May 19, 2008
“The market is a good servant but a bad master”. That is at least the way an old saying has it. Often attributed to Vaclav Havel, but also to the former Danish Energy minister Svend Auken. Whoever is to take credit this saying comes to mind when reading The Economist, where the issue is brought up; why is such a good product as energy efficiency so scarcely used? The low-hanging fruit, profitable and good for the environment is just not picked.
The article arrives to the usual answer that there are some barriers. Well known and researched in detail, but still there and still hindering. So is that all? Are we doomed to being inefficient and to see the low-hanging fruit rot before our eyes instead of being picked and enjoyed? If the market can not master and can not deliver – could there be something else that fails us?
Low might be beneath the sight
Well – say some economists – there is no low-hanging fruit. If people do not make more use of energy efficient equipment it is because they have a taste for other characteristics of the goods they buy, than energy efficiency. Or that people find it to too costly to shop around for the better choice – their search and transactions costs are too high. And based on this, these economists find that the choices people have made are well-informed and revealed as the best possible. Any change should mean a loss of well-fare for the economic man.
This way of looking upon human behaviour was effectively trashed by Nobel-Prize winning economist Amartya Sen some 30 years ago in his paper “Rational fools”, but seem to live on in some academic circles. It is however strange to find the joke about the economist and 100 $ bill on the side-walk being played out in reality. The joke says that the economist does not believe that the bill is there because: “If it has been there someone would already have picked it up”. Let us rather assume that if you are not prepared to see the bill on the side-walk it is because it is below your sight – and so could also the low-hanging fruit be.
What market needs is a magnifier – call it commoditising
Energy efficiency has several problems when traded. One is that it does not exist! Another is that it is delivered in too small packages too often.
It does not exist because it is a comparative characteristic. Product A uses less energy than product B – hence it is more efficient in delivering the service. It is delivered every day in operations (we can switch off or on, decide to use or not to use, etc.). It is not significant to our budget if we miss a few occasions and it is very hard to break a habit of using too much. So market needs some help in order to help us. If energy is a tradable good, so need its alternative (efficiency) also be turned into a good – a recognisable commodity – a brand.
To this end we need ESCOs, Performance Contractors and Labels, but we need more! We need that the industry that provides the more efficient products should recognise themselves as “energy efficiency industry”. Not only identify themselves with the product they sell, but with the function (efficiency) the product provides – Energy Efficiency as a commodity. Customers should be able to recognise this Energy Efficiency Industry from its branding, from its commoditising of the function – Efficiency.
This industry is a future core business for the entire world with a brighter future than many of those that are energy intensive like paper and pulp, chemical, iron and ore etc. They suffer from rising energy prices, but the energy efficiency industry profits from it!Author : Hans Nilsson