Energy efficiency research
Energy efficiency features prominently in climate change forecasts, models, and policies. Research and policy have focused on how energy efficiency can help mitigate emissions of greenhouse gases and air and water pollutants and help reduce their attendant impacts on climate change and health . Despite its central role, significant uncertainty remains regarding how energy-efficient technologies, strategies, and policies affect economy-wide energy consumption and the dynamics that occur between the micro and the macro scales.
This journal has published several review articles on energy efficiency, typically focusing on specific contemporary issues. In the 1990s, the focus was on understanding the potential for specific energy technologies in the power sector and fuel cells , as well as on the experience of implementing energy efficiency programs in countries like Russia, the United States, and Mexico . In the 2000s, focus shifted to understanding the implications of regulatory mechanisms in terms of end use benefits and links to rebound effects . In recent decades, research interest moved toward understanding economy-wide effects as well as the role of efficiency innova, and tracking the evolution of sectoral policies and regulations ).
This review covers four decades, spans a wide geography, and addresses a range of relevant topics. We describe the differences that have emerged as scholars from various disciplines have sought to answer specific questions using different definitions of energy efficiency, working at different levels of aggregation, and employing different theories and assumptions (Section 2). We assess what has been observed from historical trends in energy intensity, one of the most frequently used definitions and metrics to represent changes in energy efficiency, and we assess how energy intensity has influenced the understanding of energy requirements and policies. We then examine the policies used to encourage improved energy efficiency and to bridge the energy efficiency gap, and we explore the reasons why this gap persists (Section 4). We describe how policies evolved over time to drive efficiency improvements by energy users (Section 5), the outcomes of such policies (Section 6), and the unintended consequences that need policy attention. In Section 7, we summarize methodological advances for assessing energy efficiency outcomes. Finally, we offer in Section 8 some conclusions and suggest ways forward for future research. To accomplish this ambitious task of looking at energy efficiency from multiple different perspectives, our team includes energy efficiency researchers from 10 nations around the globe, each with a particular expertise and perspective to offer.
2. ENERGY EFFICIENCY DEFINED
There is no universal definition of energy efficiency, and the appropriate definition depends on the problem being considered as well as the context . At the most general level, we may define energy efficiency ε as the ratio of useful outputs (Q) to physical energy inputs (E) for a system (ε = Q/E) and energy intensity (as the inverse of this measure.
The relevant system may vary in the outputs it provides (e.g., light, heat, work, wealth) and in its scale (e.g., a lightbulb, a machine tool, a firm, a sector, a national economy). Depending on the system and purpose at hand, it may be appropriate to use thermodynamic measures (e.g., enthalpy, exergy), physical measures (e.g., vehicle kilometers, tons of steel, tons of oil), or economic measures [e.g., gross output, gross domestic product (GDP), expenditure on fuel] of inputs and outputs . Energy efficiency measures also differ in how they aggregate qualitatively different energy inputs (e.g., summing kilowatt-hours in a productive process such as a factory or weighting by relative price) and how they partition energy inputs between multiple and coproduced outputs (e.g., meat and wool) ).
Physicists and engineers usually think of the energy efficiency of systems that transform energy or provide energy services in terms of first law and second law efficiencies. First law efficiency is the ratio of useful energy outputs to energy inputs. Second law efficiency considers the quality of energy inputs and outputs, or their ability to perform physical work (i.e., exergy). Second law efficiency is the ratio of useful exergy outputs to exergy inputs, and these measures allow the efficiency of a system to be compared to the theoretical maximum efficiency. As an example, a resistance heater has high first law efficiency but low second law efficiency—implying that it should be possible to obtain the same amount of heat at end user level with less energy input.
Economists distinguish between engineering or technical energy efficiency and economic energy efficiency. Economic energy efficiency controls for the levels of other inputs and considers cost-effectiveness and profit/utility maximization and the efficiency with which they are used. Engineering or technical efficiency compares the quantity of inputs, including energy, used to produce given outputs (or vice versa) to the best practice or frontier level and is one component of economic efficiency in general. Economists emphasize that improved energy efficiency is not necessarily the same as improved economic efficiency, since the latter considers, for example, all inputs, the costs of the inputs, and the mix of outputs. Macroeconomists often use an absolute measure, such as energy intensity or the ratio of primary or final energy consumption to GDP, as a proxy for the inverse of energy efficiency for a national economy. Although this is a simple and easily tractable metric, energy intensity is influenced by multiple variables.
The literature on energy efficiency often refers to the energy efficiency gap or paradox. Households and firms appear to underinvest in cost-effective energy efficiency technologies relative to what is privately or socially optimal. Physics- and engineering-based studies have, for a long time, estimated the difference between real and projected performance of energy efficiency deployment . Another stream of literature has developed engineering efficiency cost curves that suggest that a considerable proportion of energy can be conserved at negative cost and that consumers and firms are not exploiting profitable investments. In these energy efficiency cost curves, researchers sometimes use different notions associated with the mitigation of the energy efficiency gap. That is, they consider either all available technological options that would be used to improve efficiency, regardless of their cost (i.e., the theoretical maximum engineering efficiency), or energy savings potential that could be achieved with net benefits to consumers (private economic gains) or with net benefits to society (societal economic gains or a gain in welfare) as well as the realistic or feasible potential, which is meant to present how much can be realistically achieved with policy interventions. Along the same lines, Jaffe & Stavins propose two distinct notions. The technological optimum (or maximum) is achieved if all present barriers to adoption are eliminated, and the economic optimum refers to cost and addresses barriers that are market failures. Market failure can arise in the presence of public good features, or it can arise because of information asymmetry, a noncompetitive market, externalities not represented by the market price, or unexplained behavioral characteristics, just to name a few scenarios. Policy distortions, such as subsidies or incentives for some technologies or tax breaks for others, may also lead to the energy efficiency gap.
Others have built on this framework, with more recent work distinguishing between a private energy efficiency gap and a social energy efficiency gap (24). The private gap describes the difference between current energy consumption and the energy consumption that would occur if all technologies or strategies that have a positive net benefit (net present value, annualized net benefits, or similar metrics) were pursued. The social gap also explicitly includes benefits associated with having energy service markets working closer to ideal conditions, and it also includes the avoided negative externalities associated with energy usage that are not reflected in energy prices .
Estimates of the energy efficiency gap (i.e., the difference in energy consumption between what is currently observed and what energy consumption would be if the most efficient technologies were adopted), though imperfect, have proved extremely useful as a guide to research and development (R&D) and policy design.
At the level of countries, macroeconomists often use the inverse of energy intensity (the ratio of primary or final energy consumption to GDP) as a proxy for energy efficiency for a national economy. Although this is a simple and easily tractable metric, energy intensity is influenced by multiple variables. Energy intensity has declined, but not as rapidly as modelers at the International Energy Agency (IEA) and other organizations have predicted ).
Macroeconomists use decomposition analysis, a method that identifies the relative contribution of different factors and changes therein to changes in energy intensity at the sector or economy-wide level. These changes may be impacted by the variation of final consumption structure, technical efficiency of production, intermediate input structure, policy, and consumer preferences. This in turn leads to the construction of composite energy intensity indices from the weighted sum of the energy intensities of lower-level sectors ). These indices are widely used to assess progress against national energy efficiency targets but differ in their choice of decomposition factors, sectors, output measures, and decomposition techniques , making it difficult to perform geographic or country-level comparisons.
