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Energy Sector Strategies to

Support Green Growth

Module 03

Policy Instruments for Energy Efficiency


Lesson 1

Regulatory Instruments for Energy Efficiency


World Bank
Institute

Presentation Script

Energy Sector Strategies to Support Green Growth


Module 3: Lesson 1 Regulatory Instruments for Energy Efficiency

Presentation Script

About this Presentation



This lesson focuses on energy efficiency.

We will first identify potential for profitable energy efficiency improvements
around the world and the market barriers that require government
intervention to overcome them. We then discuss national target setting and
some regulatory policy instruments that can help achieve energy efficiency
improvements, paying special attention to Building Energy Codes. Finally,
well discuss complementary policies. Other types of policy instruments will
be addressed in lesson 2.

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Energy Sector Strategies to Support Green Growth


Module 3: Lesson 1 Regulatory Instruments for Energy Efficiency

Presentation Script

Global Energy Savings Potential



Global energy demand will grow at an annual rate of more than 2%. Most of
this growth will originate in large developing countries, such as China and
India.

However, profitable investments in existing technologies can substantially
offset this increase in demand, cutting global energy demand growth from
2.2% down to 0.7%. These savings would be equivalent to 64 million barrels
of oil per day.

Lets look at how these opportunities spread across sectors of the global
economy. In the residential sector, there is profitable and accessible potential
to save the equivalent of 15 million barrels of oil per day. Both the
commercial sector and the transportation sector offer savings of equivalent
to about 6 millions barrels of oil per day. Industrial energy efficiency
improvements host potential savings of between 20 and 29 million barrels

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Energy Sector Strategies to Support Green Growth


Module 3: Lesson 1 Regulatory Instruments for Energy Efficiency

Presentation Script

per day. Lastly, in the power generation and refining sectors, there is
profitable potential to save the equivalent of 12 million barrels of oil per day.

Why arent these opportunities captured?

With such opportunity for cost-effective energy savings, a good question is


why does so much potential go unrealized? The answer comes down to
market failures, behavioral barriers, and government failures.
Government action is required to overcome these barriers to realizing energy
efficiency potential. Click on each issue to learn more.







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Energy Sector Strategies to Support Green Growth


Module 3: Lesson 1 Regulatory Instruments for Energy Efficiency

Presentation Script

Setting Energy Efficiency Targets



A first step in policy making can be to set Energy Efficiency Targets. Setting a
national energy-efficiency target can set a direction for a countrys energy
future and be an effective tool for increasing awareness of energy efficiency
and energy-efficiency policies, for building political and public consensus
around the countrys energy future, and for mobilizing stakeholders to
participate in policy instruments deployed to achieve the target.

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Energy Sector Strategies to Support Green Growth


Module 3: Lesson 1 Regulatory Instruments for Energy Efficiency

Presentation Script

Setting Energy Efficiency Targets



Targets can be national, sub-national or sectoral, and they can be expressed
in many ways. For example, the most prevalent targets specify a rate of
energy savings for a period of time.

Alternatively, a target can specify a volume of energy savings.

Lastly, targets are sometimes expressed as a rate of decrease in energy
intensity.







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Energy Sector Strategies to Support Green Growth


Module 3: Lesson 1 Regulatory Instruments for Energy Efficiency

Presentation Script

Setting Energy Efficiency Targets



How should policymakers determine appropriate targets? And what steps
can be taken to facilitate progress toward targets?

The first step to determining energy-efficiency targets is establishing a target-
setting process underpinned by analysis and reliant upon consultation with
experts, stakeholders, and implementing agencies. A good target also will
balance stringency with achievability, be expressed in units that lend
themselves to simple monitoring using existing data-collection infrastructure,
and avoid overlapping or competing targets. For example, emissions targets
should complement EE targets.

Before targets are announced, its important to ensure that enabling
frameworks are in place to support and monitor progress. Its also important
to adequately resource implementing agencies and government programs

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Energy Sector Strategies to Support Green Growth


Module 3: Lesson 1 Regulatory Instruments for Energy Efficiency

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related to the targets. Finally, targets should be clearly documented and


communicated.
Policy Instruments Overview


Once energy efficiency targets have been set, governments have several
policy options to facilitate cost-effective energy-efficiency improvements.
Policy instruments can be categorized as information and communication
measures, regulatory instruments, and market-based instruments. The
remainder of this lesson focuses on regulatory instruments and lesson 2
covers the other instruments.

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Energy Sector Strategies to Support Green Growth


Module 3: Lesson 1 Regulatory Instruments for Energy Efficiency

Presentation Script

Regulatory Instruments

These are the four topics we will address in our discussion of regulatory
instruments. Click each instrument to learn more












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Energy Sector Strategies to Support Green Growth


Module 3: Lesson 1 Regulatory Instruments for Energy Efficiency

Presentation Script

Minimum Energy Performance Standards (MEPS)


Minimum Energy Performance Standards, or MEPS, are intended to force


the worst-performing products and technologies off of the market. MEPS
exist for appliances, lighting, vehicles, building materials, motors, boilers, and
other industrial and power equipment. MEPS can be considered the logical
next step after labeling. Labeling provides information, while MEPS force
inefficient products and technology out of the market. MEPS can be
implemented as a strict standard, where no products failing the MEPS are
allowed onto the market; or, alternatively, MEPS can be implemented
flexibly, such that manufacturers are required to keep their sales-weighted
average efficiency above a certain level. As inefficient technologies are
phased out, MEPS will cease to spur improvements unless they are ratcheted
up over time.

Hover over the link to read about Ghanas experience with MEPS.

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Energy Sector Strategies to Support Green Growth


Module 3: Lesson 1 Regulatory Instruments for Energy Efficiency

Presentation Script


Regulations for Designated Consumers


Regulations for designated consumers are a way for government to mandate
that large energy consumers take steps to understand, monitor, and plan
their energy use. Consumers may be designated by a consumption threshold
or by sector.

Regulations for designated consumers are process-oriented and readily
complement other energy-efficiency programs that provide incentives to
carry-out energy-efficient investment. Examples of common mandated
practices for designated consumers include energy audits, energy
consumption reporting, the appointment of an energy manager, and energy
savings plans. These four regulations may be implemented as stand-alone
approaches or as part of a comprehensive package.

Take a moment to click on each option for more information.

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Energy Sector Strategies to Support Green Growth


Module 3: Lesson 1 Regulatory Instruments for Energy Efficiency

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Regulations for the Public Sector

In many developing countries, the private sector often has much greater
financial capacity than the public sector to take the lead in energy efficiency
initiatives.

However, through public-sector regulations, governments can establish
credibility and bring awareness to energy efficiency, as well as build
governmental capacity to understand and manage energy-efficiency
programs.

There are a range of viable, short-term, cost-effective regulations that can
save government resources and deliver co-benefits.

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Energy Sector Strategies to Support Green Growth


Module 3: Lesson 1 Regulatory Instruments for Energy Efficiency

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For example, Uruguay has defined a mandatory public-sector phase out of


incandescent lamps, while Mexico, Turkey, and the USA are requiring
mandatory energy planning and reporting.



Building Energy Codes

Building energy codes are legal requirements regulating the energy


performance of building designs and their compliance during construction.
The enforcement of energy codes is an effective policy instrument to reduce
energy waste over buildings life cycles.

Most industrialized countries adopted building energy codes during the oil-
price shocks of the 1970s and have since achieved broad-based enforcement.
Since their inception, codes in Western Europe and the USA have facilitated a
60% improvement in building energy efficiency.

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Energy Sector Strategies to Support Green Growth


Module 3: Lesson 1 Regulatory Instruments for Energy Efficiency

Presentation Script

Many developing countries began developing codes in the 1990s, although


institutional and economic barriers have hindered enforcement and
compliance.
Given the building sectors tremendous size and potential for efficiency gains,
building energy codes are a critically important policy instrument for energy
efficiency.
Building Energy Codes


Buildings consume more energy than any other sector of the global economy.
Globally, buildings constitute 34% of global final energy consumption, which
is more than industry and transport.

The IEA projects global building energy consumption to grow 30% by 2030.
Most of that growth will originate in developing countries, where the urban
building stock is expected to more than double by 2030. In India, 75% of
buildings expected to exist in 2030 have yet to be built.

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Energy Sector Strategies to Support Green Growth


Module 3: Lesson 1 Regulatory Instruments for Energy Efficiency

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However, opportunities available with existing technologies could deliver
30% energy savings in the building sector by 2030.
The chart breaks down life-cycle energy use in residential buildings. The
overwhelming share of energy use comes from powering the buildings
systems for its lifetime. To avoid locking-in these costs for the 30- or 40-year
lifetime of new buildings, it is especially critical for developing countries to
take advantage of cost-effective, energy-efficiency opportunities in new-
building construction.
Building Energy Codes


Building energy codes are intended to establish progressive standards for
building practices, to encourage market innovation, and to achieve
compliance through the supply of effective enforcement.

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Energy Sector Strategies to Support Green Growth


Module 3: Lesson 1 Regulatory Instruments for Energy Efficiency

Presentation Script

In this section, you will review three aspects of building energy codes:
technical requirements, issues concerning compliance and enforcement, and
complementary policies which may serve as compliance tools. Click each
aspect to learn more.

Technical Requirements


Maximizing the technical requirements of building energy codes typically
include these issues. Click each option to learn more.



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Energy Sector Strategies to Support Green Growth


Module 3: Lesson 1 Regulatory Instruments for Energy Efficiency

Presentation Script

Technical Requirements


Building energy codes target energy-efficiency improvements that reduce
energy consumption in buildings.

First, improvement can be made by reducing the energy demand, or the load,
which includes reducing space heating, space cooling, and lighting loads.

Second, using efficient systems to serve the load can save energy, including
enhancing the energy-efficiency of space heating, space cooling, ventilation,
water heating, appliances, and lighting.

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Energy Sector Strategies to Support Green Growth


Module 3: Lesson 1 Regulatory Instruments for Energy Efficiency

Presentation Script

And lastly, substituting conventional fuels for renewable energy to provide


building energy services can provide energy efficiency improvements.



Technical Requirements


The building envelope is the chief subject of most energy codes. It includes all
the components of a building which enclose heated or cooled spaces. Many
codes specify a maximum level of heat transparency allowed for the building
envelope.

Heating, ventilation, and air conditioning, or HVAC systems, govern a
buildings indoor climate. Energy codes typically regulate the overall
efficiency or component efficiencies of HVAC systems, although the demand
for heating and cooling depends on the efficiency of the envelope.

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Energy Sector Strategies to Support Green Growth


Module 3: Lesson 1 Regulatory Instruments for Energy Efficiency

Presentation Script

Codes sometimes also require a level of efficiency from other installed


equipment, such as lighting systems, and/or require the incorporation of
passive or active renewable energy systems.


Technical Requirements

Building energy codes can either be prescriptive or performance-based.



Codes following a prescriptive approach regulate specific building
components. These codes mandate minimum thermal performance for each
component of the building envelope and mandate minimum energy
efficiency requirements for HVAC systems, service water heaters, and lighting
systems.

The alternative is a performance-based approach which regulates buildings
overall annual energy consumption and specifies the appropriate

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Energy Sector Strategies to Support Green Growth


Module 3: Lesson 1 Regulatory Instruments for Energy Efficiency

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methodologies for calculating the energy consumption of component


systems.

A typical hybrid approach would include some performance requirements for
specific building systems in the context of a prescriptive code.

Technical Requirements

Prescriptive approaches offer simplicity, and performance approaches offer


compliance flexibility.

For countries with relatively young building energy codes, a broadly
prescriptive code may be more appropriate because prescriptive codes are
relatively simple, clear, and make monitoring and enforcement fairly
straightforward.

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Energy Sector Strategies to Support Green Growth


Module 3: Lesson 1 Regulatory Instruments for Energy Efficiency

Presentation Script

For designers and builders, prescriptive requirements are simpler to


understand and execute.

For product manufacturers, clear requirements for specific components, such
as windows, and equipment, such as furnaces, give clarity to product
development.
And for the enforcement system, checking prescriptive requirements
establishes a compliance process. Over time, as public and private-sector
capacity increases, the trade-off between simplicity and flexibility favors a
transition to more performance-based compliance.

Hover over the Example from Chile to learn more.

Technical Requirements

The process of developing a building energy code to be adopted as either


voluntary or mandatory requires five steps.

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First, identifying and comparing relevant examples from other locations.

Second, collecting information about the building stock to determine typical
base-case buildings that can be used as benchmarks for developing and
evaluating code requirements.
Third, using detailed analyses, including computer simulations, to understand
the energy savings and cost-effectiveness of proposed code requirements on
base-case buildings.

Fourth, code drafting with technical detail, explicit standards, compliance
forms, and compliance options.

And fifth, conducting public reviews with stakeholders.

This development process for building energy codes may be a good
opportunity to build domestic capacity through international partnerships.
Technical Requirements

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Energy Sector Strategies to Support Green Growth


Module 3: Lesson 1 Regulatory Instruments for Energy Efficiency

Presentation Script

Here are four best-practice considerations with respect to the technical


requirements of building energy codes.

First, regular updates are important to ensure the code remains relevant and
progressive.

Second, codes encompassing the whole building, as opposed to only certain
systems, are best able to capture efficiency opportunities. Hover over the
Example from Singapore to learn more.

Third, and similarly, coverage of both residential and commercial buildings is
ideal, although regulations should be specifically tailored for sub-sets of each.

And fourth, codes are most efficient if tailored to climatic zones. Hover over
the Table link for a chart of building design features by climatic zone.
Technical Requirements

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Energy Sector Strategies to Support Green Growth


Module 3: Lesson 1 Regulatory Instruments for Energy Efficiency

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Compliance & Enforcement

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Energy Sector Strategies to Support Green Growth


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Building energy codes achieve little if builders neglect, fail, or decide not to
comply. Governments have several choices to make that can help prompt
broad-based compliance, starting with the legal nature of the energy code.
Click each option to learn more.













Compliance & Enforcement

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Energy Sector Strategies to Support Green Growth


Module 3: Lesson 1 Regulatory Instruments for Energy Efficiency

Presentation Script

Questions of capacity should govern the decision of whether to adopt


mandatory or voluntary building energy codes.

Mandatory codes are preferable if the capacity exists to enforce existing
general buildings codes and the capacity also exists within the building supply
chain to adapt to energy code requirements. Mandatory codes offer the
advantage of a very clear path toward transformative energy-efficiency
improvements in the building construction sector. However, many countries
lack the institutional and supply-chain capacity to move immediately to
mandatory building energy codes.

Developing and implementing voluntary building energy codes helps build
enforcement infrastructure and signal to the construction sector to prepare
for mandatory energy codes in the future.

Hover over the examples from India and Korea to learn more.

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Energy Sector Strategies to Support Green Growth


Module 3: Lesson 1 Regulatory Instruments for Energy Efficiency

Presentation Script

Compliance & Enforcement



Code implementation, like development, is an elaborate process with many
key components and players. Several key components to successful
implementation of building energy codes are shown here.














Compliance & Enforcement

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Energy Sector Strategies to Support Green Growth


Module 3: Lesson 1 Regulatory Instruments for Energy Efficiency

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Here are four best-practice considerations with respect to compliance and
enforcement.

First, mandatory compliance is the only approach available to realistically set
a baseline for energy efficiency in new construction.

Second, enforcement procedures are most effective if extended from design
reviews, which facilitate low-cost corrections, to site inspections that check
for quality of installation and follow-through on compliant designs. Thorough
enforcement requires training for code inspectors and tools for
demonstrating compliance. Hover over the Example from Singapore to learn
more.

Third, enforcement procedures should be backed up with real penalties for
non-compliance.
Fourth, compliance must be tracked to isolate problems and make
improvements to the code and enforcement practices. Hover over the
Example from China to learn more.

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Energy Sector Strategies to Support Green Growth


Module 3: Lesson 1 Regulatory Instruments for Energy Efficiency

Presentation Script


Complementary Policies


Building energy codes do not affect demand for energy-efficient buildings or
encourage the supply chain to do more than is necessary to comply with
minimum requirements. Complementary instruments serve three purposes
all of which offer direct or indirect financial benefit.

First, they can encourage commercial deployment and market recognition of
energy-efficiency innovations that surpass building-code requirements.

Second, they can help overcome the resistance to change in nascent markets
due to lack of experience with new designs, technologies, and materials.
Third, complementary policies may mitigate the financial risks associated
with the higher construction costs incurred to comply with the building
energy code.

Click each option to learn more.

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Energy Sector Strategies to Support Green Growth


Module 3: Lesson 1 Regulatory Instruments for Energy Efficiency

Presentation Script


Complementary Policies


Energy-efficiency certification and rating systems for buildings and building
components are very useful informational instruments to assist with
compliance. Certifications or ratings can be tied directly to a compliance
pathway by, for example, requiring that buildings or components achieve a
minimal energy rating.

This arrangement makes the compliance tasks of designers, builders, and
inspectors very straightforward. Certifications and rating systems also
provide information to the public and offer recognition and marketing
benefits for achieving efficiency beyond whats required in the building
energy code.

Complementary Policies

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Energy Sector Strategies to Support Green Growth


Module 3: Lesson 1 Regulatory Instruments for Energy Efficiency

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Economic incentives, such as grants and subsidized loans, and fiscal
incentives, such as tax benefits, are both compliance tools.

They are especially effective at encouraging efficiency achievements above
the code minimum and at encouraging the adoption and demonstration of
voluntary building energy codes.







Complementary Policies

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Energy Sector Strategies to Support Green Growth


Module 3: Lesson 1 Regulatory Instruments for Energy Efficiency

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Another option for enticing compliance with voluntary codes, or for
encouraging firms to reach for efficiency improvements beyond the code, is
to offer special treatment under regulation, such as expedited permits or
exemptions from zoning regulations.












Status of Building Energy Codes in Low- or Middle-Income Countries

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Energy Sector Strategies to Support Green Growth


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This table shows the regional status of building energy codes in low and
middle income countries around the world. There is substantial activity in the
development of building energy codes, but still a notable lack of
implementation and/or compliance.












Challenges for Developing Countries

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Energy Sector Strategies to Support Green Growth


Module 3: Lesson 1 Regulatory Instruments for Energy Efficiency

Presentation Script


Building energy codes are more likely to succeed in countries and localities
that meet certain conditions.

First, government oversight of the construction sector should be well
established for enforcement of general building codes for safety and quality.

Second, the building supply chain should have established technical and
engineering capacity.

Third, the market for commercially produced buildings should be well
developed.

Fourth, there should be political will to achieve energy-efficiency
improvements. Creating those conditions is the challenge for developing
countries.

Hover over each short example from China and Mexico to learn more.
Key Messages

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Energy Sector Strategies to Support Green Growth


Module 3: Lesson 1 Regulatory Instruments for Energy Efficiency

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This lesson should have conveyed these six takeaway messages:

First, energy-efficiency is a tremendous opportunity, especially in the
buildings sector and in low-income and emerging economies. Cost savings
can go towards productive spending and investment.

Second, government policies are needed to overcome failures and barriers.

Third, among such government policies, regulatory instruments are
important, and building energy codes are the most important.

Fourth, many of the complex decisions required to develop and implement
regulations are informed by the current oversight and enforcement capacity
of the government.

Fifth, complementary policies can entice compliance.

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Energy Sector Strategies to Support Green Growth


Module 3: Lesson 1 Regulatory Instruments for Energy Efficiency

Presentation Script

Sixth, while developing countries face unique challenges developing and


mainstreaming regulation, it is critical that progress is made in building
energy codes to avoid locking-in inefficient systems and energy costs for the
entire lifecycle of new buildings.

Key References


Visit these links for more information on regulatory instruments for
promoting energy efficiency.








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Energy Sector Strategies to Support Green Growth


Module 3: Lesson 1 Regulatory Instruments for Energy Efficiency

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Key References



No audio.

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