A paradigm shift in assessing its contributions to development

Background, challenges and context

Energy efficiency is one of the cheapest, cleanest, locally available, and quickest to deploy options for meeting developing countries’ growing demand for energy services. The International Energy Agency has even argued that energy efficiency deserves to be labelled the ‘first fuel’ of a sustainable global energy system.

Yet, energy efficiency’s economic potential remains largely untapped. Many developing countries do not include energy efficiency on lists of energy sector priority actions and investments of many developing countries.

Energy efficiency is often ‘tough to sell’ in developing countries. The traditional approach to energy efficiency has been to define it as achieving the same services with less energy – or how to do ‘more with less energy’. ‘Progress’ is measured in terms of lower levels of energy use, such as lower energy consumption per dwelling, or lower energy use per unit of industrial output. Lowering energy use makes perfect sense for developed countries, where energy service needs have largely been met and reducing consumption creates multiple benefits without compromising living standards. However, developing countries are hungry for growth, and that requires more energy. So, the call to use less energy (and do ‘more with less energy’) is unlikely to resonate well.

Several World Bank projects have framed energy efficiency objectives as doing ‘more with the same energy’, but this framing remains inappropriate in the context of developing countries, where there is unmet demand and where priorities are to increase standards of living, contribute to development and generally enhance prosperity – all of which are underpinned by higher energy consumption levels than is currently the case.

There is a need for energy efficiency initiatives to shift from focusing almost exclusively on energy saved to also look at the additional goods and services that can be generated – be it more industrial output or more and better lighting, heating, and cooling. More appropriate economic and analytic tools are needed to better measure the benefits of the additional goods and services energy efficiency provides.

Research overview and objectives

This project aims to demonstrate how energy efficiency can enable developing countries to provide more and better goods and services in line with their development aspiration.

The objective will be to showcase how energy efficiency can allow a country to do ‘even more with more energy’. By improving productivity, energy efficiency can enable countries to extract more from each unit of their expanding energy base – e.g. more goods from industry, trucks travelling further to reach more customers, more space cooling, more refrigeration for foods and medicine, more better-lit and better-equipped schools to improve education – all of which will promote development.

The project will demonstrate that an ‘even more with more’ approach, and its inferred additional energy consumption, is also consistent with emissions targets. Through the combination of energy efficiency and renewables deployment, GDP in developing countries can grow significantly while emissions are simultaneously dramatically reduced.

The team seeks to develop an approach to help change the paradigm for assessing energy efficiency investment and policy decisions to help make the case that ‘doing more with more’ is a positive development outcome.

The project’s primary research question will be the following:

• How do we change the lens with which we evaluate energy efficiency investments, from one that focuses on energy and cost savings of the investment, to one that emphasises the additional goods and services that can be produced as a result of the investment?

The team will investigate:

• The indicators needed to assess energy efficiency’s contribution to development (‘direct growth impacts), e.g. how energy efficiency can allow developing countries to extract more from each unit of their expanding energy base

• How to better – and more systematically – integrate and reflect energy efficiency’s full impact in the economic assessment of proposed investments and actions to help inform policy and investment decisions

• How energy efficiency can reinforce and accelerate efforts towards a clean energy transition (or path) and energy access

The team will develop a methodological framework appropriate for developing country contexts where energy efficiency will accompany – and, in fact, help further leverage the impact of – increased energy use. It will be generic, so that it can be applied to a wide range of developing countries. The framework will be applied in case studies based on energy efficiency investment proposals, which are being considered to be included future World Bank lending operations to ensure practical relevance on the ground.

Guidance and communications products will be developed to accompany and disseminate the new analytical framework and approach.