The “energy efficiency gap” and a laundry list of barriers to energy efficiency

The following article looks into the problem of actual implemented energy efficiency measures being much less than what is actually possible: the energy efficiency gap.  It also introduces the concept of barriers to energy efficiency, and a long disorganised list of barriers to energy efficiency that have been reported in the recent literature.

Unfortunately, “investments in energy efficiency consistently fall short of levels which informed analysts assure policy makers is possible and economic” (Eyre, 1997).  In 1990, Hirst & Brown reported that only half of the potential for improving energy efficiency in the United States was being taken up.  An old but still descriptive statistic, in 1994, total energy R&D budgets of International Energy Agency (IEA) countries allocated less than 6% to energy efficiency.  As a result, energy efficiency faces – as coined by Jaffe & Stavins – “energy efficiency gap” between the opportunities, measures and strategies available and economically feasible, and those actually implemented.  The “gap” occupies many definitions:

• The foundation definition: “The paradox of the gradual diffusion of apparently cost-effective energy efficiency technologies” (Jaffe & Stavins, 1993)
• A concise definition I quite like: “The divergence between socially (and perhaps privately) optimal levels of investment in energy efficiency and those actually seen in practice” (Harris, Anderson & Shafron, 2000).
• A modern definition: “The rationale for policy intervention to correct investment inefficiencies in addition to policy interventions to correct negative environmental externalities associated with energy use” (Fleiter, Schleich & Ravivanpong, 2012)

Creating this gap are barriers to energy efficiency.  What these barriers are and their influence on the slow diffusion of energy efficiency measures is a heavily researched component of energy efficiency.  This research has been inspired by a number of different fields, including behavioural economics, neoclassical economics, institutional economics, sociology, psychology and management theory.  One of the earliest papers on the barriers is Hirst & Brown in 1990, which divided barriers into two categories: structural and behavioural.  Structural barriers referred to the economic perspective of the energy efficiency gap as a market failure, and the actions of public and private institutions.  Behavioural barriers comprised of problems related to the decision making of the end user.  The latter barrier was elaborated by later works to include the social dimension behind energy efficiency decision-making; for example “what qualifies as a reliable, cost effective, worthwhile energy saving measure in one socio-cultural domain might count for nothing in another” (Shove, 1998).  Later, a third category was proposed by a McKinsey report in 2010.  This barrier category was called availability, which referred to situations where an end-user is willing to adopt a measure but cannot access it, including aspects such as financial.

These categories have been further specified and classified in a contemporary landmark publication by Sorrell et.al (2004).  It identified six main barriers to energy efficiency: imperfect information, hidden costs, risk, access to capital, split incentives and bounded rationality.  It defined a barrier as comprising “all factors that hamper the adoption of cost-effective energy-efficient technologies or slow down their diffusion”.  This article is the new starting point for most research studies on energy efficiency barriers.

Despite the volume of works, it has been argued that the literature suffers disorganisation and a lack of consensus.  Fleiter, Schleich & Ravivanpong (2012) observe that methodological approaches to determining barriers are either made using case studies or surveys of self-determined barriers, the latter of which relies on a general description of the energy efficiency measure and therefore a low transferability or usefulness to professionals reading the research.  Worse still, the profitability of these measures had been determined theoretically rather than in the real-world.

This list of energy efficiency barriers is a product of these limitations, and must be understood as a piecemeal, disorganised, unwieldy and incomplete list.  It would also be misleading to be bogged down by the length of the list because there is tremendous overlap.  It is only intended to be a general knowledge booster for the topic.

• Low energy costs
• Distortion in fuel prices; uncertainty in future fuel prices
• Lack of information
• Heterogeneity
• Lack of access to capital; too high investment costs
• Hidden costs
• Procedures and routines that do not favour energy efficiency
• Supply infrastructure limitations
• Short-term payback rules; Long project payback period
• Lack of funds; High average cost of project (too expensive)
• Cost and risks of disruption to production
• Lack of time or other priorities; Low priority given to energy management
• Energy costs comprising a relatively small component of company turnover
• Information imperfections and asymmetries and adverse selection
• Difficulty and cost of obtaining information on the energy use of existing equipment and processes
• Other capital investment priorities
• Technology is inappropriate for the site
• Lack of staff awareness; lack of staff
• Lack of technical skills
• Poor quality of information regarding energy efficiency opportunities
• Disagree with energy audit assessment
• Possible poor performance of equipment
• Bounded rationality (this is related to limited information)
• Lack of profitability of the firm
• Cost of identifying, analysing and tendering opportunities
• Unable to identify, analyse or track energy data
• Lack of sub-metering
• Simply perceiving a barrier to be there
• Irreversibility
• Constantly changing information
• Strategic relevance to the firm
• Productivity benefits
• Government fiscal and regulatory policies
• Codes and standards
• Misplaced incentives; split incentives; principal-agent relationships/problems

Anderson & Newell 2004;  Armstrong 2010; Boyd & Pang 2000; Cagno & Trianni 2012; Cooremans 2011; Dias, Mattos & Balestiere 2004; Diederen et.al 2003;  de Groot et.al 2001; de Almeida 1998; Fleiter, Schleich & Ravivanpong 2012; Fleiter, Hirzel & Worrell 2012; Granade, Creyts, Farese & Ostrowski, 2010; Gruber & Brand 1991; Hirst & Brown 1990; Harris, Anderson & Shafron 2000; Hasanbeigi et.al 2010; Hasanbeigi & Price 2012; Lung et.al 2005; Nagesha & Balachandra 2006; O’Malley & Scott 2004; Persson 1990; Palm & Thollander 2010; Pye & McKane 2000; Rohdin, Thollander & Solding 2007; Rohdin & Thollander 2006; Roettmer, Schaefer & Somers 2010; Sandberg 2004; Schleich 2004; Schleich 2009;  Sorrell et.al 2004; Sardianou 2008; Sorrell 2004; Schleich Gruber 2008; Thollander, Danestig & Rohdin 2007; Trianni Cagno 2012; Thollander & Ottosson 2008; Velthuijsen 1993;  Velthuijsen 1995; Worrell et.al 2003.