The well-established link between economic growth and energy usage presents a conundrum for policymakers that can be resolved by focusing on energy productivity to promote greater societal welfare. Energy productivity focuses attention on how energy resources can be put to their best use, augmenting scarce energy resources, and how energy efficiency can lift economic growth.
Energy productivity appears to be a poorly understood concept, but it holds the key to one of the greatest reservoirs for increasing wealth and welfare available to the world. It is a concept tied intimately to energy efficiency - the amount of output (e.g. tons of steel or lumens emitted etc.) per unit of energy input. However, at the sector, national, or global level, this efficiency can be measured as energy productivity: the economic output (e.g. GDP or value added) per unit of energy input.
It can be argued that, over the last 40 years, energy efficiency has provided more energy than virtually any other energy source. Yet, until recently, it has not commonly been thought of as a fuel, and has been overlooked by politicians, businesses, and economic modelers in favor of supply-side expansion. The problem with energy efficiency as an organizing narrative for policymakers is that it is often framed as a way of reducing energy demand. Empirically, energy demand continues to rise outside of recessions, so energy efficiency is seen by some as somehow failing, at least at the national level. Furthermore, the rebound effect (where greater efficiency frees up resources to consume more of the more efficient item, or consume more of something else) is seen as a problem.
Recasting energy efficiency as energy productivity could change this by focusing on getting more value for each unit of energy consumed. This helps align the often competing agendas of alleviating poverty and enhancing welfare versus protecting the environment at the local and global level. With a small but growing number of countries adopting or debating using energy productivity as an energy policy goal, there may also be potential to create new consensus in international climate negotiations for a more prosperous, safer, and cleaner world.
This brief provides some answers to the following questions for policymakers:
- Why energy productivity rather than energy efficiency?
- How large is the potential to improve energy productivity?
- How do you measure and track energy productivity to benchmark the performance of nations?
- Why don’t people invest in profitable opportunities to increase energy productivity?
- What is the finance sector doing to tap into energy productivity’s potential?
- Why is energy productivity a particular issue for the Middle East?
- What can policymakers do?
It concludes that setting energy productivity targets at the national or sector level (GDP per energy use unit); and/or energy efficiency targets at the process and product level may help form the foundation for greater consensus around how to meet international energy, economic, and environmental objectives.