Linking green stimulus, energy
efficiency and technological innovation:
The need for complementary policies
Edward B Barbier
Department of Economics &
Finance
University of Wyoming
1
4/13/2015
Transatlantic Energy Efficiency
Outline
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2
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 longterm 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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Transatlantic Energy Efficiency
Green stimulus
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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:

–
–
3
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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Transatlantic Energy Efficiency
Overview of green stimulus in 2008-9
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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 $335 billion over
2008-9, or nearly two thirds of all green spending globally.
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Total Green Stimulus Spending by Country ($bn)
United Kingdom
5.8
France
6.2
Saudi Arabia
9.5
Australia
9.9
Germany
13.8
European Union
22.8
Japan
43.3
South Korea
59.9
United States
117.7
China
218.0
Global total
514.3
0
5
100
200
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300
400
500
600
Transatlantic Energy Efficiency
Green Stimulus as a Share of Total Fiscal Stimulus
South Africa
10.7%
United States
12.0%
Germany
13.2%
United Kingdom
16.3%
France
18.2%
Australia
22.7%
Norway
31.0%
China
33.6%
European Union
58.7%
South Korea
78.7%
Global share
15.8%
0%
6
10%
20%
30%
40%
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50%
60%
70%
80%
90%
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Green Stimulus as a Share of Gross Domestic Product (GDP)
France
Norway
Germany
United States
0.3%
0.4%
0.5%
0.9%
Japan
1.0%
Sweden
1.3%
Australia
1.3%
Saudi Arabia
1.7%
China
3.1%
South Korea
Global share
0.0%
7
5.0%
0.7%
1.0%
2.0%
4/13/2015
3.0%
4.0%
5.0%
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Total Energy Efficiency Spending by Country ($ bn)
Sweden
4.2
United Kingdom
4.9
France
5.1
Australia
6.5
European Union
9.6
Germany
13.8
South Korea
15.2
Japan
29.1
United States
58.3
China
182.4
Global Total
327.9
0
8
50
100
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150
200
250
300
350
Transatlantic Energy Efficiency
Energy Efficiency as a Share of Green Stimulus
100% 100% 100% 100% 100% 100% 100% 100%
100%
88%
90%
84% 84%
83%
80%
67%
70%
65%
64%
60%
56% 51%
50%
50%
42%
40%
30%
30%
25%
20%
10%
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9
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0%
Sp
ai
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0% 0%
0%
Transatlantic Energy Efficiency
Green Stimul us ($ bn)
Energy Effi ci ency ($ bn)
250
218.0
200
182.4
150
117.7
100
59.9
10
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9.5
d
Ki
ng
do
m
6.2
Un
ite
Sa
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9.9
Fr
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13.8
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22.8
9.6
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st
15.2
rm
an
y
43.3
29.1
Ge
58.3
50
Transatlantic Energy Efficiency
5.8
Source: Robins et al. (2010).
Notes: e = Estimated.
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ARRA Clean Energy Programs (through 12/31/09)
Funds
($ mn)
Energy efficiency
Grid modernization
Advanced vehicles and fuels
Transit and high-speed rail
Total energy efficiency
Renewable generation
Carbon capture and sequest.
Green innovation and training
Clean energy equipment manuf.
Other
Total clean energy
(energy efficiency share, %)
12
19,935
10,453
6,142
18,113
54,643
26,598
3,400
3,549
1,624
408
90,222
(60.6%)
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Outlaysa
($ mn)
1,162
72
450
1,805
3,489
1,479
4
123
14
12
5,121
(68.1%)
Direct and
Total
indirect Total jobs job-years
jobs
createda,b through
createda
2012c
12,100
14,500
179,000
800
1,000
80,600
4,700
5,800
37,000
18,900
22,900
158,200
36,500
44,200
454,800
13,200
16,900
192,00
-100
26,500
1,500
1,700
32,200
200
200
9,500
200
200
3,700
51,700
63,200
719,600
(70.6%) (69.9%)
(63.2%)
Transatlantic Energy Efficiency
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
Source: Strand and Toman (2010, Table 5.1).
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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 marketbased 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.
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
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 skillspecific barriers
Lack of familiarity with energy efficient technology or insufficient
human skills for that technology
Enhance skills and technical knowhow.
Market organization
barriers
Technological barriers
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The role of complementary policies
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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.
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Assistance to developing countries
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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 .
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Reform of the Clean Development Mechanism
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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
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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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