In recent years, awareness about climate change and the need for cutting greenhouse gas (GHG) emissions has spread. While many of the post-2015 United Nations Sustainable Development Goals (SDGs) are connected to efficient use of energy in industries and households, financing energy efficiency has become an important topic for investigation. Policy-makers have hence chosen to promote the use of renewable energy, as well as encouraging improvements in energy efficiency to enable broader end-user and market players’ access to energy efficiency finance.
As Asia remains the largest contributor to GHG emissions, this region also includes many countries that have implemented many strategies to reduce their emissions, whether by promoting renewable energy or by stimulating energy efficiency.
Associate Professor Tapan Sarker from the Department of Business Strategy and Innovation has joined with colleagues to analyse the policy strategies of four Asian countries with large GHG emissions and energy efficiency strategies—namely the People’s Republic of China (PRC), India, Indonesia, and Japan. The project is part of a bigger collaboration with the Energy Studies Institute of the National University of Singapore, which has provided a global platform through organising a roundtable in March 2019 in understanding “Financing Energy Efficiency in the Manufacturing Sector”.
The study finds that the magnitude of the PRC’s energy consumption, outstanding growth rate, role in the region, and significance to global climate mitigation makes the country essential in our analysis. Indonesia has been very keen on using energy subsidies to promote the development of energy efficiency among other things, despite it being extremely onerous on the government’s budget. Compared to the other countries in the study, India has a relatively long history of energy efficiency policies. The Companies Act encouraged industries to disclose energy efficiency, energy consumption, and the value-added amount of their major products as early as 1988. After the two consecutive oil shocks of the 1970s, Japan was severely affected and undertook several policies to promote energy security through the promotion of renewable energy (Sunshine Project) and the promotion of energy conservation technologies (Moonlight Project) as early as 1978.
The study first reviewed the types of instruments that can be used to reduce energy intensity—namely incentivizing policies (subsidies, tax reductions, voluntary agreements, ETSs and cooperative schemes), market-based instruments (MBIs) (white certificates and tendering schemes), and energy efficiency finance (special credit lines and risk-sharing facilities). Through a careful review of the literature, the study identified advantages and weaknesses, as well as the effectiveness of said policies in the case studies.
Interestingly, the study highlighted the role of voluntary agreements and careful planning in successfully improving energy efficiency in the PRC. MBIs have also been shown to efficiently reduce energy intensity. On the other hand, direct subsidies represented a heavy burden on the government’s budget, with limited results. Despite their lack of direct results, cooperative schemes and the role of finance in improving energy efficiency should not be overlooked.
Please click here to read the full “The role of fiscal incentives in promoting energy efficiency in the industrial sector: Case studies from Asia” published at the Asia Development Bank Institute, written by Tapan Sarker, Farhad Taghizadeh-Hesary, Aline Mortha, and Anjan Saha.