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Energy Policy Instruments

Instruments for energy policy

Modern political instruments for clean energy policy are using more and more market based instruments. The later require to understand the idea of the market itself and its basic mechanism at first. On this basic understanding the three main ways to deal the market for energy purposes are explained: first to control the market, where it is insufficient or even contra-productive; second to transform and to develop the market, where it is monopolised and not equal balanced; third to use the market, where it has its most strength in the sense of profit making in win-win situations. In detail MBIs such as taxes and tax relieves, subsidies, regulations, labels and emission trading concepts are explained and illustrated with some international examples.

Information (media campaigns, workshops, information centres, training and audits): Decisions to invest in energy-efficient technology require accurate, clear information that includes energy prices, investment requirements, product performance and potential energy savings. A prerequisite for such information is reliable data, which often have to be collected by surveys and analysis. Independent and credible testing of equipment and appliances is also required.

Research and development: Applied research to improve the efficiency of existing equipment, materials or process design.

Labels (Comparison labels, Endorsement labels): Energy efficiency labels are playing key roles in governments' strategies to meet energy and environmental goals. They are widely used to improve the efficiency of home appliances and office equipment, and are increasingly being considered for electric motors, home entertainment electronics and lighting equipment. At present [2000/01], labels exist in 37 countries; standards in 34 countries. Their market influence is increasing as countries expand the product coverage of current programmes and additional countries initiate new programmes.

Standards (MEPS minimum energy performance standard): Standards are mandatory programmes (regulations) stipulating the minimum efficiency levels or maximum energy-use levels acceptable for products sold in a particular country or region. National standards can effect the energy efficiency profiles of countries to which products are exported. They can also have trade implications and raise issues of competitiveness. As a result, international co-operation is important.

Voluntary agreements (target or performance based VA): Voluntary Agreements (VAs) between industry (such agreements are also used in several other sectors such as municipalities and the commercial sector) and government are an increasingly common mechanism for encouraging energy efficiency and reductions in greenhouse gas emissions (GHG) and meeting other environmental and economic goals.

Subsidies (grants, low-interest loans): These approaches, though sometimes effective, can be quite expensive and administratively cumbersome, if not properly targeted and managed. In some cases, public money has been given to consumers to do what they would have done of their own accord ( "free rider" effect).

Accurate prices (making subsidies transparent): Accurate pricing is a fundamental instrument of energy policy. An important step for governments is to set a market framework such that energy prices reflect the full cost of supply, including distribution and external costs, and are applied so that companies can operate with a long term perspective in their decicions.

Fiscal instruments (excise duties, sales taxes, CO2, SO2 taxes): Governments apply taxes and levies primarily for revenue raising reasons, but also seek to influence consumer behaviour along the lines of the "Polluter Pays Principle", as in fuel taxes that are differentiated based on sulphur content.

Financing approaches: Leasing: The client does not have to borrow to make capital investment. A familiar example is the leasing office copy machines. In energy-efficiency leasing arrangements, the monthly payments for the customer are lower than the expected energy savings. Third party financing: A third-party investor covers the financing, carries out the work under its own re-sponsibility and guarantees the result. The investment is repaid on a pro rata basis from opera- tional savings over a limited period. Performance contracts: In this arrangement, a contractor finances and installs energy efficiency equipment in a consumer's premise and assumes all the risks. The contractor is paid out of the energy savings. In an energy services contract, the consumer pays a fixed rate to the energy services company for all the energy needs covered by the contract.

Emission trading (see more in section CO2 Management): In the context of climate change two policy measures arising from international agreements. Greenhouse gas emission trading: Emissions trading is designed to achieve GHG emission objectives at a minimum costs for all participants by allowing each to make reductions where it is cheapest to do so. Activities Implemented Jointly: The concept is to mitigate GHG emissions where it is most cost-effective to do so. Carefully designed and implemented projects have potential benefits including: technology transfer: additional investment: and local economic and environmental benefits. They can also help to address some barriers to financing energy efficiency, such as lack of managerial and technical capacity, and the scarcity and high costs of capital.