Promoting Energy Efficiency in the developing world


Big gains await developing countries If they raise their energy productivity, research by the McKinsey Global Institute (MGI) has found: they could slow the growth of their energy demand by more than half over the next 12 years—to 1.4% a year, from 3.4%—which would leave demand some 25% lower in 2020 than it would otherwise have been

Companies that pioneer energy efficiency in their home markets will be well placed to carve out a leading position in the global market for “green” products and services before it matures. Indeed, 65% of available positive-return opportunities to boost energy productivity are located in developing regions.

Many companies, insulated from the true price of energy, have relatively little incentive to identify and invest in the fragmented energy savings opportunities that are available.For energy policy, there are adjustments that developing countries can make. MGI identifies 4 priority areas:

The first is to reduce energy subsidies, as they tend to lower energy productivity. The International Energy Agency (IEA) estimates that in 2005, these subsidies totaled more than $250 billion a year in developing countries—more than the annual investment needed to build their electricity supply infrastructure.
Second, governments should provide incentives for utilities to improve energy efficiency and encourage their customers to do the same. Policy options include revenue incentives and certification programs that measure and reward progress toward achieving efficiency targets and also encourage the adoption of technologies such as smart metering that help households better manage their energy use.
Implementing and enforcing Energy Efficiency Standards is a third area for action. Such standards boost production of more efficient appliances and equipment and reduce their cost.
A fourth priority is encouraging public–private partnerships, such as collaborations between governments, energy service companies, utilities and mortgage companies, to finance higher energy efficiency in buildings.