Improving energy efficiency will require overcoming market distortions
Improving energy efficiency will require overcoming market distortions
mongabay.com
May 20, 2007
In a new study, McKinsey&Company, one the world’s most respected management consulting firms, reports that the world should be able to cut energy demand growth by half over the next 15 years without compromising economic growth. However it says that market forces along will not drive the transition—targeted policies will be needed to overcome present market failures and policy distortions.
McKinsey says that global energy markets are “rife with market inefficiencies and distortions that explain why consumers and companies fail to capture savings from higher energy productivity.” Chief among these is that consumers lack information they need to make smarter energy use decisions. Further, government policies, such as fuel subsidies and lack of metering, weaken price signals and incentives that would otherwise drive users to choose more energy efficient options.
The study makes a number of recommendations, including ending fuel subsidies; tightening fuel-economy standards; reducing standby power consumption of applications; adopting compact fluorescent lighting in place of incandescent lighting; implementing green building codes like better insulation and HVAC (heating, ventilating, and air conditioning) systems; itemizing utility bills for consumers; and using realistic internal rate of return (IRR) hurdle rates for energy-saving investments to encourage financing of energy-conservation projects. All these recommendations have been previously advanced by Amory Lovins of the Rocky Mountain Institute, an energy policy think tank.
The study shows that while China will soon surpass the United States as the world’s largest consumer of energy, the U.S. will have the highest energy use per capita for the foreseeable future. |
McKinsey concludes, “The challenges of climate change and the security of energy supply often appear so huge as to be insurmountable. However, we already have in our hands the potential to abate accelerating energy demand in a practical, economically attractive way.
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