PNNL

Abstract

Energy efficiency can provide a cost-effective means of reducing greenhouse gas emissions. Yet, demand-side energy efficiency is tantalizingly difficult to tap in carbon mitigation projects. Three key factors appear to lie behind this difficulty. First, end-use energy efficiency projects tend to be small and dispersed, which can raise transaction costs. Second, while demand-side projects usually are profitable based on energy savings alone, they may have relatively high costs per ton of carbon when the benefits of energy savings are not taken into account. Carbon investors looking for simple deals with straightforward revenue streams may avoid demand-side projects. Third, energy consumers are often not direct greenhouse gas emitters, particularly when heat and electricity are centrally produced. As a result, few joint implementation projects focus on end-use energy efficiency. Passing up demand-side opportunities ultimately could drive up the cost of carbon mitigation, making it more difficult for nations to reduce their greenhouse gas emissions. This paper first provides background on flexible mechanisms in transition economies. It then examines the experience with joint implementation in demand-side energy projects in countries in transition and uses this information to assess the barriers to demand-side energy projects as carbon mitigation tools. The article concludes with recommendations on strategies for ensuring that demand-side energy efficiency projects play a role in carbon mitigation mechanisms. New financing mechanisms and stronger partnerships between the various stakeholders are among the strategies considered.