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1.
Energy and sustainable development
5. Policy options for promotion of energy efficiency investments
References
Affordable and clean energy is a precondition for all economic
activities and sustainable development. Ever since the industrial
revolution global energy production and consumption has been on
the rise. In 1996, global annual consumption of commercial energy
amounted to 8,380 mtoe. During the 1990s, global commercial energy
consumption was estimated to have grown on average by about 2.3
per cent per year, and there are all the reasons to project a
continued and perhaps accelerated rate of global energy consumption
growth in the future.
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The industrial sector is very diverse and involves a wide range
of activities including the extraction of natural resources, conversion
into raw materials and manufacture of finished products. Energy
intensity in manufacturing tends to differ from country to country
depending on indigenous resource endowment and local energy prices.
The five most energy intensive industrial sub-sectors include
iron and steel, chemicals, petroleum refining, pulp and paper,
and cement production. These sections account for approximately
45 per cent of all industrial energy consumption.
China
and India have been experiencing a rapid expansion in energy-intensive
industries. Since the beginning of the 1990s China alone accounts
for nearly half of total developing country manufacturing energy
use. The rapid expansion of heavy industries has been the basis
for China's growing prosperity.
In order to promote energy conservation or efficient use of energy
in industries, we may think of three different steps or levels:
top Improvement
of energy efficiency by replacement of selected equipment involving
medium-size investment costs may be through :
Major industrial process modifications involving large scale investment
include
Following is a brief listing of some of the main energy efficiency technologies for industry: In combustion equipment, fuel efficiency can be improved through (a) automatic combustion control systems; (b) efficient burners; (c) flue gas heat recovery. In heat utilization and heat recovery facilities, energy efficiency can be improved through (a) high efficiency heat exchangers; (b) improvement of heat insulation; (c) improved coating on the inside of furnaces; (d) micro-wave heating; (e) heat pattern control; (f) high efficiency steam traps; and (g) heat pumps. The use of co-generation technology and absorption chillers are also important energy efficiency improvement measures in industry.
Efficient use of electricity in industry can be achieved through high-efficiency motors, high-efficiency transformers; variable speed controls; automatic power factor controls; and demand control. In some industries, modifications or improvements in lighting also offer considerable energy savings. Efficient lighting facilities include utilization of high pressure sodium lamps; metal halide lamps and automatic lighting control. Several recent studies that have assessed the technical potentials of energy efficiency improvements in some of the energy intensive sub-sectors concluded that energy savings of up to 30, 40 or even 50 per cent are technically possible in many industries and many countries. Not all energy savings that are technically possible are also economically viable. However, if it is assumed that approximately half of the fore mentioned saving potentials are both technically and financially sound, then comprehensive saving and conservative potentials could be realized. top
The two major types of barriers include those that are related
to or have a bearing on the assessed profitability of an investment,
and other barriers, which may include barriers of a more of psychological
type.
Considerable number of studies have dealt with the question of
how much profit investors are looking for before making an investment
decision. Most of such studies suggest that energy efficiency
investments that can be recovered in a short period of time are
likely to be supported and implemented by management. On the other
hand, investments which require five years or longer as a pay-back
period may get the approval of very few managers only. As it stands,
most energy efficiency retrofit projects require comparatively
longer period to recover the investment costs and are therefore
not regarded as "high priority" issues "requiring urgent action".
In
many countries, particularly in developing countries, energy prices
often do not reflect the real and full costs of energy, as energy
supply establishments are often quasi-government entities and
thus receive direct or indirect subsidization. Energy pricing
policies obviously have an immediate bearing on the viability
of energy efficiency investments. In countries, in which energy
prices are subsidized, under-investment in energy efficiency occurs.
Capital
availability, capital costs, uncertainty and risks are further
important factors, which directly determine the feasibility of
energy efficiency investments. Developing country investors procuring
equipment from industrialized countries may have to bear the foreign
exchange risks during any loan repayment period.
In many countries, access to and relative costs of external financing
are an important barrier preventing potential investments. Information
and transaction costs must also be taken into consideration as
they are often important impediments to energy efficiency investments.
In some countries, access to foreign currency is controlled or
restricted. In these countries the import of energy efficient
technologies may not be a viable option.
Implementation of any measure of industrial manufacturing process
modification may imply a temporary halt to production. Factory
managers may prefer to avert such extra costs or complications.
In some developing countries direct or indirect taxation is sometimes
high, especially for imported goods. High taxes can increase the
first cost differentials between efficient and inefficient products,
and thus add further disincentive to energy efficiency investments.
Lack of human resources development in the area of energy efficiency
affects energy conservation related activities in industries,
especially in small scale industries of the developing countries.
The rate of return on energy efficiency investments is often seen
as too low and their influence on product cost or operational
expenses may be regarded as marginal. Investors are often observed
to prefer items that increase the quality of the product, increase
productivity or contribute to comfort. Vendors of energy efficient
technologies face the problem that energy savings cannot always
be easily measured. The "invisibility" of the impacts of energy
efficiency measures makes it sometimes difficult for vendors to
convince their potential clients in the industrial sector.
Finally, there are also psychological factors affecting investment
decisions on energy efficiency. These aspects include 'general
aversion of perceived risks' involved in 'unknown', 'new' or 'not
yet sufficiently proven' technologies.
Markets are a powerful and fundamental force in wide-scale implementation
of energy efficiency. Subsidies that depress prices of energy
can provide a significant disincentive for energy efficiency investments.
The removal of this barrier can be seen as an important step towards
creating an investment climate in which energy efficiency can
prosper. Governments
have at their disposal a variety of instruments such as tax credits
or subsidized or low-interest loans through which energy efficiency
improvements can be promoted. Part three of this publication presents
several country studies that demonstrate the use of economic instruments
for promotion of energy efficiency.
In
addition to the economic instruments, there are also a variety
of other tools for the promotion of energy efficiency. These other
tools include regulatory measures, such as energy conservation
laws, prescribing mandatory or voluntary minimum measures for
efficient energy management in industries and minimum energy efficiency
standards. Another tool to promote energy efficiency without mandatory
regulations are "voluntary agreements". Furthermore, emission
controls or environmental standards may also be found to "enforce"
some forms of energy efficiency investments.
Programmes such as energy manager training or training in energy
audits have a leading role in promoting energy efficiency investments
the long term perspective.
top 1. BP Amoco Statistical Review of World Energy, June 1999
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