World Energy Outlook 2007

SPOTLIGHT
What is Stopping Governments from Implementing New Policies?
We all stand to gain from national and regional efforts to address the energysecurity
and environmental challenges posed by rising energy use. But, in
practice, there are formidable hurdles to the adoption and implementation
of the policies and measures in the Alternative Policy Scenario, largely caused
by strong resistance from industry and consumer interests.
Improving energy efficiency is often the cheapest, fastest and most
environment-friendly way to save fossil energy. Cost-reflective, marketbased
mechanisms such as carbon penalties are, in principle, the most
economically efficient approach to encouraging more energy-efficient and
cleaner technologies in power generation and industrial applications. But
the public and industry are, unsurprisingly, very reluctant to pay higher
prices for their energy services, without clear evidence of the needs and
long-term benefits, making politicians correspondingly reluctant to push
up taxes and prices. Even where it is politically feasible to use market-based
instruments, market barriers or the low price elasticity of demand (for
example, for transport) can inhibit their effectiveness.
Where there is a readiness to act, regulatory approaches may sometimes be
preferred to market mechanisms. For example, measures to regulate appliance
efficiency and vehicle fuel economy are among the most cost-effective ways of
curbing energy-demand and emission growth. Yet they, too, can be politically
difficult. For example, some car makers may oppose increases in mandatory
fuel-efficiency standards on the grounds that a switch to smaller and more
efficient vehicles will increase costs and lower sales and margins, while carindustry
workers may worry about the impact on their jobs.
Financial incentives can be a powerful instrument for change, but they too
have limitations. They can be costly, either to governments and taxpayers
(through increased public spending) or to consumers (through higher taxes
or prices). Even where they encourage new initiatives, local opposition to
some types of renewables projects, such as wind farms and hydropower,
can outgun the wider community’s readiness to accept them. In many
parts of the world, barriers to the adoption of policies encouraging the
construction of nuclear reactors are particularly high.
Overcoming these barriers to policy action and pushing through the kinds
of policies described above takes considerable political will and courage –
even when the public is familiar with the energy-security and
environmental advantages of action to encourage more efficient energy use
and reduce fossil-fuel use. Governments must give a clear lead, in order to
generate a collective sense of responsibility. The prospective benefits to the
economy and to society as a whole must be clear. Since private capital will
finance much energy-related investment, governments remain responsible
for creating the appropriate investment environment.
98 World Energy Outlook 2007 - GLOBAL ENERGY PROSPECTS: IMPACT OF DEVELOPMENTS IN CHINA & INDIA