Are we doomed to inefficiency?

“The market is a good servant but a bad master”. That is at least the old way of saying has it. Often attributed to Vaclav Havel, but also to the former Danish Energy minister Svend Auken. Whoever is to take credit for this saying, they come to mind when reading The Economist, where the issue is brought up; why is such a good product as energy efficiency so scarcely used? The low-hanging fruit, profitable and good for the environment, is just not picked.

The article arrives at the usual answer that there are some barriers. Well known and researched in detail, but still there and still hindering. So, is that all? Are we doomed to being inefficient and seeing the low-hanging fruit rot before our eyes instead of it being picked and enjoyed? If the market cannot master and cannot deliver, could there be something else that fails us?

Low might mean beneath our sight

Well, say some economists, there is no low-hanging fruit. If people do not make more use of energy efficient equipment it is because they have a taste for other characteristics of the goods they buy, rather than energy efficiency. It could also mean that people find it to too costly to shop around for the better choice – their search and transaction costs are too high. Based on this, these economists find that the choices people have made are well-informed and revealed as the best possible. Any change should mean a loss of welfare for the economic man.

This way of looking upon human behaviour was effectively trashed by Nobel-Prize winning economist Amartya Sen some 30 years ago in his paper “Rational fools”, but it seems to live on in some academic circles. It is, however, strange to find the joke about the economist and $100 bill on the sidewalk being played out in reality. The joke says that the economist does not believe the bill is there because: “If it was there, someone would already have picked it up”. Let us rather assume that if you are not prepared to see the bill on the sidewalk, it is because it is below your sight – and so too could the low-hanging fruit be.

What the market needs is a magnifier – call it commoditising

Energy efficiency has several problems when traded. One is that it does not exist! Another is that it is too often delivered in packages that are too small.

It does not exist because it is a comparative characteristic. Product A uses less energy than product B, hence it is more efficient in delivering the service. It is delivered every day in operations (we can switch off or on, decide to use it, or not to use it, etc.). It is not significant to our budget if we miss a few occasions and it is very hard to break the habit of using too much. So, the market needs some help in order to assist us. If energy is a tradable good, so must its alternative (efficiency) also be turned into a good – a recognisable commodity – a brand.

To this end, we need ESCOs, Performance Contractors and Labels, but we need more! We need the industry to provide more efficient products and to recognise themselves as an “energy efficiency industry”, not only to identify themselves with the product they sell, but with the function (efficiency) the product provides - Energy Efficiency as a commodity. Customers should be able to recognise this Energy Efficiency Industry from its branding, from its commoditising of the function - efficiency.

This industry is a future core business for the entire world with a brighter future than many of those that are energy intensive like paper and pulp, chemical, iron and ore etc. They suffer from rising energy prices, but the energy efficiency industry profits from it!