United Nations

E/C.13/1996/CRP.3


Economic and Social Council

 Distr. GENERAL
6 February 1996
ORIGINAL: ENGLISH


                                                    
                                                    
                                      
COMMITTEE ON NEW AND RENEWABLE SOURCES OF ENERGY AND ON 
ENERGY FOR DEVELOPMENT
Second session
New York, 12 - 23 February 1996
Item   of the provisional agenda
           Efficient use of energy and materials:   progress and policies
                        Report of the Secretary-General
                                     SUMMARY
       There is growing awareness of the serious problems associated with
the provision of sufficient energy to meet human needs and to fuel economic
growth worldwide.  This has pointed to the need for energy and material
efficiency, which would reduce air, water and thermal pollution, as well as
waste production.  Increasing energy and material efficiency also have the
benefits of increased employment, improved balance of imports and exports,
increased security of energy supply and use of adopting environmentally
advantageous energy supply.
       Large potentials exist for energy savings through energy and material
efficiency improvements.  Technologies do not now nor will they, in the
foreseable future, be the limiting factors with regard to continuing energy
efficiency improvements.
       There are serious barriers to energy efficiency improvements,
including unwillingness to invest, lack of available and accessible
information, economic disincentives and organizational barriers.  A wide
range of policy instruments, as well as innovative approaches have been
tried in some countries in order to achieve the desired energy efficiency
improvements and hold promise to other countries.  These include regulation
and guidelines, economic instruments and incentives, voluntary agreements
and actions, information, education and training, and research, development
and demonstration.  An area that requires particular attention is that of
improved international cooperation to develop policy instruments and
technologies to meet the need of developing countries.                        
Material efficiency has not received the attention that it deserves. 
Consequently, there is a dearth of data on the qualities and quantities of
final consumption, thus, making it difficult to formulate policies. 
Available data, however, suggest that there is a large potential for
improved use of many materials in industrialized countries.
 
I.     INTRODUCTION
 The Committee on New and Renewable Sources of Energy and on Energy for
Development at its first session, (7-18 February 1994) requested the
Secretary-General to prepare a report on efficient use of energy and
materials: progress and policies for consideration by the Committee at its
second session.1  This report has been prepared in response to the
Committee's request.  It is a summary of an extensive study commissioned by
the Secretariat.2
II.    BACKGROUND
 There is a growing awareness of serious problems associated with the
provision of sufficient energy to meet human needs and to fuel economic
growth worldwide.  Current energy production and usage patterns rely heavily
on combustion of fossil fuels, a key factor in the unprecedented increase in
carbon dioxide (CO2) concentrations in the earth's atmosphere that
contribute to global warming. Documents like Agenda 21 and the Framework
Convention on Climate Change (FCCC) underline the international recognition
of the problem of climate change in particular, as well as other
environmental problems associated with the use of energy. Key environmental
problems include global (possible climate change), regional (acidification
of soil and water), local (smog, urban air quality, solid wastes, effluents
and thermal pollution) and indoor air pollution.  In many areas of the
world, particularly the developing country mega-cities, the health and
environmental effects of energy use are even more extreme, as technologies
and policies for abating pollution and producing cleaner energy are not
always available or implemented. Given current patterns of population and
economic growth in the developing world, these health and environmental
problems will continue to worsen. This report focuses on the growing
importance of developing countries.
 In 1987, the World Commission on Environment and Development (WCED) 
concluded that the best route to sustainable development of the energy
system is a "low energy path", which means that nations should take the
opportunities "to produce the same levels of energy services with as little
as half the primary energy currently consumed". The improvement of energy
efficiency, or the more rational use of energy, is generally viewed as the
most important option in the near term to reduce greenhouse gas emissions
and to reduce the negative impacts of the use of energy and/or fossil fuels.
Energy efficiency is defined as decreasing the use of energy per unit
activity without substantially affecting the level of these activities. The
industrial sector consumes over 40 per cent of world energy. The bulk of
this is for production of basic materials such as metals, chemicals, paper,
and non-metallic minerals. The consumption of energy in this sector is also
dependent on how efficiently basic materials are used in the creation of
intermediate and final products (material efficiency). The use of less
material to produce the same or better product helps to encourage the shift
to a less energy-intensive economic or industrial structure. By analogy to
energy efficiency improvement, material efficiency improvement is described
as reducing the consumption of primary materials without substantially
affecting the service or function, or - in a broader definition- without
affecting the level of human activities qualitatively.
 Increasing energy and material efficiency has other benefits as well, e.g.
increased employment, improved balance of imports and exports, increased
security of energy supply, and ease of adopting environmentally-advantageous
energy supply (e.g. non-fossil and renewable energy sources). These benefits
are especially of interest to energy-importing developing nations that
shoulder a heavy burden to support growing energy demand.
 This study focuses on the potentials for energy and material efficiency
improvement and subsequent policy implications.  
 For purpose of analysis is the world divided in three regions, developed or
industrialized countries (IC), the economies in transition in Eastern Europe
and former Soviet Union (EIT) and developing countries (DC).

III.    POTENTIALS FOR ENERGY AND MATERIAL EFFICIENCY IMPROVEMENT
1.      Agriculture
Energy consumption in agriculture is divided into direct (on-farm) and
indirect (for e.g. fertilizers, pesticides) energy use. Direct energy
consumption by agriculture comprised about 3per cent of total world energy
consumption in 1990. Direct commercial energy consumption varies
significantly depending on agricultural practice and crop. In traditional
agriculture, direct energy consumption can be solely non-commercial,
including important sources such as animal and human labour.  Here the focus
is on direct on-farm consumption of commercial energy.
 Increasing degrees of mechanization led to higher energy inputs per unit of
product. Direct energy consumption per hectare of arable land in world
agriculture increased 3.3 per cent/year on average between 1980 and 1990,
and per unit product only 1.1 per cent/year. The difference can be explained
by the increase in productivity per hectare. For developing countries these
figures were 4.2 and 1.4 per cent/year respectively.
 Energy can be saved in tractor use by improved control of gears (estimated
technical savings of 5-28 per cent), maintenance and developments of diesel
engines (12-38 per cent), and reduced tillage (34-70 per cent of energy use
for tillage). High energy savings (27-86 per cent) are possible through
proper design, retrofit and maintenance of irrigation pumps.Energy savings
are also feasible in drying products, livestock production and in
horticulture of up to 60 per cent in industrialized countries.
2.      Industry
 Although significant potential exists in all industries to improve energy 
efficiency, our analysis focuses on identifying the energy efficiency
potential in five energy-intensive industries. These subsectors, which
account for roughly 45 per cent of all industrial energy consumption, are:
iron and steel, chemicals, petroleum refining, pulp and paper, and cement.
In 1992, industry accounted for 43 per cent (134 EJ) of global energy use.
Between 1971 and 1992, industrial energy use grew at a rate of 1.9  per cent
per year, slightly less than the world energy demand growth of 2.3 per cent
per year. This growth rate has slowed in recent years, falling to an annual
average growth of 0.3 per cent between 1988 and 1992, primarily because of
declines in industrial output in the EITs. Energy use in the industrial
sector is dominated by OECD countries, which account for 45 per cent of
world industrial energy use. Developing countries and the EITs use 32  per
cent and 23 per cent of world industrial energy, respectively.
 Much of the potential for improvement in technical energy efficiencies in
industrial processes depends on how closely such processes have approached
their thermodynamic limit. More efficient technologies exist for all
industrial sectors. 
 A large number of energy-efficient technologies are available in the steel
industry including continuous casting, energy recovery and increased
recycling.  Large technical potentials exist in most countries, ranging from
25 to 50  per cent, even for industrialized countries.
 A few bulk chemicals, e.g. ammonia, ethylene, represent the bulk of energy
use in this sub-sector. Potentials for energy savings in ammonia making are
estimated at 1-35  per cent in the European Union, 16-34  per cent  in EITs
and of 20-30  per cent in Southeast Asia. Saving estimates for ethylene
production are only available for industrialized countries and estimated to
be up to 12 per cent  (including feedstocks).
 Energy savings in petroleum refining are possible through improved process
integration, cogeneration, energy recovery and improved catalysts. Compared
to state-of-the-art technology, the savings in industrialized countries are
estimated to be 28  per cent, and higher for developing countries.
 Paper is produced in many countries, and consists of wood pulping and
papermaking from the pulp (and waste paper). Large potentials for savings
exist in nearly all process stages, e.g. improved dewatering technologies,
energy and waste heat recovery and new pulping technologies. Technical
potentials are estimated up to 40  per cent, with higher long term
potentials.
 Energy savings in cement production are possible through increased use of
additives (replacing the energy-intensive clinker), use of dry process and a
large number of energy efficiency measures (e.g. reducing heat losses and
use of waste as fuel). Compared to today's best practice, potential savings
are estimated at 4-36 per cent for IC, 30-57  per cent for EITs and 13-41
per cent for DCs.
3.      Buildings
 The buildings sector includes a wide variety of specific energy
applications such as cooking, space heating and cooling, lighting, food
refrigeration and freezing, office equipment, and water heating. These
applications are so-called end-use services, emphasizing the concept that
what is important is not the energy consumed but the service delivered
(cooked food), a warm space, or a lit office. The most important factors
that drive energy consumption in buildings are population, economic growth,
the type of energy services demanded, and the energy efficiency of devices
to provide those services. For example, building technologies such as
energy-efficient lighting or air conditioning reduce the energy required to
provide the same level of lighting or cooling in a building. 
 Approximately 36 per cent of world primary energy is consumed by commercial
and residential buildings. Global buildings energy use was 104 EJ
(commercial fuels only) in 1992, with IC buildings consuming 58  per cent of
total world buildings energy use, followed by developing countries (22 per
cent) and the EITs (20  per cent). Energy use in residential buildings is
about twice that of commercial buildings worldwide. However, energy demand
in commercial buildings has grown about 50  pere cent more rapidly than
demand in residential buildings for the past two decades. Between 1971 and
1992, average growth in energy use for buildings was 2.7  per cent per year,
faster than the global average energy use. Average annual growth rates in
buildings sector energy consumption between 1971 and 1992 were slowest in
the OECD (1.9  per cent) and much more rapid in the EITs (3.0  per cent) and
developing countries (6.2 per cent). Average declines of 3.8% per year were
experienced between 1988 and 1992 in the EITs.
 A wide variety of energy efficiency measures exist for all end uses, space
conditioning (including changes in the building envelope), efficient
appliances (in households and offices), improved lighting, motors in
ventilation and energy management systems. Studies estimate the technical
potential savings up to the year 2000 from 27-48  per cent in residential
buildings for various industrialized countries. In commercial buildings
estimates vary from 23-55 per cent in ICs, to up to 50-60 per cent in EITs
and DCs.
4.      Transport
 Since 1971, global transport energy use has grown at a rate faster than
total world primary energy use and has nearly doubled, jumping from 37 EJ to
63 EJ in 1992.  The rate of growth in consumption for developing countries
was rapid over this time period (4.7  per cent) while growth in ICs and EITs
countries was more moderate (2.1 per cent and 2.0  per cent respectively). 
Transport energy is divided between passenger and freight transport, both of
which include several modes, such as automobile, truck, rail, ship, or air.
Road transport, by passenger car and commercial trucks, accounts for the
vast majority of total energy use (73  per cent), followed by air (12 per
cent), rail (6 per cent), and other modes (9  per cent).
 The ICs dominates transport energy use, accounting for nearly two-thirds
(39 EJ) of total world energy consumption in 1992. Over the past two decades
there has been a steady increase in the number of kilometres driven annually
to transport both freight and passengers in ICs. Most of the additional
activity has occurred on roads. Energy use for transport in DCs has almost
tripled since 1971, growing from 9 EJ to 14 EJ in 1992. 
 Rapid economic growth has been accompanied by increased demand, resulting
in a tremendous growth in road energy consumption, averaging 6 per cent
annually. The share of energy use from road transport has increased to match
IC levels (80 per cent), while the share of rail has declined to about 8 per
cent of total energy use. Fuel intensities in developing countries are often
much higher than  industrialized countries due to poor roads and
infrastructure and poor maintenance, partly due to the wide variety and age
of cars used. Relative to the ICs, transport energy use in EITs has been
low, growing at about 2.0 per cent annually from nearly 6 EJ in 1971 to over
8 EJ in 1992. The more recent transformation of the economies in the EITs
has resulted in increasing demand for road freight as well as a dramatic
rise in the ownership and use of passenger vehicles.
 Transport energy use can be reduced by improving the efficiency of
transportation technology (e.g. improving automobile fuel economy), shifting
to less energy_intensive transport modes (e.g. substitution from passenger
cars to mass transit), improving the quality or changing the mix of fuels
used in the transportation system, and improving the quality of the
transportation infrastructure. For all modes of transport, substantial
opportunities exist to improve transportation equipment. Measures that
reduce energy use in conventional automobiles include improved engine
technologies, improved transmission, and decreasing weight of the vehicle.
Aircraft efficiency improvements center around similar measures. The
technical potentials for passenger cars are estimated at 15 to 55 per cent,
with similar figures for trucks. Energy savings in railway traffic are
estimated at 10-33  per cent worldwide. Significant reductions in energy use
can be achieved by encouraging shifts to less energy-intensive modes of
transport.
5.      Materials Efficiency Improvement
 Historically, industry has been an open system, transforming resources to
products or services that are eventually discarded after use by society.
This system is non-sustainable as it consumes non-regenerative resources and
produces large quantities of waste. The environmental problems associated
with each step in the production and consumption processes have led to a
re-evaluation of the way the economy works. 'Industrial ecology' studies
industrial systems in analogy with natural processes. Although the
biological system leaves some wastes, it is a self-sustaining system with
solar energy being the only external input. 'Industrial ecology' looks for
changes in policy and practice that will push the industrial system in
sustainable directions.
 Global material consumption both for 'classic' materials (e.g. cement,
steel) and for the 'new' materials (e.g. plastics, aluminium) is increasing.
Studies of material consumption in industrialized countries have shown that
the consumption (expressed as apparent consumption per capita or unit GDP)3  
increases in the initial development of society to a maximum, and eventually
saturates or even declines. The initial increase is caused by large
investments required in building an (industrial) infrastructure. In later
stages material substitution and competition among materials, as well as a
shift to a more service oriented economy, decrease material intensity.
Although the use of all materials in developing countries will certainly
grow, it is likely that the ultimate per capita consumption may not be as
high as in the industrialized countries. Future saturation levels will
depend on many factors, including technology transfer and infra-structural
(including economic structure) policy choices. The rapidly developing
East-Asian countries, already show a growing economic importance of the
services sector.
 At several stages in the material life-cycle, intervention can increase the
material efficiency over the total cycle. We distinguish good housekeeping
(prevention), material efficient product design, material substitution (by
other or improved materials), product reuse, material recycling, and quality
cascading (use of recycled material for a function with lower material
quality demands).
 Recycling of metals has a long tradition, and worldwide over 40 per cent of
steel is produced using scraps. Material losses can be reduced throughout
the manufacturing processes. Developments in product redesign and improved
steel qualities are leading to further weight reductions in car manufacture
(e.g. ultra light steel auto body (ULSAB)) and other products. Improved
corrosion resistance can increase life-time of constructions considerably.
 Global plastics consumption is estimated at 72 Mtonnes, of which nearly 80
per cent is in OECD countries. Good housekeeping can reduce demand for
various packaging applications. Plastics can be tailored to match the
product demands. Development of plastics with improved qualities can  reduce
the material demand. Substitution of other materials by plastics can reduce
weight (e.g. cars) or lengthen life-time (e.g. bottles), saving material and
energy. One study for The Netherlands estimated the short-term technical
potential to reduce material demand for packaging plastics at 34 per cent of
1988 levels.
 Fertilizer use is dissipative, and hence recycling is impossible. A variety
of measures to reduce losses are available, including recommended fertilizer
application levels, matching crop needs and timing of fertilization, and
spreader maintenance. Estimated savings in industrialized countries can be
up to 40 per cent, and savings are also feasible in DCs, although very
dependent on the local situation. Case studies in India found potential
reductions of 20-50 per cent.
 Recycling of paper is well established in many countries, and reduces pulp
production. Increased use of recycled paper is feasible for many
applications, and depends strongly on the fibre quality. Waste paper
recovery is estimated worldwide at 38  per cent, with the highest rates in
Austria (71 per cent) and The Netherlands (63 per cent). Initiatives show
achieved reduction levels of use of paper for packaging and printing
(copying) of 10-50 per cent. Studies estimate the technical reduction
potential for some applications at 50 per cent.
 Cement is mainly recycled to be filler material, with only limited energy
savings. The major options are the development of high strength cement types
(reducing the specific cement use) and the use of waste materials as
additives (reducing the clinker demand). The use of additives in cement
varies widely throughout the world, and large potentials exist.
 The first integrated material-energy studies, although using high
aggregation levels, show that material efficiency improvement, changing
material consumption patterns in society and chain management can play an
important role in reducing energy demand. The assessments also showed that
integrated material and energy policies reduce the costs of CO2 emission
reduction. 
 Experimental programmes to develop clean processes and products are
developed in many countries as well as disseminated internationally (e.g.
EU, OECD, UNEP). These programmes indicated potentially large reductions in
material losses and showed that substitution of process inputs can lead to
increased efficiency and strongly reduced waste production.
III.    SCENARIOS FOR ENERGY DEMAND
 To analyze opportunities to the year 2020 we developed three scenarios: 
business-as-usual, state-of-the-art, and ecologically driven/advanced
technology. The business-as-usual scenario assumes the continued use of
current technologies and continuing efficiency improvements caused mainly by
stock turn over and shifts to industrial activities of lower energy
intensity. The state-of-the-art scenario assumes the replacement of existing
stock with the current most efficient technologies available. The
ecologically driven/advanced technology assumes a more rapid uptake of
current state-of-the-art technologies and adoption of some advanced
technologies, which are now demonstrated or under development.
 Under business-as-usual conditions, energy consumption will grow at an
estimated average rate of 2.0 per cent/year to 566 EJ between 1990 and 2020. 
Important growing energy markets are the developing countries, especially in
the industrial sector and in energy use for buildings. Energy use for
transport is expected to increase globally.  Direct energy consumption in
agriculture, although small, will also grow in developing countries and
remain nearly constant in the industrialized countries. 
 Two scenarios were developed to reflect different development paths for
energy policy. Under a state-of-the-art scenario (assuming adoption of
today's state-of-the-art technology in all sectors by the year 2020) energy
use will still grow, but limited to 1.3per cent/year to 465 EJ in 2020. The
strongest growth will be found in buildings and transport. The advanced
technology/ecologically driven scenario assumes active energy policies that
lead to accelerated implementation and development of new energy-efficient
technologies. Under this scenario, growth of global energy use can be
limited to 0.6 per cent/year to 373 EJ, with slight growth in buildings,
agriculture and transport, and nearly constant energy use in the industrial
sector. 
 Material efficiency improvement, with exception of recycling, has not yet
been incorporated in these scenarios. We estimate that increased material
efficiency improvement, in addition to energy efficiency measures, may
decrease the growth rate of energy consumption to 0.2 per cent/year,
resulting in an energy consumption of 334 EJ under the 'advanced technology'
scenario. The scenario results are presented in Figure 1.
 The energy and material efficiency improvements in the two efficient
scenarios will not be realized without a significant increase in policies
using new and innovative combinations of instruments.  The review of current
energy policies and instruments showed that energy is often still seen as a
supply side issue, especially in developing countries and in the allocation
of R&D budgets in industrialized countries. However, large differences exist
between regions and countries. For example, in Africa most energy policies
and expenditures are related to expanding energy supply while in some
rapidly industrializing countries in Asia energy efficiency improvement has
become an important element of energy and economic policy.
 Figure 1. Results of the three scenarios for aggregate world energy
consumption between 1990 and 2020. The standard lines depict energy
efficiency scenarios. The thick lines represent scenarios with energy and
material efficiency improvement.
IV.     IMPLEMENTATION BARRIERS AND POLICY INSTRUMENT
 Several categories of efficiency improvement potentials can be
distinguished. The theoretical potential of energy efficiency improvement
for a certain process is determined by thermodynamic laws. The technical
minimum is determined by the technological state-of-the-art and varies with
the time horizon studied. The technical potential is defined as the
achievable savings resulting from the most effective combination of the
efficiency improvement options available in the period under investigation.
Applying economic constraints, we can also identify an economic potential
for energy efficiency improvement, which is defined as the potential savings
that can be achieved at a net positive economic effect, i.e. the benefits of
the measure are greater than the costs. Investments are assumed to
depreciate over the technical life time, at a specific discount rate. The
market potential is defined as the potential savings that can be expected to
be realized in practice, and is determined by investment decision criteria
applied by investors under prevailing market conditions. 
1.      Implementation Barriers
 Under perfect market conditions, all additional needs for energy services
are provided by the lowest cost measures, whether energy supply increases or
energy demand reductions. There is considerable evidence that substantial
energy efficiency investments that are lower in cost than marginal energy
supply are not made in real markets, suggesting that market barriers exist.  
There is also compelling evidence that economic potentials for energy
improvements in developing countries are at least as large as industrialized
countries.  If more balanced energy investment strategy were instituted,
resulting in increased investment in energy efficiency and reduced
investment in energy supply, developing countries could save significant
amounts of capital sacrificing energy services.    In a case in which half
of the electricity services come from new supply and half come from energy
efficiency investments in developing countries and Eastern Europe, the gross
reduction in investment in electricity supply over the period 1985 to 2025
was estimated to be $2.3 trillion (1990 US$) compared with a scenario
meeting the same energy service demands with much lower investment in energy
efficiency. Adding the cost of the efficiency investments, the net savings
is $1.7 trillion over 40 years or $42 billion per year.
 We first discuss barriers to the investment in and implementation of energy
efficiency measures that apply to all economies followed by a discussion of
additional barriers that are of particular importance to developing nations. 
 Willingness to invest.  The decision-making process to invest in energy
efficiency improvement, like any investments, is shaped by the behaviour of
individuals or of various actors within a firm. Decision-making processes in
firms are a function of its rules of procedure, business climate, corporate
culture, managers' personalities and perception of the firm's energy
efficiency. Energy awareness as a means to reduce production costs seems not
to be a high priority in many firms, despite a number of excellent examples
in industry worldwide (e.g. Dow Chemical in Louisiana (USA), where each year
more profitable energy conservation projects are identified in an annual
contest with rate of returns far over per cent..
 Information and Transaction Costs.   Cost-effective energy efficiency
measures are often not undertaken as a result of lack of information or
knowledge on the part of the consumer, or a lack of confidence in the
information, or high transaction costs for obtaining reliable information. 
Information collection and processing consumes time and resources, which is
especially difficult for small firm  and individual households. Many
individuals are quite ignorant of the possibilities for buying efficient
equipment, because energy is just one of many criteria in acquiring
equipment. Public authorities and utilities play an important role in
providing this information. However, in many developing countries public
capacity for information dissemination is lacking, stressing the need for
training in these countries. Training is essential, and is currently lacking
in energy conservation planning and policy making.
 Profitability Barriers.  There is compelling evidence that residential
consumers substantially underinvest in energy efficiency or, stated
differently, require high rates of return (50-80 per cent) to make such
investments.  Many firms have high hurdle rates for energy efficiency
investments often because of limited capital availability.  Capital
rationing is often used within firms as an allocation means for investments,
leading to even higher hurdle rates, especially for small projects with
rates of return from 35 to 60 per cent, much higher than the cost of capital
(~15 per cent).  On the supply side the costs of capital are much lower,
leading to imperfections of the capital market. When energy prices do not
reflect the real costs of energy, then consumers will necessarily
underinvest in energy efficiency. Energy prices, and hence the profitability
of an investment, are also subject to large fluctuations. The uncertainty
about the energy price, especially in the short term, seems to be an
important barrier. The uncertainties often lead to higher perceived risks,
and therefore to more stringent investment criteria and a higher hurdle
rate.
 Lack of skilled personnel.   Especially for households and small and medium
sized enterprises (SME) the difficulties installing new energy-efficient
equipment compared to the simplicity of buying energy may be prohibitive. In
many firms (especially with the current development toward lean firms) there
is often a shortage of trained technical personnel, as most personnel are
busy maintaining production. A survey in The Netherlands suggested that the 
availability of personnel is seen as an barrier to invest in
energy-efficient equipment by about one third of the surveyed firms. In the
EITs the disintegration of the industrial conglomerates may lead to loss of
expertise and hence similar implementation problems. Outsiders (consultants,
utilities) are not always welcome, especially if proprietary processes are
involved. In developing countries there is hardly any knowledge
infrastructure available that is easily accessible for SMEs. Such knowledge
is important because SMEs are often a large part of the economy in
developing countries, and are often inefficient. 
 Other Market Barriers.   In addition to the problems identified above,
other important barriers include (1) the "invisibility" of energy efficiency
measures and the difficulty of demonstrating and quantifying their impacts;
(2) lack of inclusion of external costs of energy production and use in the
price of  energy, and (3) slow diffusion of innovative technology into
markets.There are further barriers to energy efficiency in residential
markets. For dwellings that are rented, there are few incentives for the
renter to improve the property that he/she does not own; similarly, the
landlord is uncertain of recovering his/her investment, either in higher
rents (as it is difficult to  prove that improved thermal integrity will
save the renter money in utility bills) or in the utility bills, as the
bills depend on the behaviour of the renter.
 Additional Barriers to Energy Efficiency in Developing Countries.  
 Developing countries suffer from all of these factors that inhibit market
acceptance of energy-efficient technologies plus a multitude of other market
problems. Energy costs in industrialized countries often do not reflect the
total costs, but the problem is especially serious in developing countries,
where energy is very considerably underpriced, with the government providing
the energy supply industries (especially electric power producers) large
subsidies. Consumers often have no knowledge of energy efficiency and, if
they did have knowledge, often cannot afford even small increases
inequipment costs. The problem of this knowledge gap concerns not only
consumers of end-use equipment but all aspects of the market. Many producers
of end-use equipment have little knowledge of ways to make their products
energy efficient, and even less access to the technology for producing the
improved products.  End-use providers are often unacquainted with efficient
technology.
 Rigid hierarchical structure of organizations and the paucity of
organizations occupying the few niches in a given area, lead to strong and
closed networks of decisionmakers who are often strongly wedded to the
benefits they receive from the status quo. The hierarchy in India led to the
discontinuation of an innovative program for a utility to lease compact
fluorescent lamps to its customers.   At least ten major barriers to
adopting energy efficiency in India are: lack of information about products;
limited ability to pay even small increased first costs; very low
electricity prices; limited foreign currency (which makes difficult the
purchase of modern equipment from outside the country); poor power quality
(which often interferes with the operation of the electronics needed for
energy-efficient end-use devices); shortage of skilled staff to select,
purchase, and install efficient equipment; a large used equipment market
which keeps inefficient equipment operating long after its useful life; high
taxes that increase the first cost differential between efficient and
inefficient products; and the very high risk aversion of the lending
community; and many small and/or outdated industrial activities that do not
have resources to produce efficient equipment. 
2.      Policy Instruments
 Energy Price Reform and Other Economic Instruments Energy Prices.
   Markets are a powerful and fundamental force in wide_scale implementation
of energy efficiency. Subsidies that depress prices of energy provide a
significant disincentive for energy efficiency. The removal of this barrier-
low energy prices  is an important step toward creating an investment
climate in which energy efficiency can prosper. Between 1979 and 1991,
electricity prices in developing countries were on average 40 per cent 
lower than electricity prices in OECD countries. The disparity grew over the
period from an average difference of 2.3 cents/kWh (1986 US$) between 1979
and 1984 to an average difference of 3.4 cents/kWh between 1985 and 1991.
Energy prices in some areas are beginning to more closely reflect costs in
response to commercialization of the electricity industry and investment by
independent power producers.
 The international lending organizations have been strong proponents of
energy price deregulation in developing countries.   The largest hurdle to
such price increases involves the impact on low-income consumers. This is a
serious problem in many developing countries, as low-income urban families
often spend a substantial portion of their income on energy. Recent surveys
in urban areas of developing countries show the poorest 20 per cent of the
population spending 20 per cent of their income on energy. It should be
noted that often in DCs the poorest have no access to commercial energy use
at all.  The impacts of higher energy prices on the urban poor can be
mitigated in several ways. A low tariff for the lowest consumption block can
be instituted, the so-called "lifeline rate" in the USA. Subsidies for
energy efficiency improvements can be targeted at low-income urban dwellers.
Such subsidies could moderate an increase in energy services.   Because the
lowest income population consumes a relatively small proportion of total
energy in developing countries, revenue obtained from energy price increases
would be expected to far exceed any subsidies to the low-income consumers.
The main points are that (1) energy price deregulation is a very important
step to achieving end-use energy efficiency in most developing country
economies, (2) such deregulation is very unlikely without protecting low-
income consumers, and therefore (3) increased attention to innovative ways
to protect these consumers is needed. 
 Direct subsidies and tax credits or other favourable tax treatments have
been a traditional approach for promoting activities that are thought to be
socially desirable. Incentive programs need to be carefully justified to
assure that social benefits exceed costs.  An example of a financial
incentive program that has had a very large impact on energy efficiency is
the energy conservation loan program that China instituted in 1980.
 Utility integrated resource planning (IRP), which has been applied
primarily in industrialized countries, is used to assess all options for
meeting energy service needs, including utility-sponsored end-use efficiency
programs. The novel feature of IRP is that it requires utilities to look
beyond the utility meter and into the ways that electricity is used, in
order to find the least-cost way of providing energy service. IRP programs
in the US have shown a wide variety of end-use efficiency measures that are
less costly than energy supply additions. Two major problems occur: (1)
inducing the utility to carry out end-use efficiency programs and (2)
designing these programs so that they are in fact cost-effective.
 There have been many evaluations of individual utility DSM programmes, and
most have been shown to be more cost-effective than energy supply. It is,
nonetheless, difficult to accurately measure the performance of these
programs.  Electricity used is a measurable quantity. Electricity saved is
much more elusive.  We have seen earlier that the relative invisibility of
energy savings acts as a disincentive to consumer investment.   It is not
easy to overcome consumer scepticism even of energy efficiency measures that
perform extremely well, when evidence for success is uncertain in the
absence of extensive statistical studies. 
 There has been interest in IRP and the establishment of DSM programmes in
developing countries. Thailand has launched a multi-sectoral DSM programme
to invest US$ 180 million over five years that is aimed at saving 225 MW of
peak demand and 1,000 GWh annually. This is estimated to be half the cost of
new supply. The program includes design assistance for new commercial
buildings, as well as lighting retrofits in existing buildings. China has
also shown considerable interest in IRP, with several utilities developing
plans. Utilities in Mexico and Brazil have been active in DSM programs. 
 Other Market Mechanisms intended to achieve results similar to regulatory
programs but without a "command and control" approach have come to be known
as market mechanisms. They generally have two features: (1) they depend on
market decisions for their effectiveness and (2) they are generally revenue
neutral (i.e., do not represent any increase in government expenditures). It
is the second attribute that has made these programs of particular interest
during times of tight governmental budgets. These types of programs have
been tried as alternatives to regulation in environmental control. For
example, use of pollution trading mechanisms is an innovative way of
achieving environmental standards, potentially at much lower cost than
command and control approaches.
Regulations and Guidelines
 Regulatory programs have proven effective in promoting energy efficiency
gains. Examples include appliance energy efficiency regulations, automobile
fuel economy standards, and commercial and residential building standards
programs. In such programs the government passes a requirement that all
products (or an average of all products sold) meet some minimum energy
efficiency level. Energy efficiency standards are applied in many countries
for various energy uses. Standards can be performance based, or
prescriptive. Performance standards do not mandate how the manufacturer is
to meet them (i.e., what technologies or design options to use) and are used
for appliances or cars (e.g. the CAFE standards in the US). 
 Appliance energy efficiency standards have been aggressively pursued in the
US. Since the passage of the National Appliance Energy Conservation Act
(NAECA) by the U.S. Congress in 1987, the federal government has mandated
standards for such products as refrigerators, water heaters, furnaces and
boilers, central air conditioners and heat pumps, room air conditioners,
clothes washers, dryers, and dishwashers, ovens, and lighting ballasts.
NAECA requires a periodic update on all standards, with the timing of new
standards differing among products. From the viewpoint of economic and
energy savings, these standards have been a major success. The standards
already in effect are expected to reduce energy consumption in the US by 1.1
EJ/year by the year 2000 and 2.75 EJ/year by 2015. 
 Building energy standards may be performance or component standards. Almost
all residential standards specify the measures to be included in the
building to comply. Some of them also have an alternative or performance
pathway, in which the builder may choose different combinations of measures
to meet a specified performance. The actual energy savings from building
energy standards are more difficult to estimate than for appliances and
automobiles, as, buildings are not mass-produced, and the operation of a
building, which is not affected by building energy codes, plays a major role
the actual performance of buildings. A survey of energy standards that
received replies from 57 countries, more than half of which do not belong to
the OECD, revealed that 27 had mandatory standards (of which four were
residential only and two were commercial only), 11 had voluntary or mixed
standards, 6 had proposed standards, and only 13 (all developing countries)
had no standard. The  degree of success of these standards in buildings as
built and operated is still a major issue.
Voluntary Agreements 
 A voluntary agreement generally is a contract between the government (or
another regulating agency) and a private company, association of companies
or other institution. The private partners may promise to attain certain
energy efficiency improvement, emission reduction target, or at least try to
do so. The government partner may promise to financially support this
endeavour, or promise to refrain from other regulating activities. For
example, in Denmark companies that enter into a voluntary agreement with the
government are exempted from paying the carbon tax. The U.S. Environmental
Protection Agency (EPA) has created voluntary programs to reduce greenhouse
gas emissions. These programs are known as EPA's "green programs." The Green
Lights program, launched in 1990, involves an agreement between EPA and
corporations in which the corporation commits to all cost-effective lighting
retrofits and EPA commits to providing technical support. There has been
much experience with voluntary agreements in the Netherlands, especially in
the field of waste management policy and toxic emissions policy. The
experiences varied strongly: from successful actions to complete failures.
In some cases the result of a voluntary agreement may come close to those of
regulation. In regulation there is often are aspects of 'agreement', such as
the negotiation between the regulating body and the regulated party.
Voluntary agreements can have some advantages above regulation, in that they
may be easier and faster to implement, and may lead to more cost-effective
solutions. 
 
Information Programs
 Information programs are designed to assist energy consumers in
understanding and employing technologies and practices to use energy more
efficiently. These programs aim to increase consumers' awareness,
acceptance, and use of particular technologies or utility energy
conservation programs. Examples of information programs include educational
brochures, hotlines, videos, home energy rating systems, design-assistance
programs, audits, energy use feedback programs, and labelling programs.
Information needs are strongly determined by the 
situation of the actor. Therefore, successful programs should be tailored to
meet these needs.
 Information programs are often components of larger energy efficiency
activities, so evaluations of their effectiveness is limited. Information
programs by themselves have been shown to result in energy savings of 0 to 2
per cent.   A US utility that launched a two-year advertising promotional
campaign for energy efficiency found that participation rates in their
programs often doubled, but that savings were not necessarily persistent for
long periods. Developing countries such as China, Brazil, Mexico, India, and
Thailand have developed large-scale information programs to promote lighting
and other residential technologies, although few detailed assessments exist
on the effectiveness of these efforts. In general, information campaigns are
most effective when the provider is a trusted organization and when the
information is provided face-to-face.
 Energy audit programs are a more targeted type of information transaction
than simple advertising. Residential energy audits performed in the US in
the 1980s have been shown to have average net savings of 3 to 5 per cent
with benefit/cost ratios between 0.9 and 2.1.Education and training both for
customers and for industrial energy managers offers perhaps the greatest
potential for achieving long term energy efficiency savings, especially for
developing countries. In industrialized countries, training has often proven
to be a highly cost-effective option for achieving savings. One US utility
measured the effect of weatherization energy efficiency education for low-
income customers and found annual savings 8 per cent higher than for
customers who did not receive the information and training.  The U.S.
Climate Change Action Plan relies on information programs to capture about 5
per cent of overall CO2 emission reductions. 
Research, Development and Demonstration (RD&D) 
 RD&D comprises creative work undertaken on a systematic basis to increase
the stock of knowledge, including knowledge of people, culture and society,
and the use of this knowledge to devise new applications. Different stages
of RD&D can be distinguished: basic research, applied research, experimental
work and demonstration. The challenge of climate change is to achieve deep
reductions over time, which can only be reached by building (technological)
capacity through sustained RD&D efforts. 
 There is consensus among economists that R&D has a payback that is higher
than many other investments, and the success of directed R&D has been shown
in fields like civilian aerospace, agriculture and electronics. Still, the
private sector has a propensity to underinvest in RD&D, because it cannot
appropriate the full benefits of RD&D investments, due to 'free riders'
(firms that imitate but don't bear the costs of the RD&D).  Firms will also
underinvest in RD&D that reduces costs not reflected in market prices, such
as air pollution damages and climate change. Currently, widespread cutbacks
in energy RD&D, both public and private, threaten the continuity of the RD&D
effort. US public energy RD&D funds have decreased by 65 per cent and by 33
per cent in other OECD countries between 1977 and 1992. Industrial energy
RD&D expenditure in the US decreased from 1.3 per cent to 0.7 per cent of
GDP in the same period, cutting back mainly in basic research. This trend is
expected to continue, as many utilities and industries are reducing costs to
compete in more open markets.
 RD&D in energy should be prioritized with climate change policy goals. Less
than 6 per cent of the energy R&D budget of IEA countries in 1990 was spent
on energy conservation and 6 per cent was spent on renewable energy, while
spending on nuclear fusion (46 per cent), nuclear fission (11 per cent) and
fossil energy (18 per cent) domited. RD&D should be a sustained activity,
because it takes large resources to build up a knowledge infrastructure, and
the key to success is so-called 'tacit knowledge' (unwritten knowledge
obtained by experience), which is easily lost. A diversified portfolio is
needed, as not all RD&D will lead to commercialization. Priority to
relatively small-scale technologies like energy efficiency and renewables,
allows a diversified portfolio with limited budgets. A diversified portfolio
also makes it possible to meet the different RD&D demands of industrialized
and developing countries. Finally, long term research should be protected
against the often more costly demonstration and commercialization
initiatives. Sustainable energy policies should secure continuity of RD&D
funds by appropriate funding mechanisms, by public funding of valuable RD&D
that it is not executed by industry, and cost-sharing of RD&D where both
private and public benefits are produced.
 Co-operation between Industrialized and Developing Countries An important
arena for cooperation between the industrialized and developing countries
involves the development and strengthening of local technical and policy-
making capacity.  Project-oriented agencies eager to show results commonly
pay inadequate attention to the development of institutional capacity and
technical and managerial skills needed to make and implement energy
efficiency policy.
 Energy efficiency should be viewed as an integral component of national and
international development policies. Energy efficiency is commonly much less
expensive to incorporate in the design process in new projects than as an
afterthought or a retrofit.   In the environmental domain, we have learned
that "end of pipe" technologies for pollutant clean-up are often
significantly more expensive than project redesign for pollution prevention,
leading to widespread use of pre-project environmental impact statements to
address these issues in the planning phase.  Energy efficiency should also
be incorporated into the planning and design processes wherever there are
direct or indirect impacts on energy use such as in the design of industrial
facilities or in transportation planning.
 There is great need for technological innovation for energy efficiency in
the developing countries. The technical operating environment in these
countries is often different from that of industrialized countries.  For
example, poorer power quality, higher environmental dust loads, and higher
temperatures and humidities require different energy efficiency solutions
than successful solutions in industrialized country conditions. Technologies
that have matured and been perfected for the scale of production, market,
and conditions in the industrialized countries may not be the best choice
for the smaller scale of production or different operating environments
often encountered in a developing country. 
 Finally, joint implementation (JI) may also be a useful energy efficiency
promotion instrument. JI involves a bi-or multi-lateral agreement, in which
(donor) countries with high greenhouse gas abatement costs in implementing
mitigation measures in a (host) country with lower costs, and receive credit
for (part of) the resulting reduction in emissions. To be successful JI
project should fit in the scope of sustainable development of the host
country (without reducing national autonomy and with cooperation of the
national government), have multiple (environmental) benefits, not replace
development aid, be selected using strict criteria and be limited to a
(small, e.g. 15 per cent) part of the abatement obligations of an
industrialized country (the most likely donors). Determination (and
crediting) of the net emission reductions is also a problem that stresses
the need of well-developed baseline emissions, i.e. emissions that would
occur in the absence of the project.   JI is not straightforward. It can
prove to be a viable financing instrument to accelerate developments in
economies-in-transition and in developing countries, only if implemented
according to the criteria discussed above. Comprehensive evaluation of pilot
projects is necessary to formulate and adapt these criteria, including the
issue of crediting.   Hence, the role of JI on the short term will be
limited but might grow in importance in the next decades.
VI.    CONCLUSIONS
 In this assessment we focus on energy because of the important
environmental and social implications of its use. The study has shown that
large potentials exist for energy savings through energy and material
efficiency improvement in all sectors of society and that these savings can
change current unsustainable consumption patterns. Three factors have played
a major role in the considerable energy efficiency improvements in the past
decades: increasing energy prices (except for the past five to ten years),
energy policies aimed at bringing energy efficiency into the market, and
technological development.
 Energy and material efficiency improvement reduces air pollution (global
warming, acid precipitation, and smog in the urban and industrial
environment), waste production (ashes, slags), and water and thermal
pollution. Efficiency improvement is a cheap energy source.  Other economic
benefits are the reduced costs of energy transformation and generation,
reduced fuel imports, and increased energy security. Technologies do not
now, nor will in the foreseeable future, provide a limitation on continuing
energy efficiency improvements.
 Barriers to efficiency improvement can include: unwillingness to invest,
lack of available and accessible information, economic disincentives, and
organizational barriers. The degree in which a barrier limits efficiency
improvement is strongly dependent on the situation of the actor (households,
small companies, large industries, utilities). This means that no single
instrument will 'do the job'. A range of policy instruments are available,
and innovative approaches or combinations have been tried in some countries.
Successful policy can contain regulation (e.g. product standards) and
guidelines, economic instruments and incentives, voluntary agreements and
actions, information, education and training, and research, development and
demonstration policies. Successful polices with proven track records in
several sectors include efficiency standards and codes, technology
development, and utility/government programs and partnerships. Improved
international cooperation to develop policy instruments and technologies to
meet developing country needs will be necessary, especially in light of the
large anticipated growth in this region. New instruments, e.g. joint
implementation, are under development, but comprehensive evaluation is
needed to tailor these instruments to specific needs. 
 Material efficiency improvement has not yet received as much attention in
policymaking and analyses as energy efficiency. As a result, detailed data
on the qualities and quantities of final consumption are not available,
making it difficult to formulate effective policies. However, the available
studies suggest the existence of large potentials for improved use of many
materials in industrialized and developing countries. Efficiency improvement
in industrialized countries can reduce consumption up to 40 per cent for
some materials, maintaining the same service level. Many options for
material efficiency improvement exist. Despite the growing demand for
services in developing countries, possibilities exist to reduce the material
intensity of these services.  Integrated assessments of the
energy/materials-system suggest that emission reductions can be achieved at
lower costs through combined energy and material efficiency approaches.
Current initiatives to develop clean technologies and products show that
these can be successfully combined to achieve large reductions in resource
inputs and emissions. The change to less energy-intensive consumption
patterns should also result in reduced consumption of materials.  As with
energy, there are barriers to material efficiency improvement which, along
with the problems mentioned above, include issues related to chain
management such as communication and linking of material-product-waste
streams.
VII.    RECOMMENDATIONS
 A policy aimed at sustainable development places energy and material
efficiency improvement in the middle of the economic and environmental
policy field. Energy efficiency facilitates the introduction of renewables
and 'buys time' for the development of low-cost renewable energy sources.
However, energy efficiency does not receive attention appropriate for the
important role it needs to play in development of an
environmentally-sustainable society. Regulatory frameworks typically do not
recognize energy efficiency improvement as an energy source. A balanced
approach is required to place supply and demand on an equal footing. Changes
are needed to fulfil the promise of energy efficiency and to fulfil energy
needs more sustainably, accounting for social, economic and environmental
issues.   A number of recommendations formulated on the basis of the study
are presented below for consideration, as appropriate, by  States, entities
within the United Nations system, other inter-governmental and
non-governmental organizations.
1.   Cooperation in the energy efficiency field should be increased between
the industrialized countries and the countries in the developing world and
Central and Eastern Europe. Without such cooperation and assistance lower
energy paths (as reflected in the state-of-the-art and 
advanced technology-scenarios in this paper) are not possible because so
much of the world's energy growth will be in developing countries.
Cooperation should first be directed at building public awareness and
indigenous capacity (see below) which is one of the basic steps in
development and in increasing energy and material efficiency. Such awareness
will lead to an increased focus on sustainability issues and can have
long-term effects on policy formulation and effectiveness. 
2.   Capacity building includes education, training, and information
transfer on the national and international level. Training in all aspects of
energy and material efficiency is essential, ranging from energy planning to
technical and engineering training. An analysis of the training needs in
developing countries should be executed. The efforts should be evaluated
regularly to be able to redirect the programmes to the needs.
3.   There is a need for detailed information regarding technical options
for energy and material efficiency improvement for use in national
policymaking as well for development of international initiatives. However,
this information often is not available or accessible. This is especially
true for developing countries which typically have more limited knowledge,
information, and education resources. The quality and availability of
information on energy and material efficiency provided through governments,
energy agencies, vendors, trade and consumer associations, or other
appropriate bodies needs to be improved. The training and information
structure should be tailored to meet the demands of the energy customer.
Continuous efforts are needed to maintain effectiveness, as knowledge
infrastructure is difficult to build up but easy to break. 
4.   Because of the expected high economic growth rates in developing
countries, huge investments in industrial production equipment and energy
infrastructure which will determine the structure for the next decades or
even longer are expected. These upcoming investments represent an
opportunity, if acted on appropriately, to adopt the best available
technologies, as these growing markets are good theatres for innovation.
Tariffs and other barriers for importing and exporting energy-efficient
technologies should be removed to enhance technology transfer. The emerging
markets for new (and clean) technologies in developing countries stress the
importance of considering the special demands these markets put on product
and process development. Developing technologies that enable production and
implementation in these countries can help these countries to 'leapfrog' the
unsustainable development path followed in the past by industrialized
countries. This includes demonstrating the feasibility of advanced
technologies in developing countries.
5.   Countries should establish comprehensive policy plans with clearly
defined energy and material efficiency goals. Such plans set clear targets
for all actors and make it possible to direct and evaluate policies. In
addition, clearly defined goals improve communication, credibility, and the
outlook for investors. A medium-to long-term perspective on energy polices
will reduce perceived risks. The effectiveness of comprehensive policies is
illustrated by countries such as South Korea and Japan. To be effective, the
policy plans should contain 'hard' goals. The UN could play an important
role in overseeing and harmonizing policy plans, as well as the achievements
(as set forth in the FCCC).
6.   Development and design of new regulatory, legal, and market frameworks
is needed because current frameworks do not fully recognize the role of
energy efficiency improvement, both nationally and internationally.
Important global changes and developments are taking place in the power
sector, leading on one hand to larger multi-national utilities, and on the
other hand to development of decentralized power generation by self
generators and utilities. A new regulatory framework should emphasize
internalization of input and emission reduction through integral
environmental auditing and development, rather than end-of-pipe measures.
This can be accomplished through introducing integrated resource planning,
demand side management, and attention to generation technologies like
cogeneration and various renewable energy sources.   The establishment and
strengthening of the role of energy service companies (or utilities) in
developing countries can be an important step towards generating long term
interest in efficiency improvement.
7.   Mechanisms for energy and material efficiency improvement are not
limited to technologies. This is because a number of technical,
socio-economic, and behavioral barriers limit the market diffusion and
correct application of new energy-efficient technologies. The barriers are
not yet fully understood and are partly due to the issues raised above. A
better understanding of the barriers, in order to formulate efficient policy
instruments and incentives is needed.
8.   With regard to implementation strategies is there no 'deus ex machina';
instead, an integrated policy accounting for the characteristics of
technologies and target groups addressed is needed.
9.   Subsidized energy prices in many countries provide disincentives for
energy efficiency improvement or efficient use of materials. Removal of
existing energy subsidies must be done carefully to take account of social
and economic circumstances, as energy is essential for 
development. Price transformation should take place within a strict
schedule, while mitigating the negative effects for the poorest by special
efficiency programmes. Important incentives for energy and materials
efficiency will be provided with the establishment of energy prices that
reflect real costs, internalizing factors now external to the pricing
structure (e.g. environmental and social costs). Recognizing that no
consensus is yet reached on this issue, planned step-wise price increases
are needed as an incentive for energy efficiency improvement, which will
also reduce the perceived uncertainty in energy price developments by
investors.
10.   National and international standards for many products (e.g.
appliances, packaging, buildings) and production equipment (e.g. electric
motors, boilers), and internationally accepted testing procedures have
played an important role in improving the environmental characteristics of
these products and processes. Standards are likely to continue playing an
important role and widespread adoption and adaption over time is recommended
to push technology development. A legal basis should be provided for product
standards (e.g. energy standards for appliances) in national legislation.
Standard setting along with technology procurement programmes will
strengthen R&D. Standards play a role in establishing widespread 'uniform'
technologies or practices. New forms and applications of efficiency
standards should be investigated.   Establishment of internationally
accepted testing procedures would be an important step to assist developing
countries willing to promote standard setting.
11.   Financing and fiscal instruments have taken various forms (e.g.
subsidies, accelerated depreciation). An important hurdle seems to be the
different financing criteria for supply and demand options. Capital
allocation to energy efficiency investments should use life-cycle costing
for demand options or make use of innovative approaches (e.g. by energy
service companies or utilities). Financial and fiscal incentives should be
tailored to the markets in which the actor is operating, potentially
reducing the 'free-rider' problem. In line with the above, financing or
fiscal incentives for end-of-pipe technologies should be phased out to
strengthen the process of internalization of environmental costs and
integrated resource planning in design of processes, products, and
infrastructures. Internationally, accessible and affordable financing for
developing countries is needed, e.g. by redirecting international
development funding to efficient (and renewable) energy technologies. A
considerable part of the energy lendings of such organisations, e.g. the
World Bank, should be spend on energy efficiency within the next years. 
Technology procurement programmes by utilities or government can play a role
in deepening the cooperation between the actors, which can take the form of
organized competitions.
12.   Voluntary agreements or covenants are currently being used to pursue
energy efficiency or technology development goals in several countries. This
instrument is for establishing for improving partnerships between the
actors, and may improve the economic efficiencies of 
achieving the stated goal. Evaluation of the effectiveness is not yet
feasible, but preliminary data suggest that voluntary agreements can be
effective, but should generally be accompanied by other instruments. The
viability of voluntary agreements in international policymaking should be
investigated.         
13.   Energy efficiency improvement has a large potential in the medium and
long term, and is generally seen as the major driver to reduce environmental
impacts and reconstruction of the energy system. However, OECD energy RD&D
budgets designate only 6 pere cent for energy efficiency improvement, while
over 90% is spent on supply side technologies (mainly nuclear power, 57 per
cent. Reallocation of RD&D budgets is needed to better reflect the
importance of efficiency improvement in energy policy. International
collaboration, where RD&D efforts among countries are aligned, can be an
important means to improve the efficiency and effectiveness of RD&D
programmes.
14.   To improve effectiveness, there needs to be well-established and
accepted analysis and monitoring instruments to evaluate and redirect
policies and instruments to changing conditions and situations. (Inter-)
nationally accepted analysis methodologies can help to identify the most
effective options and policies in different situations, and hence increase
the effectiveness of international cooperation initiatives like technology
transfer, development aid, or joint implementation. Assessment of the
options for energy efficiency improvement should be done using a common
harmonized 'bottom-up' analysis methodology, enabling international
comparison of energy efficiency and improvement options and strategies.
Emphasis should be on analysis starting from the specific end-uses,
potentials, and costs. There is a critical need for detailed and good
quality data collection, publication and analysis. It should be noted that
relatively little knowledge is available with respect to end-use of
materials and products and the possibilities to change to more material
efficient and sustainable consumption patterns.
15.   With regard to the individual sectors assessed in this study some
specific recommendations can be made. In industry R&D stimulation is very
important, as energy efficiency improvement has often been part of
technological progress. Innovation can also be accelerated by improving
implementation rates of innovative environmentally-sound technologies. In
buildings, standards and codes (for appliances and buildings) have been
shown to be the most effective instrument.   A policy of gradually
increasing standards should be set to give a clear signal to the builders
and manufacturers (R&D). It is important to set out policies along these
lines today, because of the long life-time of buildings, and because
renovating for energy efficiency of buildings is more expensive than
construction. In agriculture energy efficiency is strongly dependent on
direct and indirect energy inputs. Sustainable energy policies in
agriculture should therefore aim at minimizing the inputs and environmental
impact relative to the output in an integrated way. With regard to
transport, important infrastructural choices made today will lay out the
transport needs and means in the long term. Transportation policies should
therefore aim at influencing this infrastructure in a way that integrates
all social needs incorporated in meeting transportation demand.  Such an
approach is likely to lead to reduced energy requirements for the desired
transport services. Regional planning in developing countries presents a
challenge and opportunity because of rapidly expanding transport
infrastructure.  Development of inherent clean transportation modes is
important due to the wide range of problems associated with transport (e.g.
energy use, pollution, dependence on one energy carrier, congestion, land
use). Sustainable development could be accelerated by setting appropriate
standards for automobiles, and by introducing policies that promote the
introduction of 'clean' vehicles.
16.   The United Nations can play a vital role in the transition towards
more sustainable development. The role of the UN can be strengthened by
improving the importance of energy and material efficiency, by improving the
exchange of information on these activities, capacity building within the UN
system, and improving the programme coordination. Although improved use and
recognition of the existing regional commissions, programmes are essential
the UN could play a more important role in the organization of international
activities proposed above. This should encompass, first of all, establishing
an initiative for training and investigating the needs for information and
training in developing countries. Secondly, the UN should play a role in the
harmonization of analysis and testing methodologies, enabling developing
countries and the international community to improve the efficiency of
policy and technology needs. Thirdly, the UN should play a major role in
re-directing international capital spending (e.g. World Bank, EBRD, GEF)
into directions in line with the recommendations presented above.
                                              Notes
1.     Report of the first session of the Committee on New and Renewable
Sources of Energy and on Energy for Development; Economic and Social Council
Official Records Supplement No. 5 - E/1994/25.
2.     "Potentials and Policy Implications of Energy and Material Efficiency
Improvement," by E. Worrell, M.D. Levine, L.K. Price, N.C. Martin, R. van den
Broek, and K. Blok (1996),  Department of Science, Technology & Society,
Utrecht University, The Netherlands and Mark Levine, Nathan Martin & Lyn
Price, Energy Analysis Programmes, Lawrence Berkeley National Laboratory USA.
3.     International statistical data give the apparent consumption of
materials, i.e. the intermediate consumption of materials in industry.  Due to
increasing import and export streams of products (containing the materials)
the figures represent the consumption by the economic production sectors,
rather than the end-use of the society.  The availability and comparability of
GDP data is often difficult, as shown by energy intensity analyses. 
Comparisons of the material intensity, expressed as material use per unit GDP
should be interpreted carefully.