Energy and the economy

As energy efficiency awareness grows globally, a tendency to assess initiatives on the energy saving figures alone still exists. Often the overall wider social and economic benefits are underestimated, ultimately leading to underinvestment. eolas magazine outlines some of the wider socioeconomic outcomes that arise from energy efficiency improvement.

The inability to fully measure the wider impact of energy efficiency initiatives is the most obvious reason why they are often undervalued. Where energy savings can be simplified into hard data, the cost of improved health and wellbeing is difficult to condense into a comparable format. Further to gaging the impact of specific socioeconomic benefit, actually isolating outcomes into a specific category is equally challenging and often a result of cross-factors. A third challenge to recognition, something which appears to be changing in recent years, is the siloed approach to energy policy. Often those chosen to develop and deliver energy efficiencies are experts in the field and will base the results on their desired outcomes. The result is usually an
under-appreciation of the wider outcomes by the energy sector when analysing performance and results.

Academics examining the area have attempted to categorise different levels of the economy where outcomes are produced but have acknowledged that often the impacts overlap various levels. These include:

• individual level (individuals, households and enterprises);

• sectoral level (by economic sector such as transport, residential, industrial sectors);
• national level (including macro‐economic benefits, and benefits to national budgets); and

• international level (reflecting the international public good of these benefits).

At an individual level, public health improvements are driven by changing circumstances in air quality produced by more efficient transport and power generation, resulting in an overall drop in demand. Long-term cleaner energy supports greater access and greater affordability. As well as making energy more efficient to vulnerable societies, efficiencies by suppliers free up resources to expand their reach. This is often stated to be a major factor in developing countries. Overall, a fall of spending in energy creates an increase in disposable income at an individual level, driving increased spending and investment in the overall economy.

At a sectoral level, productivity and competitiveness improvements for industrial firms can be attributed to redeploying resources previously needed to purchase energy capacity and process/limit pollution. Often these efficiencies can be passed on to the consumer and any reduction in operating costs should link to an increase in profit. Energy efficiency has also been linked to increased property/infrastructure valuation. In relation to industry and commercial, this equates to increased asset prices.

Nationally, a more efficient energy sector should drive job creation. Both within the sector and outside as the economy expands due to greater expenditure attributed to savings in energy. Government expenditure on energy should also fall in areas such as public sector consumption and utility expenditure/fuel importation. As well as more budgetary freedom, more sustainable energy generation is also more attractive to private investment. As is energy security, which is bolstered by national reduced demand.

At international level, meeting the conditions of the Paris Agreement’s reduction of greenhouse gases is a global drive. Improving energy efficiencies results in a reduced demand for fossil fuels costs of extraction both financially and environmentally. An international decrease in energy demand also often correlates to a global drop in prices. Although this may equate to different outcomes for exporters and importers, generally, cost reduction improves expenditure in other areas.

It’s worth noting that without full consideration of the wider economic and social benefits of energy efficiency programmes, often the view of these programmes can be negative. For the individual, often the initial cost associated with such a programme is viewed negatively because they have little hindsight of the long-term effect. This also happens in a broader context, when energy is the sole focus of analysis for example, a rise in industrial competitiveness brought about by energy efficiency may lead to greater productivity and therefore greater consumption.

A basic assessment would return that energy consumption levels remain the same but fails to acknowledge the wider benefits increased energy investment can bring. This is particularly important for developing countries seeking to raise quality of life for citizens.