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The role of energy efficiency in the fight against climate change

The United Nations Industrial Development Organization (UNIDO) will launch its Industrial Development Report 2011 (IDR), Industrial energy efficiency for sustainable wealth creation: capturing environmental, economic and social dividends at ODI in London on 27 March. The report  contains a remarkable quantity of good news.

  1. Trends in industrial energy intensity show a marked decline, with 62 countries contributing to a 22.3% reduction overall between 1995 and 2008 (equivalent to an annual average of 1.9%). Both technological and structural factors contributed. Technological change occurs through changes in the product mix of each manufacturing sector, adoption of more energy efficient technologies, optimization of production systems and application of energy-efficient organizational practices. Structural change reflects changes in the contribution of each sector, including shifts from or towards energy-intensive industries. Technological change is predominant in low-income countries, and structural change in high-income countries;
  2. There is a correlation between GDP and energy intensity - the richest countries generally show the lowest energy intensity;
  3. There is still huge untapped potential in energy efficiency. Using a current-policies scenario, the International Energy Authority (IEA) estimates a 28% reduction in energy intensity by 2035, or savings of around 6.5 Gtoe (giga tonnes of oil equivalent) in primary energy consumption. Energy efficiency provides a triple dividend in terms of environmental benefits: 1) reductions in emissions, depletion of natural resources and alterations of landscape, as well as biodiversity loss; 2) economic benefits as a result of the profitability of energy-efficiency investments; and 3) social dividends through opportunities for redistribution policies and investments for social goals.
  4. Investments can be profitable even in developing countries, through industrial technological change aimed at increasing productivity and environmental technological change aimed at saving energy (Cantore 2011 – ODI background materials for the IDR).

These conclusions from the IDR are in line with those of the World Development Report 2010(WDR) and a McKinsey study, both of which suggest that energy efficiency will be a key emissions reduction option if we are to achieve ambitious targets, and that technological progress is essential in the fight against climate change. According to these sources, by 2030 energy savings could outweigh upfront investments, with an abatement potential of around 11 GtCO2 eq (giga tones of CO2 equivalent) per year.

I recently came across the blog written by the biologist Brian Czech dealing with the conflict between economic growth and environmental protection. According to Czech, ‘… no matter how much invention and innovation, you can’t make something from nothing and you can’t get perpetually more efficient’. Czech in a previous paper pointed out that while the conflict between economic growth and technological progress may be lessened, it will never be reconciled.

In my opinion, Czech underestimates the economic potential of technological change – the IDR shows that innovation for economic versus environmental purposes need not be in conflict, as energy efficiency may be profitable. On the other hand, the economics point of view within the IDR, WDR and McKinsey study underestimate the theories of Gerogescu-Roegen, father of environmental science, which remind us that there are limits to technical efficiency determined by the laws of nature and the relationships within ecosystems.

Interestingly, despite these differences, Czech and the IDR lead to similar conclusions. Czech claims: ‘… the fundamental conflict between economic growth and biodiversity conservation may be lessened with technologies that increase technical efficiency, but this type of technological progress requires policy goals and tools that are conducive to increasing technical efficiency.’ The IDR claims: ‘The first steps are establishing quantified and achievable efficiency targets, benchmarking the performance of different sectors and identifying opportunities to improve energy efficiency. Once realistic and measurable targets are set, legislation and negotiated agreements can ensure their achievement.’

The IDR identifies possible measures to achieve an industrial-energy reduction target of 3.4% per year by 2030, such as laws and regulations against the least efficient equipment and practices, agreements between government and industry, awareness campaigns, support for innovation and new technology and market-based instruments such as carbon taxes.

Whatever our attitude towards technological progress – optimistic or pessimistic – political willingness to promote energy efficiency and remove barriers to the adoption of environmentally friendly technological innovation is essential for environmental protection and to fight climate change. There is a long way to go to make green technological change and energy-efficiency improvements happen in practice, however.