Energy efficiency is arguably the most promising strategic area to reduce greenhouse gas emissions. By decreasing energy demand, energy efficiency initiatives help reduce:
The pressure on our energy system
The amount of installed clean energy capacity required to substitute current fossil fuel production
Our dependence on foreign fossil fuels, thereby increasing energy independence and stability
While countries have the ability to drastically decrease emissions through energy efficiency measures, their levels of investment and implementation of these options have been mixed.
McKinsey & Company – a multinational management consulting firm – has done several studies on the emissions reduction capacities of different nations – evaluating different measures available to each country and the cost-effectiveness (cost per ton of CO2e reduced) of their implementation. In these studies, McKinsey often uses a Marginal Abatement Cost Curve (MACC) to help illustrate each option’s cost-effectiveness (on the Y-axis) and emissions reduction potential (on the X-axis):
McKinsey takes a good look at the emissions reduction potential available through energy efficiency initiatives. Their results show that energy efficiency options tend to have a net economic benefit to society – the total benefits to society are greater than the total costs over the lifetime of the project. Three examples – case studies for the US, China, and India – are looked at in detail:
The European Union has been working diligently to promote the expansion of a low carbon economy. They have ratified the Kyoto Protocol, passed a relatively rigorous energy strategy for 2020, and created the largest Carbon Cap and Trade System in the World: the European Emissions Trading System (EU ETS).
To briefly explain how the EU ETS works, industries that are part of the trading scheme are given emissions allocations – or credits (the right to emit 1 ton of CO2 into the atmosphere). They must either reduce their emissions to the amount of credits allocated to them, or buy additional credits for every ton of CO2 over the allotted number of emissions allocations given to them. These emissions credits can be purchased on the EU ETS carbon market. Industries that reduce their emissions lower than the number of credits given to them will have a surplus of credits and can sell their extra emissions credits on the carbon market.
Each year, industries must hand over to the government the amount of emissions credits equal to the quantity of CO2 emissions they emitted within that year. The submission of credits to the government creates the necessity for some industries to buy emissions allocations if they have emitted more than they were allotted, and also gives the incentive for others to sell their surplus of credits if they have more allocations than they emitted. This supply and demand for credits creates the market for carbon.