Poorly planned subsidies, regulations and mandatory performance standards can distort the energy market, leading to costly and unintended economic and social consequences. Incentive schemes are often better left to the private sector, with government intervention confined to a supporting or enabling role.
This is one of the key findings of ‘Energy-efficiency policies in the Asia-Pacific: can we do better?’, a working paper commissioned by the Asia Pacific Foundation of Canada and The National Bureau of Asian Research for the 2013 Pacific Energy Summit.
Researchers from the National University of Singapore assessed the effectiveness of energy efficiency initiatives by governments in the Asia-Pacific region and elsewhere. They concluded that evidence of effectiveness is mixed, with many studies based on faulty assumptions or inaccurate information.
It is often claimed, for example, that consumers typically put too little weight on future energy savings and too much on upfront costs when buying appliances. In practice, say the authors, consumers base their purchasing decisions on many factors, and economic models do not take sufficient account of this diversity.
More research is needed to improve cost-benefit analysis, ensuring that faulty or misconceived notions about costs and benefits do not lead to policies that impose ‘unnecessary and significant burdens’ on businesses and households. Studies need to take more account of people’s actual behaviour and what drives their decisions.
In the meantime, governments can play a constructive role in ‘mitigating market failures’, says the paper. For example, while private markets supply incentives and solutions, governments could concentrate on providing accurate, unbiased information to help consumers make the best energy efficiency choices.