GEF Experiences in Closing the Global Energy Efficiency Gap


The term “energy efficiency” has been widely used in global energy, economics, and environment, and it is well known that energy efficiency is one of the most cost-effective approaches in saving energy and mitigating greenhouse gas (GHG) emissions. However, it is still not clear how many metric tons of carbon dioxide (MTCO2) can be mitigated if one dollar is invested in worldwide energy efficiency. This study tries to clear this issue. Using data of 49 completed energy efficiency projects funded by the Global Environment Facility (GEF), this study presents an analysis on investments of US$313 million in capacity building, asset acquisition, project development, and pro-ject implementation in 35 countries. Results show that every dollar invested by the GEF has mobilized 8.2 dollars in co-financing and can mitigate 1.89 MTCO2. In addition, GEF investments in capacity building, national policy, legal and regulatory frameworks have long term impact on GHG emission mitigations which is beyond quantification with current approaches. We conclude that public funds have greatly facilitated capacity building, catalyzed the transfer of environmentally sound technologies, and helped remove a large number of regulatory and market barriers to energy efficiency in developing countries and countries with economies in transition.

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Yang, M. , Dixon, R. , Laperriere, A. , Aoki, C. , Nicholson, M. , Wu, Y. , Heath, L. , Rodgers, D. , Zou, Y. , Parhizkar, O. , Buesing, B. , Prurapark, R. , Raynaud, V. , Tang, T. and Hale, L. (2014) GEF Experiences in Closing the Global Energy Efficiency Gap. Low Carbon Economy, 5, 6-18. doi: 10.4236/lce.2014.51002.

1. Introduction

Energy consumption will increase dramatically in the coming decades as economic development advances. Unless we find ways to use precious and finite resources more carefully, and unless we expand the use of clean and renewable resources, we may exhaust economically available energy supplies while damaging the environment in the process. For these reasons, the Global Environment Facility (GEF), since its inception two decades ago, has identified energy efficiency as a critical area of activity in protecting and improving the global environment. We also know from careful analysis of our programs that energy efficiency can be an extraordinarily powerful and cost-effective tool in addressing this challenge. However, there are still a large number of questions without clear answers today. These questions include:

1) What is the potential of global energy efficiency improvement and how much investment capital is required to harness the potential?

2) How effective are investments in energy efficiency in achieving global environmental benefits by reducing carbon emissions?

3) How successfully did GEF leverage co-finance funds from the government, the private sector, multilateral banks and financial institutions, and other resources to finance global energy efficiency enhancement efforts, and how was the mobilized co-finance utilized?

4) What has GEF done to facilitate technology transfer in energy efficiency from developed countries to developing countries?

Aiming at answering the above questions, this paper presents quantitative and qualitative analysis of the impacts of the GEF investments in 49 completed energy efficiency projects in 35 developing countries and countries with economies in transition. The objective of these investments is to bring the developing world the same energy efficient technologies now in wide use in developed countries. This paper shows, with detailed project and finance information, how funds contributed by developed countries for energy efficiency projects were used to mitigate greenhouse gas emissions. In analyzing our investments, we use four key indicators: time period of project preparation; the use of GEF funds in the projects; the utilization of co-finance mobilized by the GEF; and the global environmental benefits generated by the GEF projects. We also introduce two new terms in climate change project financing to use in our analysis because there have been no clear definitions on public funds that are used in investing in tangible assets (such as equipment) and intangible assets (such as brand names, policy, codes, and staff capacity). Our aim is to provide worldwide audiences with information on how targeted investment of finite public resources can mobilize additional investment in energy efficiency, and how energy efficiency investment barriers can be addressed. The results of our analysis lead to conclusions, lessons learned, implications, and recommendations that will assist national government policy makers, GEF Agencies, and professional staff in designing improved energy efficiency projects.

2. Literature Review on Energy Saving Potential and Energy Efficiency Gap

The major potential for energy savings and GHG mitigation through energy efficiency has been reinforced by a recent study by the International Energy Agency (IEA). Government energy efficiency policies that increase capital investment in energy efficiency technologies can lead to energy savings of 92 exajoule per year (EJ/yr) or reduce 8.2 giga metric tons of carbon dioxide equivalent (CO2e) per year (GMTCO2e/yr) by 2030 ([1] [2] ). This level is equivalent to approximately twice the total energy-related carbon dioxide (CO2) emissions from the European Union (EU) in 2010. To help provide information to contribute to the great potential for energy efficiency enhancement and GHG emissions mitigation, we present an analysis of GEF funded energy efficiency projects over the past two decades.

The IEA [1] also estimated the potential for efficiency improvements to be in range of approximately 20 to 50 percent of total final energy consumption. Energy efficiency policies in 11 member countries of the Organisation for Economic Co-operation and Development (OECD) (Australia, Denmark, Finland, France, Germany, Italy, Japan, Norway, Sweden, United Kingdom, and United States) between 1973 and 1998 had saved approximately 49 percent of actual energy use. Jollands et al. [3] showed that energy efficiency policies and technologies would help save an average of 20 percent of final energy consumption from 2010 to 2030 in five major sectors, namely buildings, equipment, lighting, transport, and industry, in OECD countries (Figure 1 ). If other sectors are considered, the saving potential would be more than 20 percent. The trend in potential is expressed as the percentage of energy that could be saved over the total final energy consumption, and is expected to decline from 1975 to 2030 as energy efficiency becomes closer to its potential (Figure 2). The potential for energy efficiency savings in developing countries could be higher than IEA/OECD countries because of the widespread use of inefficient energy technologies.

The energy efficiency gap is a term that is widely used in the literature by many organizations. It refers to the difference between levels of investment in energy efficiency that appear to be cost effective based on engineering-economic analysis and the lower levels actually occurring [4] . The efficiency gap can also be defined as the difference between the actual level of energy efficiency and the higher level that would be cost-effective from an individual’s or firm’s point of view. The concept of an energy efficiency gap and market barriers to energy efficiency investment have been used since the early 1970s. Lovins [5] was among the first to develop a definition of energy efficiency: using less energy to produce greater economic output. This definition, coupled with a review of the apparently highly inefficient use of energy by society, indicates that markets alone cannot produce the most desirable social outcomes in the use of energy without government policy intervention [1] . Barriers cause market failures and lead to insufficient investment in energy efficiency.

It is difficult to forecast how much funding should be invested in global energy efficiency, since investments in global energy efficiency depend on many factors including the GHG emissions mitigation targets set by the international community, future oil prices, climate change policies of national governments, and breakthroughs in energy efficiency technologies. Many international organizations and individuals have attempted to estimate worldwide capital costs for end-use efficient technologies to mitigate GHG emissions. The IEA [6] projects that a total of additional US$2364 billion (Figure 3) is needed to improve energy efficiency in three major sectors to address the efficiency gap from 2005-2030 worldwide. Investment in the transport sector would increase by US$1076 billion, which is close to half of the total additional end-use energy efficient investments in all sectors in the world. Investment in the residential and services sectors (including agriculture) is approximately US$926 billion, whereas the industrial sector has an extra investment of US$362 billion. In summary, from 2012 to 2030 the world needs to invest approximately US$95 billion per year (US$2364 billion over 25 years) to address the energy efficiency gap in the industrial, transport, and residential and services sectors [6] . In the developing countries alone the investment need will be US$35 billion per year in these three areas (Figure 3).

Figure 1. Impact of energy efficiency policy and technologies on world energy consumption (2000-2030). Source: Developed from data of Jollands et al. [3] .

Figure 2. Trends in energy efficiency saving potential in OECD countries (1975- 2030).

Figure 3. Capital investments needed to fill the global energy efficiency gap (2012- 2030). Source: Developed from data of the IEA [6] .

Conflicts of Interest

The authors declare no conflicts of interest.


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