Most of the world’s growth in energy demand is expected to happen in low- and medium-income countries (LMICs). While technological advances have significantly reduced the energy for fundamental energy needs such as cooking, lighting, space heating, and cooling, we have a limited understanding of how to value the economic benefits and costs of investing in these technologies, especially in low- and middle-income countries. As LMICs experiment with innovative policy interventions to accelerate the adoption of energy-efficient technologies, it is increasingly important to evaluate interventions and their impacts.
To help fill these measurement gaps, this paper considers both the private and social benefits of energy improvements in LMICs and finds that in addition to direct energy savings, efficiency investments also have indirect benefits:
- Improved access to energy
- Local health impacts
- Increased productivity
Despite these benefits, energy efficiency measures also come with challenges. Energy subsidies, unreliable power supply, and capital constraints all limit the impact of investments in energy efficiency and can lead to underinvestment. Ultimately, this paper encourages rigorously evaluating any new policy innovations aimed at improving energy efficiency. Understanding the full benefit of efficiency solutions and overcoming challenges to implement them quickly will maximize benefits for more people.
Methods and Results
The core conceptual framework is built around the connections between four key ideas:
- The direct benefits of energy savings
- The energy demand rebound that can occur as households respond to efficiency gains by using more energy
- The energy savings realization gap (that comes from not accounting for the rebound effect)
- Households’ willingness to pay (WTP) for energy efficiency
The paper next considers the empirical evidence on market failures and barriers to energy efficiency investments in LMICs:
- Inefficient pricing, with energy subsidies serving as the prime example
- Non-technical losses, such as metering inefficiencies, billing inefficiencies, and electricity theft
- Poor power quality and unreliability
- Capital constraints
To better understand program design and implementation, this paper studies tools previously used to encourage the uptake of energy efficiency technologies, such as the Kyoto Protocol’s Clean Development Mechanism, energy efficiency revolving funds (EERFs), and bulk procurement programs.
Meredith Fowlie (University of California–Berkeley) and Robyn Meeks (Duke University)
Economic Governance, Climate & Sustainability, Environment, Governance, Economics, Economic Development