Commercial energy efficiency and the environment

The production and use of energy create serious, extensive environmental affects at every level, in every country, argue the authors. That impact may be more serious in developing than in developed countries as developing countries depend more on natural resources and lack the economic strength to withstand environmental consequences. At the same time, a reliable energy supply is vital to economic growth and development. Energy consumption and economic growth have been somewhat delinked at high income levels, but increased energy consumption (especially of electricity) is inevitable with higher GDP. Greater energy efficiency in developing countries and Eastern Europe is a high-priority way to mitigate the harm to the environment of growing energy consumption, say the authors. They outline four advantages of greater energy efficiency. It requires measures that are in the economic self-interest of those regions. Political obstacles make these measures difficult, but there are well-established techniques for addressing concerns about low-income consumers (such as direct income support or life-line rates). It will help conserve the world supply of nonrenewable (especially fossil) fuels. It will encourage appropriate fuel switching. It addresses every level of concern, up to the global effects of global warming. Any strategy to make energy use and production more efficient must rely more extensively than before on markets that are allowed to function with less government interference. The crucial components of such a straetegy (also crucial to economic development generally) are: more domestic and external competition; the gradual elimination of energy pricing distortions; the reduction of macroeconomic and sectoral distortions (for example, in foreign exchange and credit markets); the reform of energy supply enterprises - reducing state interference, providing more financial autonomy and a greater role for the private sector; consumer incentives to select more efficient lights, space heating, and so on. The authors are not convinced of the need for nonmarket approaches beyond those geared to correct externalities, provide essential information, support basic research and development, and possibly promote pilot projects. They also conclude that a government is far more likely to take action to reduce an environmental externality if it captures benefits within its own national boundaries that exceed the cost of the action. Reducing the large difference between energy prices and economic costs in developing countries and Eastern Europe is a more immediate issue than carbon taxes. The developed countries, say the authors, have an indispensable role to play in improving energy efficiency in the developing countries and Eastern Europe. They can encourage the flow of efficient technology, they can increase conventional aid, and they must accept a greater share of the burden of protecting the global commonalities.