Financial Incentives for Dispersed Investment in Sustainable Energy

This is concept paper open for review and comment. Comments to the report can be added on-site, or by e-mail.

Summary

Financial Incentives is the most popular measure suggested in policies to promote a change in the marketplace. The idea is that when actors are presented a sufficient profit for a change, they will act since they are expected to act rationally in their own economical interest. If necessary, governments have to provide additional incentives to facilitate the action. Governments have to buy down the difference in cost.

The biggest financial incentive is however dormant in the energy use in all sectors today. There are huge economical potentials reported in all sectors, potentials that are also continuously growing, but still not realised for a variety of reasons. For governments to further add financial resources to buy these already “free lunches” would be economically impossible. The barriers may be insurmountable even if reduced or eliminated, since they are the barriers of minds and behaviour rather than barriers of economics and awareness. But we are not doomed to be inefficient.

To release the dormant incentives there is a case for “aggressive and persistent assistance” to enable actors to make the change.

• Governments need to organise themselves for delivery of energy efficiency and not only indicate possibilities and leave the rest to wishful thinking,
• Households need much more hands-on aid to find products and put them in place,
• Industry and commercial sector business need to put the energy efficiency options in a relevant perspective in a business strategy that affects their business development and survival. Opposed to being just single projects to fix a problem.
• Public sector needs to form alliances and organise support for their own purposes, and for others to make use of. These will strengthen supply of better goods and develop routines and organisation for management
• Utilities and manufacturers need to issue “detain orders” for obsolete equipment to be scrapped and replaced.
• Supply side of energy efficiency industry that is scattered in many sectors today need to form trade ally groups as “energy efficiency business associations”
• New allies, such as insurance companies and the financial sector has to recruited since sustainable energy solutions has an impact on their risk management

To underpin and further found this release of dormant incentives there is still a need for government actions to incentivise (and sweeten) options. GHG-abatement should not be an end-of-pipe issue as it is today when the emitters are give permissions to emit. It should rather be an up-stream issue since it is the demand that motivates the supply that causes the emissions. This could be made with privatising the Carbon-accounts, establishing Offset funds and bundling CDM-efficiency projects and funding the benefits from Carbon Trading. The basic rule should be that payment for carbon-emissions should be accumulated in such a way that it funds a reduction in future emissions.

Finally there is a case to foster new technologies, to enable their entry to the market and to fuel the industrial learning-process. Such technology might be more expensive in the beginning and the learning investments need to be paid. They will result in future profit.