2. The project: aims, objectives, hypotheses and
methods
2.1 BACKGROUND AND AIMS
Debate about the existence or otherwise of an energy efficiency ‘gap’ has gained in prominence
following the search for 'no-regrets' measures to mitigate climate change. The gap refers to a
divergence between either socially or privately optimal levels of investment in energy efficiency
and the levels actually seen in practice. The origins of the gap are claimed to lie in a series of
barriers, such as lack of capital, lack of information or hidden costs, which prevent markets for
energy and energy-using technologies from operating efficiently.
Technologically oriented analysts see a range of unexploited opportunities for cost-effective
investment in energy efficiency. Bottom-up models, using detailed information on energy-using
equipment, suggest that profitable investments with pay-backs as short as one year are frequently
overlooked. This is claimed to demonstrate the shortcomings of the market mechanism and to
legitimate public intervention to overcome barriers. In opposition to this, many economists claim
that markets for energy and energy-using technology are broadly efficient. If consumers or
organisations are employing high discount rates they may be responding rationally to high risk
investments, or there may be a range of ‘hidden costs’ of technology adoption which are not
captured by bottom-up models. This perspective is supported by the results of econometric, or
top-down, models which suggest a much smaller efficiency gap. These models are based upon
price and income elasticities estimated from historical data sets, which are argued to implicitly
incorporate complex behavioural factors such as the response to hidden costs.
The IPCC second assessment report generated a profusion of modelling studies together with
reflections on methodology (Haites and Rose, 1996). Debates have been conducted in conferences
of the International Association of Energy Economics (IAEE) and within the Stanford
University’s Energy Modelling Forum (EMF) (Huntington et al, 1994). These have led to some
clarification of the conceptual issues underlying the debate and helped bring the two sides closer
together. However, it is recognised that the detailed empirical work which would help resolve the
issue is still lacking (Jacaard and Montgomery, 1996).
In this context, the aim of the BARRIERS project is to assess the validity of the following claims:
• there are a large number of highly cost effective opportunities to improve energy efficiency
that are not being exploited;
• the reason for this is the existence of a wide range of barriers such as lack of information on
energy saving opportunities;
• the existence of these barriers legitimates public policy intervention.
The project achieves this through a detailed examination of the process of energy decision making
within a range of public and private sector organisations. Throughout the project, there are two
aspects of these organisations’ behaviour that require explanation:
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1. Why do organisations impose such stringent investment criteria for energy efficiency projects
(e.g. two year paybacks)? Or alternatively, why are energy efficiency projects required to have
rates of return that greatly exceed the cost of capital to the organisation?
2. Why do large numbers of energy efficiency investments that apparently meet these criteria
continue to be neglected by organisations?
Barriers are interpreted as explanations for both these observations and hence as obstacles to both
energy efficiency and economic efficiency.
A primary objective of the project is to link empirical results to systematic and well articulated
theoretical framework. To this end, the concept of a barrier is elaborated using ideas from
economics, behavioural theory and organisational theory. The validity of these ideas are then
tested using a case study methodology in a number of specific, but representative, situations.
2.2 SPECIFIC OBJECTIVES
The specific objectives of the project are:
• To determine whether such barriers exist, what form they take, and their relative importance in
different contexts. The nature of barriers may be expected to vary between different sectors,
energy using technologies and organisational frameworks.
• To assess whether the primary reason for not exploiting cost effective opportunities is the
existence of true market failures such as may derive from the public good attributes of
information, or whether it represents a rational response to either the financial risk associated
with energy saving investment or the existence of real but ‘hidden’ costs. The distinction is
important, since while the former may legitimate public policy intervention to improve
economic efficiency, the latter may not.
• To assess the effectiveness of different policy measures for delivering energy efficiency
improvements. It is assumed that the effectiveness of different measures will depend upon the
nature of the barriers that are being addressed. Three types of measure are considered: a) the
measures that can be taken by individual organisations; b) the measures that can be taken by
sector bodies such as trade associations; and c) public policy measures to encourage energy
efficiency.
• To assess the scope for energy service companies (ESCOs) to overcome the identified barriers.
The scope for ESCOs will vary considerably between different organisations, but they may be
particularly appropriate in the context of liberalising energy markets.
2.3 RESEARCH QUESTIONS AND HYPOTHESES
The project employs a qualitative, case study methodology to achieve these objectives (Yin,
1994). The main elements of the research designed are summarised below.
2.3.1 Research questions
The primary research questions are:
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• To what extent is investment in cost effective energy efficient technologies inhibited by
various types of barrier?
• What is the relative importance of each type of barrier and how does this vary between
different countries, sectors and energy using technologies?
• What is the relative importance of the following three categories of barrier:
• market failures in the market for energy services;
• organisational failures in the conduct of energy management by an organisation; and
• hidden costs, risk and other factors which are difficult to include within energy models
but which may make the neglect of investment opportunities a rational decision?
• Can the 'efficiency gap' be explained using the standard rational actor model, or does the
limited human capacity for processing information introduce a significant additional barrier?
• Can the 'efficiency gap' be explained using economic models, or are insights from behavioural
and organisational theory necessary?
• How effective will different forms of policy measure be in overcoming the identified barriers?
• Which policy measures would be most appropriate for organisations in the sectors and
countries studied?
2.3.2 Hypotheses
The relevant hypotheses relate to the existence and mode of operation of different types of barrier.
For example:
• The reason organisations do not invest in energy efficient technologies is that there are a series
of hidden costs, such as management time and production disruptions, that prevent such
investments from being cost effective.
• The reason organisations do not invest in energy efficient technologies is that they lack
information on the energy performance of different technologies. The transaction cost of
obtaining such information would prevent the investment from being cost effective.
The taxonomy of barriers developed in section 3 of this report provides the basis for these and
further hypotheses.
2.3.3 Unit of analysis
The primary unit of analysis is the process of energy decision making within energy using
organisations. In particular, the project focuses on decisions made in respect of a number of
energy efficient technologies that are widely regarded as available, reliable and cost effective. An
appropriate list of energy efficient technologies is developed for each of the sectors studied
(Annex 4).
The nature of the organisations’ relationships with other actors, such as equipment suppliers and
energy service companies (ESCOs), is also studied. However, this is secondary to the main focus
on decision making within the organisation. Supplementary research is also conducted on the
ESCO market within each country.
The project uses multiple case studies, where each case is a single, energy-using organisation in
one of the chosen sectors.
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2.3.4 Concepts
The primary concept used in the study is that of a barrier. A barrier is a postulated mechanism
whose outcome is an organisation’s neglect of (apparently) cost effective energy efficiency
opportunities. A wide range of barriers are postulated using ideas from a number of theoretical
traditions. For such ideas to be useful the concepts must be specific and coherent. The project
aims to achieve this through a comprehensive literature review and systematic classification.
2.3.5 Measuring concepts
The research aims establish whether such barriers exist and their mode of operation. A primary
tactic is to use multiple sources of evidence and look for replication and corroboration in this
evidence (Yin, 1994). The main source of evidence is semi-structured interviews with a number
of individuals from each case study organisation (e.g. energy manager, financial manager,
maintenance manager etc.). This interview programme is supplemented by:
• a pre-interview questionnaire, including questions about the adoption of specific technologies;
• documentary evidence on the energy performance of each organisation - compared with sector
benchmarks where available;
• documentary evidence on energy efficiency opportunities, the specific context of each sector,
relevant policy initiatives and related issues;
• interviews with sector specialists, such as trade organisations and government agencies; and
• interviews with energy service companies.
The data is primarily qualitative. The project does not use statistical methods and the cases are not
intended as a statistically significant sample of a population. Instead, the primary aim is to
establish causality - linking observed patterns to theory.
2.4 THE FIELD OF INQUIRY
2.4.1 Sectors and organisations
The project focuses on energy efficiency in private and public sector organisations where there is,
in principle, an overtly economic approach to decision-making. Three broad classes of
organisation are examined:
• Industries with modest process energy use: This is designed to address process energy uses
which are highly specific either to the sector or to a given firm. The brewing industry is
selected as exemplary of this class of organisation;
• Light industry - This largely makes use of generic energy-using technologies, such as
mechanical drives, heating and lighting. The mechanical engineering industry is selected as
exemplifying this class of organisation.
• Public sector organisations - Here, energy use is largely generic but distinctive decisionmaking frameworks are in place and the availability of capital is constrained by public policy.
Higher education institutions are selected as exemplifying this class of organisation.
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In all cases, energy forms a relatively small proportion of the organisation’s total costs. In this
context, energy is easily neglected by management as they have other priorities. However, a
range of studies have suggested that many cost effective opportunities to improve energy
efficiency are available in these sectors. Furthermore, these type of sectors account for a very
large proportion of total final energy demand in Member States. If climate change targets are to
be achieved, significant improvements must be achieved in the energy efficiency of these and
similar sectors.
Energy intensive sectors (e.g. chemicals, steel) are not covered in the project because: a) energy
decisions are often site-specific and strategic; b) energy forms a large proportion of total costs and
therefore gains significant management attention; and c) energy use is highly process-specific.
The project includes supplementary research on the scope for energy service companies (ESCOs)
in each country. An ESCO contracts with a host company to supply heat and power at least cost.
This may involve investment in boiler equipment, self generation and energy efficiency. By
offering guaranteed supplies of heat and power at a discount on present and projected costs an
energy service contract allows the host company to lower risk, avoid capital expenditure,
minimise transaction costs with the use of a ‘one-stop shop’, and concentrate attention on the core
business. As a consequence, an ESCO may be able to overcome range of barriers to energy
efficiency.
2.4.2 Member States
The empirical work is conducted in the UK, Ireland, and Germany. These countries have
diverse approaches to both energy supply and environmental policy. The UK and Ireland form
two ends of a spectrum in terms of the degree of energy market liberalisation, while Germany and
Ireland contrast strongly in the severity of their reduction targets for CO2 emissions. The policy
instruments used to encourage energy efficiency also vary widely between each country, with
differing emphases being given to information campaigns, energy taxation, negotiated
agreements, investments subsidies and support for energy audits.
The research aims to identify both similarities between energy-using organisations in the three
Member States and also differences resulting from the structure of the sector in each country,
political culture, organisational culture, the relevant policy framework and other factors.
2.4.3 Choice of case studies
A total of 46 energy using organisations are studied - 4 to 7 organisations per sector per country
(Table 2.1).
Table 2.1 Number of organisations studied in each country and sector
Sector
Higher education
Brewing
Mechanical engineering
Total
UK
6
5
5
16
Ireland
5
5
7
17
7
Germany
6
5
4
15
Total
15
15
16
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In the original research design, the aim was to achieve comparability between the organisations
selected as case studies in each country (matched groups). However, this proved to be impossible
for a number of reasons. For example, the Irish context provided severe constraints on what
could be chosen as it had few large mechanical engineering firms and no small breweries. Thus,
instead of comparability, emphasis was given to obtaining a representative selection of
organisations in each country. The organisations were chosen according to the broad criteria
summarised in Table 2.2.
Table 2.2 Criteria for case study selection
Higher
education
Breweries
Mechanical
engineering
•
•
•
•
•
•
•
•
•
•
•
at least one campus university;
at least one metropolitan university;
at least one small university (utilities bill <£1m/year);
at least one large university (utilities bill >£2m/year);
at least one large brewery (>1500 th hl/year);
at least one small brewery (<100 th hl/year);
at least one brewery owned by a major company;
at least one independent brewery;
at least one large firm (>500 employees)
at least one small firm (<250 employees)
at least one firm that is a subsidiary of a larger multinational
2.5 THE WORK PROGRAMME
The research was conducted in four stages: i) background & context; ii) preparation for data
collection; iii) data collection; and iv) analysis of results. These are briefly described below.
2.5.1 Background & context
The first stage was to characterise the existing policy environment for energy supply and the
provision of energy services within each country, together with the technical and economic
situation of the case study sectors. This assessment served as essential background to the
empirical research. There were three tasks:
• Characterisation of the policy environment: A review of the structure and characteristics of
energy markets in each country and the form and impact of any relevant policy measures that
promote energy efficiency. During the conduct of the project each country was developing
strategies to meet their obligations under the Kyoto Protocol so climate policy was in a state of
flux.
• Characterisation of the case study sectors: An analysis of the case study sectors within each
country in terms of: size, ownership and market share; technologies employed; recent
economic performance; technological and market trends; policy influences; and the prospects
for growth or contraction.
• Assessment of energy efficiency opportunities: A review of the typical energy use of
organisations in the case study sectors and the potential for cost effective efficiency
improvement. This included the identification of a list of relevant energy efficient technologies
(Annex 4).
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2.5.2 Preparation for data collection
The second stage was to develop concepts, procedures and protocols for conducting the empirical
research. This broke down two tasks:
• Taxonomy of barriers and measures: Development of a taxonomy of barriers to energy
efficiency together with the definition of quantitative or qualitative measures for each concept
suitable for case study research. For example, measures for hidden costs could include
estimates of the cost of managerial input, or perceptions of the importance of production
disruptions in preventing efficiency improvements.
• Designing the interview protocol: Development of standardised interview protocols for
structuring the interview programme within each case study organisation and within ESCOs.
The purpose of the protocols was to ensure commonality of approach between the country
teams and to maximise the amount of information obtained from each interview. The
protocols were based on the relevant measures for each type of barrier identified in the
taxonomy.
2.5.3 Data collection
Data collection formed the bulk of the empirical research and involved three tasks.
• Case study selection and preliminary data collection: The identification of suitable case study
organisations in each country and sector, together with preliminary data collection. The cooperation of individual companies was gained with the assistance of relevant trade
associations. Once co-operation had been agreed, the energy manager or equivalent in each
organisation was asked to complete a brief questionnaire. This contained questions on energy
consumption, energy management practices and the adoption of specific technologies.
• Case study research: The conduct of interview based case study research in 5-7 organisations
per sector per country. Interviews were conducted on site with one or more members of staff
from each organisation, including the energy manager or equivalent. Each interview was semistructured and based around detailed protocols. Follow up telephone interviews were also
used as a means of resolving ambiguities or seeking additional information.
• ESCO research: The conduct of a small number of additional interviews with energy service
companies (ESCOs) to assess the current size of the market and their potential for overcoming
barriers to energy efficiency.
2.5.4 Analysis
The final stage was to analyse the results from each country and sector to produce a total of nine
country/sector reports. The reports are developed to a common format, and include a
characterisation of the sector, descriptions of the individual case studies, a discussion of the
evidence for different types of barrier, and an assessment of policy implications. The reports
include both a description of energy management practices in each organisation and a linking of
these observations to the theoretical framework. Individual barriers are identified as being of
either high, medium or low importance. Relevant policy measures are identified and an
assessment is made of the extent to which they may overcome various barriers.
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In addition, three additional reports were produced which assess the prospects for energy service
companies in each country and the extent to which these may overcome the identified barriers particularly within the case study sectors.
2.5.5 Additional work
In addition to the work programme outlined above, three additional pieces of work were
undertaken. These were:
• UK brewery energy management questionnaire: To supplement the individual brewery case
studies, a postal survey was undertaken of energy management in UK breweries. The survey
was conducted with the assistance of the UK Brewers & Licensed Retailers Association
(BLRA) and was based very closely on the Pre Interview Questionnaire (PIQ) used in the case
studies. A total of 40 replies were obtained, representing 53% of the survey population. The
survey provided a very valuable supplement to the interview evidence, and the results are
reported in the UK brewing report.
• UK university energy management questionnaire: In a similar manner to breweries, a postal
survey was undertaken of energy management in UK universities. This used a database of
contact names held by the UK Buildings Research Association. Again, the survey was based
very closely on the Pre Interview Questionnaire (PIQ) used in the case studies. A total of 32
replies were obtained, representing 33% of the survey population. The six institutions used as
case studies were excluded from this survey. Results are contained in the UK higher education
report.
• Barriers to energy efficiency in the UK construction industry: The energy efficiency of new
buildings was a dominant theme in the university case studies and each case study provided a
series of examples of major efficiency opportunities being lost. The reasons for this were
varied, but derived primarily from the nature and operation of the construction industry and the
associated mechanisms for project financing. In view of the importance of this issue, some
additional work was undertaken exploring these issues in more detail. The focus was primarily
on building services (HVAC) rather than building fabric. Results are included in the UK
higher education report.
2.6 CONTRIBUTORS
The project was designed and led by Steve Sorrell at SPRU (Science & Technology Policy
Research) supported by Professor Jim Skea (Policy Studies Institute) and Professor John
Chesshire (SPRU). As project leader, Steve Sorrell was responsible for developing the theoretical
framework, designing the interview protocols and questionnaires, and for the overall analysis of
the findings.
In the UK, the empirical research was conducted by Steve Sorrell. In Ireland, the research was
conducted by a team at the Economic & Social Research Unit, consisting of Dr Sue Scott, Eoin
O’Malley and Fergal Trace. In Germany, the research was conducted by a team at the Fraunhofer
Institute for Systems and Innovation Research (FhISI), led by Dr Joachim Schleich and including
Ulla Böde, Katrin Ostertag and Dr. Peter Radgen. Each country team was responsible for
producing three sector reports, together with an additional report on ESCOs (Annex 1). The
executive summaries of these reports form the basis of the summary of results in sections 4 to 8.
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