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04/19/23 Transatlantic Energy Efficiency1
Linking green stimulus, energy efficiency and technological innovation:
The need for complementary policies
Edward B BarbierDepartment of Economics & FinanceUniversity of Wyoming
04/19/23 Transatlantic Energy Efficiency2
Outline
An overview and analysis of 2008-9 global green stimulus, especially low carbon and energy efficiency (LC/EE) measures.
A review of the key barriers to extending the cost-effective energy efficiency elements of current green stimulus packages into a long-term strategy.
A discussion of the additional complementary pricing policies and programs, such as carbon pricing, emissions policies, further regulations, subsidy removal, etc., necessary for this strategy.
An assessment of the additional challenges facing and assistance required for emerging market economies, e.g. development assistance, reform of the Clean Development Mechanism (CDM), and the need for an emerging global carbon market.
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Green stimulus
Green stimulus is measured in terms of the additional fiscal commitments made by national governments during the 2008-9 recession in the form of spending plans or tax breaks.
Three broad categories of support: Energy efficiency - Support for energy conservation in buildings;
fuel efficient vehicles; public transport and rail; and improving electrical grid transmission.
– Low carbon power - Support for renewable energy (geothermal, hydro, wind and solar), nuclear power, and carbon capture and sequestration.
– Water, waste and pollution control – Support for water, waste and pollution management and control, including water conservation, treatment and supply.
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Overview of green stimulus in 2008-9
Of the $3.3 trillion allocated worldwide to fiscal stimulus over 2008-9, $522 billion was devoted to green expenditures or tax breaks (see Table 1 and Annex 1).
Almost all was by G20 governments. Globally, green spending amounted to just under 16% of total
fiscal stimulus and 0.7% of world GDP. Support for energy efficiency was a prominent component of
most green stimulus packages, amounting to $335 billion over 2008-9, or nearly two thirds of all green spending globally.
Total Green Stimulus Spending by Country ($bn)
514.3
218.0
117.7
59.9
43.3
22.8
13.8
9.9
9.5
6.2
5.8
0 100 200 300 400 500 600
Global total
China
United States
South Korea
Japan
European Union
Germany
Australia
Saudi Arabia
France
United Kingdom
04/19/235 Transatlantic Energy Efficiency
Green Stimulus as a Share of Total Fiscal Stimulus
15.8%
78.7%
58.7%
33.6%
31.0%
22.7%
18.2%
16.3%
13.2%
12.0%
10.7%
0% 10% 20% 30% 40% 50% 60% 70% 80% 90%
Global share
South Korea
European Union
China
Norway
Australia
France
United Kingdom
Germany
United States
South Africa
04/19/236 Transatlantic Energy Efficiency
Green Stimulus as a Share of Gross Domestic Product (GDP)
0.7%
5.0%
3.1%
1.7%
1.3%
1.3%
1.0%
0.9%
0.5%
0.4%
0.3%
0.0% 1.0% 2.0% 3.0% 4.0% 5.0%
Global share
South Korea
China
Saudi Arabia
Australia
Sweden
Japan
United States
Germany
Norway
France
04/19/237 Transatlantic Energy Efficiency
Total Energy Efficiency Spending by Country ($ bn)
327.9
182.4
58.3
29.1
15.2
13.8
9.6
6.5
5.1
4.9
4.2
0 50 100 150 200 250 300 350
Global Total
China
United States
Japan
South Korea
Germany
European Union
Australia
France
United Kingdom
Sweden
04/19/238 Transatlantic Energy Efficiency
Energy Efficiency as a Share of Green Stimulus
83%
64%
56%50%
42%
30%25%
0%0%0%
51%
84%84%88%
100%100%100%100%100%100%100%100%
65%67%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Austria
Belgium
German
yIndia
Israe
lIta
ly
Mexico
Swed
en
South Afri
ca
United K
ingdom
China
France
Japan
Australi
a
Global sh
are
Norway
Canad
a
United S
tates
Euro
pean U
nion
Indones
ia
South Ko
rea
Poland
Saudi A
rabia
Spain
04/19/239 Transatlantic Energy Efficiency
59.943.3
22.8 13.8 9.9 9.5 6.2 5.8
218.0
117.7
58.3
182.4
15.229.1
9.60
50
100
150
200
250
China
United St
ates
South KoreaJapan
European Union
Germany
Australia
Saudi A
rabiaFran
ce
United Kingdom
Green Stimulus ($ bn) Energy Effi ciency ($ bn)
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Relative Impacts of a US Green Recovery Program (per $ billion spent)
11
Program objectiveSpeed of
Implementation EmploymentEnergysavings
Energy security
Climate change
How quickly the money gets spent
Job-years created
Long-term energy cost reductions
Reductions in US oil imports
Direct emission
reductionsEnergy efficiencyHousehold weatherization Weatherize 377,000 homes High Moderate Low Moderate Moderate
Federal building retrofits Reduce Federal energy consumption by 8 trillion BTU
High Moderate Moderate Very low Moderate
Green school construction Improve efficiency of all new schools by 33%
Moderate Moderate High Very low High
Hybrid tax credit Additional purchases of 190,000 hybrids
Moderate Low Very low Very low Very low
Cash for clunkers 500,000 vehicles traded in Moderate Very high Moderate Moderate HighMass transit Decrease vehicle-miles traveled
by 18 million/yearHigh High Very low Moderate Very low
Smart metering Install smart meters on 4.4 million homes
Moderate High Very high Low Low
Low carbon powerProduction tax credit extension
1,500 megawatts of additional wind generation capacity
Low High High Low High
Investment tax credit increase
300 megawatts of additional solar power
Low High Low Very low Low
Carbon capture and storage demo projects
Fund the CCS component of a 500 MW demo project
Very low Moderate Low Very low Moderate
research and development Develop next generation battery technology
Very low Moderate Very high Very high Very high
Conventional stimulus programsTax cuts Increase consumer spending by
$333 millionVery high Very low -- -- --
Road investment Increase vehicle-miles traveled by 11 million/year
High Moderate Negative Negative Negative
Source: Robins et al. (2010).Notes: e = Estimated.
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ARRA Clean Energy Programs (through 12/31/09)
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Funds($ mn)
Outlaysa
($ mn)
Direct and indirect
jobs createda
Total jobs createda,b
Total job-years through
2012c
Energy efficiency 19,935 1,162 12,100 14,500 179,000Grid modernization 10,453 72 800 1,000 80,600Advanced vehicles and fuels 6,142 450 4,700 5,800 37,000Transit and high-speed rail 18,113 1,805 18,900 22,900 158,200Total energy efficiency 54,643 3,489 36,500 44,200 454,800Renewable generation 26,598 1,479 13,200 16,900 192,00Carbon capture and sequest. 3,400 4 -- 100 26,500Green innovation and training 3,549 123 1,500 1,700 32,200Clean energy equipment manuf. 1,624 14 200 200 9,500Other 408 12 200 200 3,700Total clean energy(energy efficiency share, %)
90,222(60.6%)
5,121(68.1%)
51,700(70.6%)
63,200(69.9%)
719,600(63.2%)
Source: Strand and Toman (2010, Table 5.1).
Type of effect
Program Short-term stimulus
Long-term growth
Greenhouse gas reductions
Environmental improvement
Energy efficiency retrofits High Medium Medium Medium
Energy efficiency improvements in new capital
Low/Medium Low/Medium High Medium/High
Green transport infrastructure
Low/Medium Low Medium/High Medium/High
Cash for clunkers Medium Low Low Low/Medium
Power grid expansion Low Medium/High Low/Medium Variable
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Barriers to Implementing Cost-Effective Energy Efficiency Policies (Adapted from Jollands et al. 2010)
Category Barrier Key problem associated with barrier Necessary condition
Information and behavioral barriers
Price distortion Costs associated with energy and incumbent technologies may not be included in their prices; energy and incumbent technologies may be subsidized
Remove price distortions and subsidies; apply appropriate market-based instruments.
Information Information on availability and nature of an energy efficient product is not easily available or accessible at time of investment
Improve accessibility and availability of information on energy efficient products.
Transaction costs Perceived costs involved in making a decision to purchase and use equipment outweigh perceived benefits.
Reduce transaction costs,
Bounded rationality Constraints on time, attention, and the ability to process information lead consumers to make less efficient and sub-optimal decisions
Reduce the constraints on consumers' decisions.
Market organization barriers
Finance The initial cost of a project may be higher than the finance threshold; poor or constrained access to funds.
Enhanced access to finance.
Inefficient market organization
Principal agent problems; established companies may have market power to guard their positions.
Enhanced access to finance; better market organization; better designed policies
Poor regulation at national or international level
Regulations and codes not keeping pace with development or leading to inefficient outcomes.
Improved regulatory framework, standards and implementation
Technological barriers Capital stock turnover rates
Sunk costs; tax rules or regulations that encourage long depreciation; inertia
Improve incentives to invest in energy efficient new capital
Uncompetitive market pricing and practices
Failure to benefit from scale economies, learning by doing, technological diffusion
Regulation and reform of uncompetitive pricing practices; improve scale economies, learning by doing and technological diffusion.
Technology and skill-specific barriers
Lack of familiarity with energy efficient technology or insufficient human skills for that technology
Enhance skills and technical know-how.
15
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The role of complementary policies
Economy-wide pricing and regulatory policies – e.g., carbon pricing, direct emissions policies and energy efficiency resource standards.
Removal of fossil fuel subsidies - eliminates perverse incentives in energy markets and provides an immediate source of financing for long-term energy efficiency strategies.
Prescriptive and targeted incentive programs – e.g., targeted subsidies and rebates, efficiency standards, tradable white certificates.
Behavioral nudging – Non-priced based behavioral interventions, such as home energy-use reports, information on energy-efficient products, energy efficiency promotions, etc.
Combined/improved design of energy efficiency programs - E.g., combining energy efficiency house weatherization and other programs with low-cost mortgage provision for poor households; combining energy efficiency and smart grid programs.
Assistance to developing countries
Many developing economies face a serious “capital gap” in private and public financial investments that will constrain them from implementing a long-term energy efficiency strategy.
Most developing economies lack even the minimum R&D capacity and skilled workforce capable of attracting the transfer of many energy efficiency and low-carbon innovations.
There is also the need for a stable regulatory framework for investment in the developing economy, favorable market conditions and incentives, and reduced uncertainty regarding the long-term price signal for carbon .
04/19/23 Transatlantic Energy Efficiency17
Reform of the Clean Development Mechanism
CDM projects tend to be concentrated in a handful of large emerging market economies (e.g. China, India, Brazil and Mexico).
Most of the expected certified emission reduction (CER) credits earned by 2012 are from mainly large-scale projects (e.g., GHG capture and incineration, renewable electricity generation, fuel switching, reducing transmission losses); energy efficiency is poorly represented.
The scale of the mechanism needs to be increased significantly to deliver greater finance and emission reductions globally.
Scaling up requires more simple technological benchmarks for approval, which would also facilitate energy efficiency projects.
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Conclusions
Energy efficiency measures were prominent in fiscal stimulus spending during the 2008-9 recession.
Those energy efficiency elements with the highest net benefits should form the basis for a long-term strategy.
However, the effectiveness of the strategy in overcoming key barriers will require complementary policies.
Developing economies will require additional assistance to overcome critical skills, technological and capital gaps.
Reform of the CDM is necessary to establish a long-term global carbon price and promote energy efficiency in the developing world.
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