IEA urges overcoming market barriers to increased energy efficiency in buildings

(Paris) — 20 March 2008

Energy efficiency is by far the most cost-effective way to fulfil three major energy-related challenges: increased energy security, reduced energy costs and a cleaner environment. “With surging energy consumption, high energy prices and raising CO2 emissions, the imperative to improve energy efficiency is stronger than ever,” said Nobuo Tanaka, Executive Director of the International Energy Agency (IEA). “On this road to a sustainable energy future, action in the building sector can play a key role.” 

Existing buildings are responsible for more than 40% of the world’s total primary energy consumption and account for 24% of global CO2 emissions. An impressive amount of energy could be saved simply by applying energy-efficient technologies and practices. Yet despite the proven cost-effectiveness of these technologies, a significant proportion of potential energy efficiency improvements remains untapped due to numerous market barriers.

Promoting Energy Efficiency Investments: Case studies in the residential sector highlights these issues. The new IEA publication, prepared in collaboration with the Agence Française de Développement (AFD), draws on experiences in Japan, the United States, France, Germany and the United Kingdom, providing illustrations of policies and measures to improve energy efficiency in existing residential buildings. Each case includes relevant background and contextual information, as well as an evaluation of each policy according to five predefined criteria: relevance, effectiveness, flexibility, clarity and sustainability.

The market barriers inhibiting increased energy efficiency in residential buildings take many forms. They include difficulties in accessing capital, low priority of energy issues, the presence of information asymmetries and principal-agent problems  or split incentives between investors and energy end-users (e.g. between a landlord and a tenant).

The book draws five policy lessons from these experiences. First, given that financial barriers in the residential building sector are numerous and complex, multi-policy packages are needed to address multiple barriers at the same time. Second, public-private partnerships offer the best opportunity to meet the five evaluation criteria. Third, the creation of a market for energy efficiency is necessary to increase sustainably energy efficiency in the building sector. Fourth, market transformation will require increased private sector involvement, which must be triggered by strong political will to create the necessary conditions. Lastly, the national context plays a determining role in the success or failure of policies.

Promoting Energy Efficiency Investments also identifies the crucial need for more systematic data collection on programmes implemented; such data are currently scarce and render policy analysis and comparisons among countries more difficult.

“Our study identifies many effective policies to help overcome financial barriers to increased energy efficiency in buildings,” said Mr. Tanaka, “and that more systematic data collection is essential to allow policy makers to understand trends and design the most appropriate policy packages to tackle these issues.”

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