G l o b a l P r a c t i c e The bottom line Why Energy Efficiency Matters and How to Scale It Up Energy efficiency is among the cheapest and cleanest energy resources available. What is the problem? Can energy efficiency help meet the challenges? The World Bank, together with Growing energy demands and continued economic Energy efficiency offers the cleanest and most its development partners and growth in developing countries will create major economical way to meet growing energy demands client governments, is making a commitment to ensure that fiscal, environmental, and social pressures Energy efficiency should be the “first fuel” of energy policy makers energy efficiency becomes Global energy demand is increasing at a steady pace. To meet that and governments around the globe. It can help meet growing the “first fuel” of energy policy demand and sustain economic development, trillions of dollars energy demands cleanly and cheaply, increase competitiveness, makers and governments around will be invested over the coming decades. The International Energy generate employment, secure energy, reduce poverty, and benefit the world. This brief highlights Agency (IEA) projects that demand for energy will increase from development (figure 1). The IEA notes that among single supply-side lessons learned from two about 13,400 million tons of oil equivalent (Mtoe) in 2012 to 18,300 resources, energy efficiency made the greatest contribution to meet- decades of energy efficiency Mtoe in 2040—a 37 percent increase (IEA 2014a),1 with most of the ing energy demands between 1974 and 2010 (figure 2) (IEA 2014b). programs in many countries. growth coming from developing countries. Harnessing energy efficiency can facilitate more efficient allocation of Five recommendations are As demand grows, energy subsidies, government transfers, guar- resources across the global economy, potentially boosting economic offered at the end of the brief. antees to state-owned utilities, and energy imports will also increase, output by US$18 trillion through 2035. They are to focus on delivering placing enormous fiscal burdens on governments. But phasing out Energy efficiency contributes to a number of prevailing develop- energy efficiency at scale, to energy subsidies and introducing new energy and environmental ment challenges (table 1), included the World Bank’s twin goals of engage the private sector early, taxes to curb demand will provoke social tensions and adversely poverty reduction and shared prosperity. Improved energy efficiency to scale up energy efficiency in affect the poor and most vulnerable. in industry modernizes factories, increasing productivity and com- the public sector, to include the Concerns over energy security have led to a growth in domestic petitiveness. This fosters economic growth and creates and protects residential sector, and to plan. resource exploitation, including fossil fuels. New coal power plants long-term employment opportunities. In the urban and public are already planned or ready to start production. These develop- infrastructure sectors, energy efficiency can help local governments ments will have substantial adverse impacts—locally and globally. provide more reliable public services, such as heating, power, public lighting, and water, while reducing costs. Freed up fiscal resources can then be used for socioeconomic development and for programs benefitting people living in poverty. Energy efficiency mitigates the impact of ongoing tariff reforms, which adversely affect poorer Jas Singh is a senior households, and it is a relatively inexpensive method for reducing energy specialist in the global and local pollution. McKinsey Global Institute (Beinhocker World Bank’s Energy and Extractives Global Practice. 1. Data are from the IEA New Polices Scenario, which assumes that all existing and planned energy policies are fully imple- and others 2008) ranks energy efficiency as the top priority among mented. If only existing policies are considered, demand would be about 10 percent higher. measures to mitigate climate change. 2 W h y E n e r g y E ff i c i e n c y M a tte r s a n d H o w t o S c a l e It U p Energy efficiency could curb demand by almost 10 percent (1,750 Energy efficiency continues to be a mostly untapped resource Mtoe, under the IEA New Policies Scenario) by 2040, decreasing (figure 3). Although industrial productivity has improved dramatically energy intensity by about 1.8 percent per year, still short of the over the past few decades, substantial gains remain available 2.4 percent required to contain long-term increases in the global through the adoption of cost-effective measures, global best temperature to 2°C or less. “Increased global The challenge is daunting. According to the World Bank and IEA commitments are already (2015), the rate of improvement in energy intensity from 2010–12 Figure 2. “Avoided energy use” resulting from energy efficiency in is almost a full percentage point slower than the objective of the 11 IEA countries beginning to pay off. In international Sustainable Energy for All initiative, which calls for a 180 2011, energy savings in 2.6 percent average annual improvement for the period 2010–30. Hypothetical energy use had Million tons of oil equivalent 4,000 160 there been no energy efficiency 11 OECD countries reduced However, increased global commitments are already beginning 140 improvements Avoided energy equal 3,500 demand by an amount to pay off. In 2011, energy savings in 11 OECD countries reduced 120 to 65% of 2010 TFC 3,000 Exajoules 100 demand by 1,337 Mtoe—more than the total energy consumption of 2,500 that exceeded the total 80 the European Union (IEA 2014c). 60 1,500 energy consumption of the 1,000 40 European Union.” 20 TFC 500 0 Figure 1. The multiple benefits of energy efficiency 0 1974 1978 1982 1986 1990 1994 1998 2002 2008 Coal Oil Gas Electricity Other Energy Avoided energy TFC (total fuel consumption) Asset savings GHG Source: IEA 2013. values emissions Disposable Energy Figure 3. Long-term energy-efficiency potential by sector income security 100 Public Energy 80 budgets delivery 60 percent Energy efficiency improvment 40 Resource Energy management prices 20 0 Macro- Local air Industry Transport Power generation Buildings economic pollution impacts Realized energy efficiency potential Unrealized energy efficiency potential Employment Industrial productivity Note: These energy efficiency potentials are based on the IEA New Policies Scenario outlined Health and in the World Energy Outlook 2012. Investments are classified as “economically viable” if the Poverty well-being alleviation payback period for the up-front investment is equal to or less than the amount of time an investor might be reasonably willing to wait to recover the cost, using the value of undiscounted fuel savings as a metric. The payback periods used were in some cases longer than current averages, but they were always shorter than the technical lifetime of individual assets. Source: IEA 2014b. Source: IEA 2012. 3 W h y E n e r g y E ff i c i e n c y M a tte r s a n d H o w t o S c a l e It U p Table 1. How can energy efficiency help tackle today’s global challenges? Development challenge Energy efficiency can … Costs and opportunities—examples Infrastructure … mitigate impacts of supply In Turkey, a seven-hour blackout in March 2015 resulted in an estimated US$700 million loss in bottlenecks and constraints by better managing production. “Through energy efficiency, shortfalls system peak loads and easing demand during shortages, minimizing The United States has saved 150 GW in peak demand over the past 30 years through refrigerator Russia could eliminate productivity losses. efficiency standards alone. almost 800 million tons of Fiscal constraints … ease fiscal limits through reduced Energy accounts for 8 percent of Serbia’s fiscal deficit due to energy subsidies, direct transfers to energy and fuel subsidies, fiscal state-owned energy utilities, and guarantees for utility borrowing. CO2 per year—equal to the transfers to distressed public utilities, and energy costs for publicly owned An initial evaluation of the European Union’s advanced buildings directive expects €30–40 total energy consumption billion in direct benefits to the public budget. The addition of tax revenues and reduction of assets (e.g., buildings and street of France.” lighting). unemployment benefits increases the estimate to €67–128 billion. Energy security … enhance energy security by easing Vietnam’s energy consumption has tripled over the past decade, making it one of the most the need for energy imports, making energy-intensive economies in East Asia. It has, as a result, become increasingly reliant on local energy resources last longer, and imported coal after having been virtually energy independent (1997–2007). reducing volatility in energy supply and prices. Japan has replaced half of its missing nuclear power capacity since the March 2011 earthquake, tsunami, and subsequent nuclear disaster at Fukushima, solely with energy efficiency measures. Economic growth, … develop new industries from Small and medium-sized enterprises, which constitute over 80 percent of industrial firms in India, competitiveness, the reduction of energy waste (e.g., face high and rising electricity costs coupled with supply shortages (about 10 percent overall; 17 and jobs energy service companies), improving percent at peak times), undermining their global competitiveness. industrial productivity and creating employment opportunities. A study on the impacts of energy efficiency programs in Canada shows a net increase of Can$234–580 billion in GDP, with 1 dollar of spending yielding 5 to 8 dollars in GDP and the creation of 30–52 jobs. Poverty reduction … lower overall energy bills and the The lack of cost-reflective tariffs cost countries in Europe and Central Asia 0.5–1 percent of GDP. percent of household income devoted Effective social assistance programs and energy efficiency could alleviate these losses. to energy, thereby decreasing energy poverty. An electricity connection regularization program in the slums of Sao Paolo, Brazil, promoted energy efficiency measures and formal connections. Nonpayment was reduced by 67 percent and customer energy use by 40 percent. Environmental … reduce local and global pollution in Russia is the third largest energy-consuming country, but it is more energy-intensive than the top stewardship a most cost-effective manner. 10 energy-consuming countries. Through energy efficiency, it could eliminate almost 800 million tons of CO2 per year—equal to the total energy consumption of France. China has embarked on one of its most ambitious energy efficiency programs. From 1980–2010, energy intensity declined by 70 percent, resulting in CO2 emission reductions of 24.4 billion tons. Energy access … support reductions in energy losses Under a national grid extension initiative, Rwanda is distributing more than 900,000 compact that increase energy access or lower fluorescent lamps to new household connections, enabling it to reduce the load on the grid and upfront costs for off-grid energy connect to more homes. services. Sources: Media reports and technical studies available from the author upon request. 4 W h y E n e r g y E ff i c i e n c y M a tte r s a n d H o w t o S c a l e It U p practices, and available technologies. The building sector, which What have we learned? represents almost 40 percent of global energy demand, can still meet more than 80 percent of its potential through improved building The past two decades have yielded valuable lessons codes and deep retrofits. Tapping into these cost-effective measures to countries at all levels of development—but more will require an additional investment of US$3.8 trillion by 2035, with systematic evaluations are needed “Many energy efficiency simple payback periods of two to eight years. Despite challenges, governments have continued to promote energy improvements have not efficiency with varying degrees of success. These initiatives have been made because of Why has energy efficiency been difficult to achieve? yielded valuable lessons, some of which are being incorporated into systemic barriers that Market failures and implementation barriers new policy and program designs or have already been operational- have so far prevented energy efficiency from ized and promise improved performance. prevent the realization The lessons learned are first summarized in bullet form, followed of energy efficiency’s reaching its potential by details on each point. potential.” Energy efficiency investments are generally profitable and cost-ef- • Policies must be accompanied by enforcement and fective, with energy savings repaying investment costs over time. implementation. However, many energy efficiency improvements have not been • National targets and reporting improve accountability. made owing to market failures—systemic barriers that prevent the • Programs should be designed for implementation at scale. realization of energy efficiency’s potential. Those barriers include: • Simpler program and business models are needed. • Poor market incentives, including low energy pricing that makes • Incentives must drive markets. investments in energy efficiency less attractive and encourages overconsumption. Paper policies are insufficient. An expanding list of countries • Weak capacity and governance of energy efficiency agencies, have developed commendable policy frameworks backed by sound which inhibits their ability to influence changes in policies and secondary regulations. Governments must urgently shift to policy markets, deliver effective programs, and be accountable for implementation and enforcement to realize the gains these policies results. represent. For example, since 2007, China has substantially stepped • Lack of data on energy use, baselines, and systematic evalua- up its enforcement of energy-saving building codes through: (i) tions of programs, costs, and impacts. strong regulatory support, including the deployment of “acceptance • Absence of international consensus on the most-effective codes” at a building’s commissioning phase; (ii) stable government policies and approaches for scaling up energy efficiency (e.g., budgets for implementation and enforcement agencies; (iii) trans- regulations, incentives, or market-based mechanisms), the parent management of the certification of third-party companies; appropriate role of government and public financing, and how (iv) clear rules and responsibilities for noncompliance; and (v) an cultures and behaviors can be changed. effective national program for inspections (Bin 2012). National targets focus attention. Broad energy efficiency Thus, on-the-ground results and expanding policy targets have legislation and frameworks are useful when establishing institu- substantially lagged behind the tremendous potential for energy tional mandates, a legal infrastructure, funding mechanisms, and efficiency. But circumstances are beginning to change. initial obligations. However, national targets are better at holding policies, institutions, and programs accountable for results because they usually require evaluations of policies and programs. The ensuing assessments make it possible to adjust those that are 5 W h y E n e r g y E ff i c i e n c y M a tte r s a n d H o w t o S c a l e It U p not performing. In 2008, India launched the National Mission on this approach is often too complex for use in emerging markets. Enhanced Energy Efficiency, which called for annual savings of at ESCOs cannot succeed if they are undercapitalized, if clients are least 23 Mtoe by 2015. Turkey’s 2012 National Energy Efficiency only marginally creditworthy, if accounting and legal systems are Strategy calls for a 20 percent reduction in energy intensity by 2023 underdeveloped, and if data are insufficient or unreliable. Until the (compared with 2011 levels). Both countries are now improving their market can develop organically, ESCOs should have simple business “National-level programs monitoring and evaluation systems to better assess impacts and models and modest requirements for performance guarantees and that can create economies enhance policy implementation and program designs. verification of energy savings In 2011, the World Bank developed One-off pilots are not helpful. Pilot projects are usually seen an energy efficiency program for public facilities in Armenia using of scale would allow for as a way to test implementation mechanisms on a small scale. simplified ESCO contracts under which the service company is paid the pooling of government However, most pilots are done without any commitments or means for an approved design, delivery of the project, and commissioning.3 and donor resources into for scaling up successful schemes, and the experiences are lost soon Only the last payment is tied to a performance test. To date, the country-led initiatives that after the program ends. Emphasis should be placed on national-level Armenian R2E2 fund has signed more than 58 ESCO contracts. programs that can create economies of scale. This would allow for According to World Bank project documents and progress reports, are ultimately sustainable.” the pooling of government and donor resources into country-led all are performing well. initiatives that are ultimately sustainable. For example, the World Incentives, incentives, incentives! Incentive gaps related to Bank is helping the Mexican government launch a national municipal energy efficiency are numerous. Public agencies investing in energy energy efficiency program with a pilot in 32 municipalities covering efficiency fear budget reductions. Utility companies fear a decrease street lighting, municipal buildings, and water pumping. The pilot will in sales if they help customers cut energy use. When bills are based test the design and financing scheme. After savings and repayments on heated floor area, customers that are more efficient may not are verified, the program—designed to be scalable—will expand realize any cost savings. And although landlords own buildings and to the national level, covering all 2,438 municipalities as well as all equipment, tenants often pay the energy bills, so neither party has a municipal sectors. sufficient incentive to invest in energy efficiency. Careful resolution Delivery models used in developed countries must be of misaligned incentives is critical to ensure good implementation simplified and adapted. When public financing is deemed nec- and high participation. In the United States, the Property Assessed essary to develop or scale up a target market, models from Europe, Clean Energy (PACE) mechanism was developed to overcome energy Japan, and North America can offer valuable suggestions, but usually efficiency challenges in commercial buildings. PACE allows for long- they must be adapted to suit the local context. Feedback mecha- term financing of energy efficiency measures, often for as long as nisms that enable learning from program lessons and improvements 20 years, enabling more-ambitious retrofits. If a building is sold, the during implementation are also important. For example, in 2010, with PACE payments are transferred to the new owner. World Bank assistance, South Africa’s power utility, Eskom, launched Markets are responding to these lessons and informed policies. the Standard Offer Program,2 a successor to its demand-side Global estimates indicate that in 2012, the energy efficiency market management program. The program was based on a North American rose to an estimated US$310–360 billion, more than supply-side model. It was then revised based on experience and customized to investments in renewable energy or coal, oil, and gas (IEA 2014c). meet the energy needs of South Africans (ESMAP 2011). Energy efficiency financing is becoming more mainstreamed and has Energy service companies (ESCOs) can serve as a mech- anism for financing and delivery of energy efficiency, but 3. Under an energy service agreement, the financier (typically an energy efficiency fund or public ESCO) provides financing for an energy efficiency project, usually to a public or municipal client. The client agrees to continue paying current energy bills (or baseline energy costs). The new (lower) energy bills are paid from an escrow account, and the remainder goes 2. A standard offer is a mechanism for acquiring demand-side resources. The utility, regulator, or other government agency toward repayment to the financier. This kind of scheme offers clients a significant advantage by relieving them of operational agrees to purchase energy savings or load reduction for a predetermined rate based on verified energy savings. Any end risks, enabling them to maintain a positive cash flow. Energy service agreements are typically viewed as long-term contract user, energy service company, equipment supplier, or other entity can propose ideas to reduce energy use, but it will be obligations. They are therefore not generally counted against public debt. Such agreements are being used or considered in compensated only after completion of the plan and verification of savings. Armenia, Belarus, Macedonia, Mexico, Turkey, and Ukraine, among other countries. 6 W h y E n e r g y E ff i c i e n c y M a tte r s a n d H o w t o S c a l e It U p greater specialized products, from on-bill utility financing to ESCOs to averages indicate that lending is declining—from US$857 million per green bonds. International financial institutions provided more than year in 2008–10 to US$530 million in 2013–15—but several extensive US$4.23 billion for energy efficiency in 2013. programs are in the pipeline in Bulgaria, China, Egypt, Mexico, Russia, and Vietnam. The recent restructuring of the World Bank and What has the World Bank done? the formation of Global Solution Groups and Global Leads offer an “Within the World Bank, opportunity to scale up energy efficiency lending. The Bank has mainstreamed lending for energy lending for energy The Bank’s current energy efficiency portfolio covers the major efficiency sectors: industry, public, and residential (table 2). The lending figures efficiency has become a Within the World Bank, lending for energy efficiency has become a include supply-side investments in generation, transmission, and mainstreamed business mainstreamed business line, with more than US$5.2 billion lent over distribution of electricity and heat, but these are not included in the line, with more than the five fiscal years ending June 30, 2015. However, the business table because their modalities are more typical, with commercial US$5.2 billion lent over remains volatile: Lending has ranged from a high of US$2.1 billion and regulatory incentives to drive utilities to reduce their losses, the five fiscal years ending in fiscal 2011 to a low of US$218 million in fiscal 2015. Three-year reinforced by World Bank lending toward the same end. However, June 30, 2015.” Table 2. World Bank program models for energy efficiency Sectors Industrial and commercial Public and municipal Residential Program models Credit lines, loan guarantees, mezzanine Public financing, energy efficiency/urban Utility DSM/rebates, bulk purchase, credit funds development funds, super ESCOs, credit lines, loan guarantees, manufacturer lines, loan guarantees incentives Description Lending to one or more local banks Lending to government or financial Lending through utility/intermediary to to support portfolio of smaller energy intermediary to support portfolio of energy support efficient appliances and home efficiency investments in public/private efficiency investments in public entities renovations enterprises Implementing Commercial banks, guarantee companies Ministry PIUs, energy efficiency funds, public Utilities, commercial/development banks, agencies ESCOs, commercial/development banks equipment manufacturers Success factors Market analysis to identify target market(s) Strong, committed implementing partners Simple delivery mechanism to avoid disrupting typical supply chains Strong, stable demand built through multiple Target sectors with a strong stake in energy channels and technical intermediation efficiency and credible borrowing profile Strong management commitment within utility and appropriate financing/ regulatory Appropriate financial products, standardized Repayments and periodic recapitalization to incentives for DSM to lower transaction costs ensure sustainability Incentives targeting poorer consumers Committed banking partners with internal National program framework with regulatory capacity raised as needed through technical obligations to drive demand Effective outreach and social marketing assistance Project bundling to lower transaction costs World Bank Ongoing: China, India, Jamaica, Tunisia, Ongoing: Armenia, Bosnia & Herzegovina, Ongoing: Bangladesh, Benin, Mexico, examples Turkey, Ukraine, Uzbekistan India, Kosovo, Montenegro Rwanda In pipeline: Egypt, Russia, Vietnam In pipeline: Belarus, Macedonia, Mexico, In pipeline: Bulgaria Turkey Source: World Bank reports and data. DSM = demand-side management; ESCO = energy service company 7 W h y E n e r g y E ff i c i e n c y M a tte r s a n d H o w t o S c a l e It U p unlike larger infrastructure or supply-side energy efficiency, which is What are the priorities for future action? focused on a few large investments, demand-side energy efficiency programs require intermediaries or bundling agents to bring many Once the prerequisites are met, policy makers heterogeneous investments under one program. These bundling should treat energy efficiency as the first fuel agents can be energy utilities, commercial or development banks, of the present century “Unlike supply-side special purpose funds, public or super-ESCOs, or equipment man- National energy efficiency programs should be based on a compre- energy efficiency, which ufacturers or suppliers. Program performance is frequently based hensive policy and regulatory framework, strong and accountable on the ability of the bundling agent to identify a strong subproject focuses on a few large institutions, dedicated financing mechanisms, detailed and reliable pipeline, to finance and implement subprojects, and to monitor and investments, demand-side data and information, and measures to enhance technical capacity report results. (figure 4). energy efficiency programs require intermediaries or bundling agents to bring Figure 4. Framework for successful energy efficiency programs at the national level many heterogeneous investments under one program.” Policy and regulations Institutions Overarching EE legal framework Dedicated entity with EE mandate Cost-reflective energy pricing Clear institutional roles/accountability Codes/standards with enforcement Inter-ministerial coordinating body mechanisms Assignment of roles for monitoring and EE incentive schemes with funding sources enforcement of compliance EE targets by sector Authority to formulate, implement, evaluate, and report on programs Public budgeting/procurement to encourage EE Tracking progress toward EE targets Successful Information energy efficiency Finance Database on energy consumption programs Commercial bank lending (credit lines and guarantees) Industrial and building stock Cash-flow–based EE financing Information center; case study database Commercial ESCO financing Database of service providers, EE technologies, and equipment providers Public sector EE financing Broad, sustained public awareness Technical capacity Residential home appliance credit Appliance labeling Energy auditor/manager training Equipment leasing and certification programs Private sector training programs (banks, ESCOs, EE service providers, and end users) EE project templates (audits, M&V plans, EPC bidding documents, and contracts) Energy management systems Source: World Bank 2015. EE = energy efficiency; EPC = energy performance contract; ESCO = energy service company; M&V = measurement and verification. 8 W h y E n e r g y E ff i c i e n c y M a tte r s a n d H o w t o S c a l e It U p Once there is a solid framework in place, governments must institutional setups, and enabling environments are in place to develop programs to address existing barriers and achieve national sustainably support implementation of a national program. energy efficiency goals. Energy efficiency programs can take many Engage the private sector early. Most energy efficiency forms—for example, providing information, special access to financ- potential lies in private factories and buildings, so the private sector ing, incentives and subsidies, tools and guides, and training—to help should be involved at the start of any initiative, whether as an end “Most energy efficiency end users finance and implement energy efficiency measures. Such user, a potential implementer, or a possible financier. Although early potential lies in private programming should be systematic and based on market studies. consultations on programming and design can support efforts to Plans should have clear objectives, measureable indicators, and ensure that limited public funds will attract commercial financing at factories and buildings, so defined exit strategies, and they should be subject to broad consul- a later stage, government support is necessary to develop financing the private sector should tations with potential participants, service providers, financiers, and and implementation mechanisms. There must also be buy-in from be involved at the start of other stakeholders. Key steps in program design and implementation likely market actors on the approaches and models being tested any initiative, whether as include: with public funds so that after government programs are phased • Collection of relevant market data to determine energy efficiency out, those actors will be willing to take over financing and expansion. an end user, a potential potential and prevailing policy and market deficiencies In addition, there must be agreement on the indicators needed by implementer, or a possible • Analysis and synthesis of data to determine program goals and private firms to meet their conditions for investing (e.g., rates of financier.” expected impacts return, default rates, and stable demand). Governments should also • Development of program strategies and designs seek input and feedback from the private sector on their policies and • Identification of target markets programming—regulatory and voluntary mechanisms, incentives, • Development of implementation strategies and plans through information, and technical support (e.g., industrial and building broad consultations tools, case studies and best-practice guides, recognition for high • Engagement of implementing agents and development of their performers). capacity Scale up energy efficiency in the public sector. Developing • Monitoring and evaluation of program results countries have pressing needs to rehabilitate old and build new • Learning from results to improve program designs and phase out infrastructure, because public buildings, schools, hospitals, street programs that have achieved their goals or have proven to be lights, water pumps, and other infrastructure are often outdated ineffective. and poorly maintained. But credit constraints often limit access commercial financing. Developing citywide or national programs After the foundations are laid, policy makers can begin to treat that target public energy users could have a catalytic effect on local energy efficiency as the first fuel for the next century. Five key markets, attracting new service providers and equipment suppliers, recommendations follow: increasing competition, and driving down prices. Common ownership Focus on delivering energy efficiency at scale. and similar building types (e.g., schools and hospitals) offer excellent Policymakers should develop a range of program models for financ- opportunities to bundle projects or equipment purchases, which can ing and implementation at the national level. Pilot programs should provide significant economies of scale. Local governments also have be accompanied by commitments from the country and potential huge investment needs across all sectors: transport, water, waste, financiers to expand successful initiatives to national scale. Donors buildings, lighting, and energy. Regulations are critical for ensuring should be encouraged to pool funds in support of national programs that any new infrastructure—e.g., water systems, public buildings, to avoid parallel and competing endeavors and to allow donors and municipal street or traffic lighting—adhere to national standards broader policy engagement, ensuring that policies and regulations, that discourage overconsumption of energy. 9 W h y E n e r g y E ff i c i e n c y M a tte r s a n d H o w t o S c a l e It U p Don’t forget the residential sector. The residential sector is References Make further among the largest (typically comprising 60–70 percent of building Beinhocker, E., J. Oppenheim, B. Irons, M. Lahti, D. Farrell, S. Nyquist, connections energy use) and most challenging for realizing energy efficiency. J. Remes, T. Nauclér, and P. A. Enkvist. 2008. “The Carbon Having regulations in place and increasing enforcement, particularly Productivity Challenge: Curbing Climate Change and Sustaining Live Wire 2014/11. of national appliance standards, is an important first step. Many Economic Growth.” McKinsey Global Institute, McKinsey & “Designing Credit Lines for countries have commercial credit programs for residential con- Company, San Francisco, CA. Energy Efficiency,” by Ashok sumers, but too often these serve only high-income households. Bin, Shui. 2012. “Third Parties in the Implementation of Building Sarkar, Jonathan Sinton, and Programs with incentive schemes tend to yield more positive results. Energy Codes in China.” American Council for an Energy-Efficient Joeri de Wit. In terms of programming, bundling agents are more difficult to Economy and Institute for Market Transformation, Washington, recruit for the residential sector because investments are smaller Live Wire 2014/18. DC. and the markets more heterogeneous, but utility DSM programs, “Exploiting Market-Based ESMAP (Energy Sector Management Assistance Program). 2011. credit schemes through banks, and bulk purchases and discounts by Mechanisms to Meet Utilities’ “Implementing Energy Efficiency and Demand Side Management: manufacturers are viable responses to this problem. Strong com- Energy Efficiency Obligations,” South Africa’s Standard Offer Model.” Low Carbon Growth munication campaigns and behavior change mechanisms are also by Jonathan Sinton and Country Studies Program. Briefing Note 007/11, World Bank, critically important owing to the diversity of behaviors, motivations, Joeri de Wit. Washington, DC. access to information, financing, and other factors. IEA (International Energy Agency). 2012. World Energy Outlook 2012. Plan. In most developing countries, poor planning introduces Live Wire 2014/25. Paris: OECD/IEA. inefficiencies that can take decades to resolve. Systematic energy “Doubling the Rate of ———. 2013. Energy Efficiency Market Report 2013: Market Trends sector planning, integrated resource planning, coordinated infra- Improvement of Energy and Medium Term Prospects. Paris: IEA/OECD. structure planning, and careful land use and urban planning—all Efficiency,” by Jonathan ———. 2014a. World Energy Outlook 2014. Paris: IEA/OECD. are essential and should be accompanied by stringent codes and Sinton, Ivan Jacques, Ashok ———. 2014b. Capturing the Multiple Benefits of Energy Efficiency. standards. Energy sector planning should consider demand-reduc- Sarkar, and Irina Bushueva. Paris: IEA/OECD. tion options as well as new supply, allowing the least-cost energy ———. 2014c. Energy Efficiency Market Report 2014: Market Trends Live Wire 2016/54. development plans to be formulated. Municipalities should empha- and Medium Term Prospects. Paris: IEA/OECD. “Fostering the Development size integrated city planning and urban designs to maximize energy ———. 2015. Energy Efficiency Market Report 2015: Market Trends of ESCO Markets,” by efficiency and improve the quality of life where people work and and Medium-Term Prospects. Paris: IEA/OECD. Kathrin Hofer, Dilip Limaye, live. Examples include increasing density in urban areas, developing World Bank. 2015. “Republic of Turkey: Institutional Review of Energy and Jas Singh. transit corridors, and incorporating mixed-use space. Infrastructure Efficiency.” Washington, DC. planning should be integrated to ensure that implications to the World Bank/IEA (International Energy Agency). 2015. Sustainable Live Wire 2016/55. energy cost and efficiency of other systems (e.g., roads, water, Energy for All: Progress toward Sustainable Energy 2015—Global “Designing Effective National heating, and cooling) are adequately considered. Tracking Framework Report. Washington, DC: World Bank Industrial Energy Efficiency Programs,” by Feng Liu and The task team leader for the Energy Efficiency Outreach activity within the Robert Tromop. World Bank’s Europe and Central Asia region is Kathrin Hofer. That activity is sponsored by the Energy Sector Management Assistance Program, a multidonor technical assistance trust fund administered by the World Bank and cosponsored by 13 official bilateral donors. The authors acknowledge the assistance of the following peer reviewers: Ashok Sarkar (senior energy specialist, GEEDR), Ivan Jaques (senior energy specialist/ESMAP) and Jonathan Davidar (knowledge management officer, GEEDR). 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Once a year, the Energy and Extractives Global Practice takes stock of all notes that appeared, reviewing their quality and identifying priority areas to be covered in the following year’s pipeline. Please visit our Live Wire web page for updates: http://www.worldbank.org/energy/livewire e Pa c i f i c 2014/28 ainable energy for all in easT asia and Th 1 Tracking Progress Toward Providing susT TIVES GLOBAL PRACTICE A KNOWLEDGE NOTE SERIES FOR THE ENERGY & EXTRAC THE BOTTOM LINE Tracking Progress Toward Providing Sustainable Energy where does the region stand on the quest for sustainable for All in East Asia and the Pacific 2014/29 and cenTral asia energy for all? in 2010, eaP easTern euroPe sT ainable en ergy for all in databases—technical measures. This note is based on that frame- g su v i d i n had an electrification rate of Why is this important? ess Toward Pro work (World Bank 2014). SE4ALL will publish an updated version of 1 Tracking Progr 95 percent, and 52 percent of the population had access Tracking regional trends is critical to monitoring the GTF in 2015. to nonsolid fuel for cooking. the progress of the Sustainable Energy for All The primary indicators and data sources that the GTF uses to track progress toward the three SE4ALL goals are summarized below. consumption of renewable (SE4ALL) initiative C T I V E S G L O B A L P R A C T I C E ENERGY & EXTRA • Energy access. Access to modern energy services is measured T E S E R I E S F O R T H EIn declaring 2012 the “International Year of Sustainable Energy for energy decreased overall A KNO W L E D G E N Oand 2010, though by the percentage of the population with an electricity between 1990 All,” the UN General Assembly established three objectives to be connection and the percentage of the population with access Energy modern forms grew rapidly. d Providing Sustainable accomplished by 2030: to ensure universal access to modern energy energy intensity levels are high to nonsolid fuels.2 These data are collected using household Tracking Progress Towar services,1 to double the 2010 share of renewable energy in the global surveys and reported in the World Bank’s Global Electrification but declining rapidly. overall THE BOTTOM LINE energy mix, and to double the global rate of improvement in energy e and Central Asia trends are positive, but bold Database and the World Health Organization’s Household Energy for All in Eastern Europ efficiency relative to the period 1990–2010 (SE4ALL 2012). stand policy measures will be required where does the region setting Database. The SE4ALL objectives are global, with individual countries on that frame- on the quest for sustainable to sustain progress. is based share of renewable energy in the their own national targets databases— technical in a measures. way that is Thisconsistent with the overall of • Renewable energy. The note version energy for all? The region SE4ALL will publish an updated their ability energy mix is measured by the percentage of total final energy to Why is this important ? spirit of the work initiative. (World Bank Because2014). countries differ greatly in has near-universal access consumption that is derived from renewable energy resources. of trends is critical to monitoring to pursue thetheGTF in 2015. three objectives, some will make more rapid progress GTF uses to Data used to calculate this indicator are obtained from energy electricity, and 93 percent Tracking regional othersindicators primary will excel and data sources that elsewhere, depending on their the while the population has access le Energy for All in one areaThe goals are summarized below. balances published by the International Energy Agency and the the progress of the Sustainab respective track starting progress pointstowardand the three SE4ALL comparative advantages as well as on services is measured to nonsolid fuel for cooking. access. Accessthat they modern to are able to energy marshal. United Nations. despite relatively abundant (SE4ALL) initiative the resources and support Energy with an electricity connection Elisa Portale is an l Year of Sustainable Energy for To sustain percentage of by the momentum forthe the population achievement of the SE4ALL 2• Energy efficiency. The rate of improvement of energy efficiency hydropower, the share In declaring 2012 the “Internationa energy economist in with access to nonsolid fuels. three global objectives objectives, andathe means of charting percentage of the population global progress to 2030 is needed. is approximated by the compound annual growth rate (CAGR) of renewables in energy All,” the UN General Assembly established the Energy Sector surveys and reported access to modern universalAssistance The World TheseBank and data are the collected International using household Energy Agency led a consor- of energy intensity, where energy intensity is the ratio of total consumption has remained to be accomplished by 2030: to ensure Management Database and the World of theenergy intium of 15 renewable international in the World Bank’s Global agencies toElectrification establish the SE4ALL Global primary energy consumption to gross domestic product (GDP) energy the 2010 share of Program (ESMAP) relatively low. very high energy services, to double Database. measured in purchasing power parity (PPP) terms. Data used to 1 t ’s Household provides Energy a system for regular World Bank’s Energy the global rate of improvemen and Extractives Tracking Framework Health (GTF), which Organization in the energy intensity levels have come and to double the global energy mix, Global Practice. (SE4ALL 2012). based on energy. of renewable The sharepractical, rigorous—yet energy given available calculate energy intensity are obtained from energy balances to the period 1990–2010 global reporting, Renewable down rapidly. The big questions in energy efficiency relative setting by the percentage of total final energy consumption published by the International Energy Agency and the United evolve Joeri withde Wit is an countries individual mix is measured Data used to are how renewables will The SE4ALL objectives are global, economist in with the overall from renewable energy when every resources. person on the planet has access Nations. picks up a way energy that is consistent 1 The universal derived that isaccess goal will be achieved balances published when energy demand in from energy their own national targets through electricity, clean cooking fuels, clean heating fuels, rates the Bank’s Energy and countries differ greatly in their ability calculate this indicator are obtained to modern energy services provided productive use and community services. The term “modern solutions” cookingNations. again and whether recent spirit of the initiative. Because Extractives Global rapid progress and energy for Energy Agency and the United liquefied petroleum gas), 2 Solid fuels are defined to include both traditional biomass (wood, charcoal, agricultural will make more by the refers to solutions International that involve electricity or gaseous fuels (including is pellets and briquettes), and of decline in energy intensity some t of those of efficiency energy and forest residues, dung, and so on), processed biomass (such as to pursue the three objectives, Practice. depending on their or solid/liquid fuels paired with Energy efficiency. The rate stoves exhibiting of overall improvemen emissions rates at or near other solid fuels (such as coal and lignite). will excel elsewhere, rate (CAGR) of energy will continue. in one area while others liquefied petroleum gas (www.sustainableenergyforall.org). annual growth as well as on approximated by the compound and comparative advantages is the ratio of total primary energy respective starting points marshal. where energy intensity that they are able to intensity, measured in purchas- the resources and support domestic product (GDP) for the achievement of the SE4ALL consumption to gross calculate energy intensity Elisa Portale is an To sustain momentum terms. Data used to charting global progress to 2030 is needed. ing power parity (PPP) the International energy economist in objectives, a means of balances published by the Energy Sector International Energy Agency led a consor- are obtained from energy The World Bank and the SE4ALL Global Energy Agency and the United Nations. Management Assistance agencies to establish the the GTF to provide a regional and tium of 15 international for regular This note uses data from Program (ESMAP) of the which provides a system for Eastern Tracking Framework (GTF), the three pillars of SE4ALL World Bank’s Energy and Extractives on rigorous—yet practical, given available country perspective on Global Practice. global reporting, based has access Joeri de Wit is an will be achieved when every person on the planet The universal access goal heating fuels, clean cooking fuels, clean energy economist in 1 agricultural provided through electricity, biomass (wood, charcoal, to modern energy services The term “modern cooking solutions” to include both traditional and briquettes), and Solid fuels are defined the Bank’s Energy and use and community services. biomass (such as pellets 2 and energy for productive petroleum gas), and so on), processed fuels (including liquefied and forest residues, dung, involve electricity or gaseous at or near those of Extractives Global refers to solutions that overall emissions rates other solid fuels (such as coal and lignite). with stoves exhibiting Practice. or solid/liquid fuels paired (www.sustainableenergyforall.org). liquefied petroleum gas Contribute to If you can’t spare the time to contribute to Live Wire, but have an idea for a topic, or case we should cover, let us know! Do you have something to say? We welcome your ideas through any of the following Say it in Live Wire! channels: Via the Communities of Those working on the front lines of energy and extractives development in emerging economies Practice in which you are have a wealth of technical knowledge and case experience to share with their colleagues but active seldom have the time to write for publication. By participating in the Energy Live Wire offers prospective authors a support system to make sharing your knowledge as easy as and Extractives Global possible: Practice’s annual Live Wire • Trained writers among our staff will be assigned upon request to draft Live Wire stories with series review meeting staff active in operations. By communicating directly • A professional series editor ensures that the writing is punchy and accessible. with the team (contact • A professional graphic designer assures that the final product looks great—a feather in your cap! Morgan Bazilian, mbazilian@ worldbank.org) Live Wire aims to raise the profile of operational staff wherever they are based; those with hands-on knowledge to share. That’s your payoff! It’s a chance to model good uroPe and cenT ral asia 2014/29 all in easTern e ble energy for “knowledge citizenship” and participate in the ongoing change process at the Bank, v i d i n g s u s Ta i n a ess Toward Pro 1 Tracking Progr where knowledge management is becoming everybody’s business. A KNOWLEDGE NOT E SERIES FOR THE ENERGY & EXTRACT IVES GLOBAL PRAC TICE rgy Providing Sustainable Ene Tracking Progress Toward Or 2014/5 1 U n d e r s ta n d i n g C O 2 emissiOns frOm the glObal energy seCt THE BOTTOM LINE pe and Cen tral Asia for All in Eastern Euro stand where does the region on the quest for sustaina ble based on that frame- measures. This note is databases—technical updated version of energy for all? The region SE4ALL will publish an has near-universal access to WhyD is this important? ERGY PRACTICE work (World Bank 2014). E G E N O T E S E R I E S F O R T H E E N to electricity, and 93 percent of A K N O W L g regiona l trends is critical monitoring the GTF in 2015. data sources that the GTF uses to Trackin The primary indicator s and the population has access s of the Sustain able Energy for All the three SE4ALL goals are summari zed below. the progres track progress toward Understanding CO Emissions from the Global Energy Sector nonsolid fuel for cooking. is measured to modern energy services THE BOTTOM LINE to Your Name Here t (SE4ALL) initiativ e Energy access. Access connection despite relatively abundan 2 population with an electricity ional Year of Sustainab le Energy for by the percentage of the access to nonsolid fuels. 2 hydropower, the share the energy sector contributes In declaring 2012 the “Internat objectives percenta ge of the population with establish ed three global and the and reported about 40 percent of global of renewables in energy All,” the UN General Assembly using household surveys Why is this issue important? access to modern These data are collected 2030: to ensure universal and the World Become an author has remained emissions of CO2. three- consumption to be accomplished by of renewable energy in in the World Bank’s Global Electrification Database high energy knowledge the share of the 2010 . energy requires very relatively low. Mitigating climate change services, to 1 double ld Energy Database quarters of those emissions rate of improvement Organization’s Househo CO2 intensity levels have come and to double the global Figure 1. CO2 emissions Health Figure 2. energy-related The share of renewable energy in the energy come from six major the global energy mix, sources of CO question s2 emissions to the period 1990–201 0 (SE4ALL 2012). by sector Renewab le energy. emissions by country consumption down rapidly. The big economies. although coal-fired in energy efficiency relative countries setting percenta ge of total final energy mix is measured by the of Live Wire and global, with individual LICs evolve les will opportunities to cut emissions of greenhouse aregases used to plants account for just are how renewab Identifying The SE4ALL objectives le energy resources. Data 0.5% picks upunderstanding of the main sources ofin those a way that is consistent with emis- the overall that is derived from renewab energy balances published 40 percent of world energy when energy demand requires a clear their own national targets in their ability are obtained from calculate this indicator Other Carbonrates for more than 80 percent of differ greatly countries Residential production, they were again and whethersions.recent dioxide (CO2) accounts spirit of the initiative. Because 6% sectors progress Other MICs nal Energy Agency and the United Nations. will make more rapid 15% intensity gas emissions globally, 1 primarily from the burning s, some 10% by the Internatio China improvement of energy efficiency is contribute to your responsible for more than of decline in energytotal greenhouse to pursue the three objective on their Other HICs . The rate of energy sector—defined include toexcel elsewhere, depending Energy efficiency 30% growth rate (CAGR) of energy will continue. of fossil fuels (IFCC 2007). The will 8% in one area while others by the compound annual Energy 70 percent of energy-sector as well as on 41% approxim and heat generation—contributed and compara tive advantages 41 ated Japan 4% energy the ratio of total primary Industry emissions in 2010. despite fuels consumed for electricity respective starting points 20% Russia energy intensity is that they are able to marshal. in 2010 (figure 1). Energy-related intensity, where USA product (GDP) measured in purchas- improvements in some percent of global CO2 emissions the resources and support 7% gross domestic practice and career! up the bulk of such ent of the SE4ALL Other consump tion to India 19% intensity is an at the point of combustion make for the achievem calculate energy countries, the global CO2 Elisa 2 emissions COPortale To sustain momentum transport Road 7% EU terms. Data used to andinare generated by the burning of fossil is needed. global progress to 2030 6% transport fuels, industrial ing power parity (PPP) the International economist objectives, a means of charting balances published by emissions 11% emission factor for energy energy 16% EnergyandSector nonrenewable municipal waste to generate nal Energy Agency led electricity Internatio a consor- are obtained from energy The World Bank and the thewaste, generation has hardly changed United Nations. ent Assistance venting and leakage to establish the emissions SE4ALL Global Energy Agency and the sector at the point and over the last 20 years. and heat. Black carbon and methane Managem tium of 15 international agencies Notes: Energy-related CO2 emissions are CO2 emissions from the energy from the GTF to provide a regional of the for regular This note usesanddata domestic Program (ESMAP) are not included in the analysis presented in this rk note. which provides a system (GTF), of combustion. Other Transport includes international marine aviation bunkers, of SE4ALL for Eastern Extractives Tracking Framewo available Other Sectors rail and pipeline transport; perspect ive on the three include pillars commercial/public World Bank’s Energy and given aviation and navigation, country on rigorous—yet practical, services, agriculture/forestry, fishing, energy industries other than electricity and heat genera- Global Practice. global reporting, based elsewhere; Energy = fuels consumed for electricity and Where do emissions come from? tion, and other emissions not specified as has in the opening paragraph. HIC, MIC, and LIC refer to high-, middle-, access Joeri de Wit is an will be achieved when on the planet heat generation, every person defined The universal access goal of countries heating fuels, energy economistare Emissions concentrated in 1 in a handful to modern energy services provided through electricity, fuels, clean and low-income clean cooking countries. cooking solutions” to include both traditional biomass (wood, charcoal, agricultural The term “modern Source: IEA 2012a. Solid fuels are defined and briquettes), and the Bank’s Energy and use and community services. biomass (such as pellets 2 and come primarily from burning and energy coal for productive electricity or gaseous fuels involve (including liquefied petroleum gas), of and forest residues, dung, and so on), processed Vivien Foster is sector Extractives Global refers to solutions that overall emissions rates at or near those other solid fuels (such as coal and lignite). with stoves exhibiting or solid/liquid fuels paired emissions closely manager for the Sus- The geographical pattern of energy-related CO Practice. gas 2 (www.sustainableenergy forall.org). liquefied petroleum middle-income countries, and only 0.5 percent by all low-income tainable Energy Depart- mirrors the distribution of energy consumption (figure 2). In 2010, ment at the World Bank countries put together. almost half of all such emissions were associated with the two (vfoster@worldbank.org). Coal is, by far, the largest source of energy-related CO2 emissions largest global energy consumers, and more than three-quarters globally, accounting for more than 70 percent of the total (figure 3). Daron Bedrosyan were associated with the top six emitting countries. Of the remaining works for London This reflects both the widespread use of coal to generate electrical energy-related CO2 emissions, about 8 percent were contributed Economics in Toronto. power, as well as the exceptionally high CO2 intensity of coal-fired by other high-income countries, another 15 percent by other Previously, he was an power (figure 4). Per unit of energy produced, coal emits significantly energy analyst with the more CO emissions than oil and more than twice as much as natural 2 World Bank’s Energy Practice. Gas Inventory 1 United Nations Framework Convention on Climate Change, Greenhouse 0.php gas. Data—Comparisons By Gas (database). http://unfccc.int/ghg_data/items/380