How do we finance industrial energy efficiency?

How do we finance industrial energy efficiency?

After the first oil crisis, to minimise the risk of major shortages, the US federal government required large industry simply measure their energy use to better understand energy flows within their facilities and it turned out to be incredibly successful at the time.

Today we face a very different situation, in part hard to define, in part so easy to define. Addressing climate change is foremost in policy circles in Europe but coming to grips with how to successfully achieve GHG emissions reductions is not always obvious. For industry, the EU has focused on the Emissions Trading System to bring results but it has not been that successful in achieving energy efficiency. Yes, we want GHG emissions reductions but energy efficiency improvements bring so many other benefits that we have to factor in. I will discuss those in later blogs.

The EU also requires regular mandatory energy audits for large industry but all the evidence shows that investing in the recommendations has been poor. The EU also wants to promote energy management systems (e.g. ISO 50001) and there has been success but results take time.

We cannot discuss every way to promote improved energy efficiency, but it is encouraging to see that policy makers and stakeholders are working with financial institutions to unlock financing. This week the Energy Efficiency Financial Institutions Group (EEFIG) will have a meeting of a new Working Group on industrial energy efficiency. EEFIG was created by the joint work of the European Commission and the United Nations Environment Programme Finance Initiative (UNEP FI) and came out with a landmark report in 2015 explaining some of the concerns about financing and offering recommendations to all major stakeholders on the way forward. Now the pathway is through this working group.

The key objectives of the WG are:

• Identify and assess the main obstacles and drivers for improving energy efficiency industry;
• Identify best practices, their key features and possible obstacles they have to face, assessing the potential to replicate them under which circumstances;
• Formulate both general and specific recommendations on what tools and policy instruments are likely to be most effective for increasing energy efficiency investments in industry.

What will happen?

Well, there will be a 360 degree review of the problems from every angle. It is fundamental that the problem be properly defined to know how to solve it. For too long there has been a top-down approach to problem solving. The plan here is to do the opposite, to let the “industry community” explain the situation from their perspective. Yes, and to let the financial “community” do the same. Is there a problem with supply? Is there a problem with demand? Is there a problem of priority? Somehow we need to come to grips and effectively achieve what we are setting out to do.

In the past couple of days I’ve reviewed reports from the International Energy Agency written after the first oil crisis, during the second oil crisis and then in the mid 1980s. Sadly, they were raising issues we are raising now.

The clock is ticking. We have to be much more deliberate than after the oil crises of the 1970s. As Fatih Birol, Executive Director of the IEA, says, we have six months to solve the climate crisis. Those oil crises of the 1970s were a shock no doubt, but they were not existential.

It is exciting that a group of experts want to come together this week to poke and prod into every aspect of industrial energy efficiency policies and practices so that we really can ramp up investments. The time has never been more important. Now is the time to dive into the deep end and ensure we all survive.

Our low-carbon energy transition requires actions on many fronts. First we need to understand that we can effectively reduce greenhouse gas emissions. The technologies are there; the techniques are there. In reducing GHG emissions it has been shown time and time again that reducing energy consumption through improved energy efficiency is an effective approach. Getting one company or a few companies to improve their energy performance is quite manageable. But getting an entire industrial sub-sector or getting a nation’s entire industrial sector is a daunting task.

Stay tuned. Follow my blog for more.