ENERGY FOR A SUSTAINABLE WORLD - World Resources Institute

The compensating measure will tend to offset
only partially the effects of the original distortion,
and it may have unintended, undesirable
side effects. Moreover, subsidies are not
needed to make competitive a wide range of
technologies relevant to end-use energy
strategies.
A more appropriate policy would be to challenge
the conventional political wisdom and
eliminate existing subsidies for energy supplies
while simultaneously implementing policies
that promote minimal life-cycle costs in market
decisions relating to energy. In general, energy
subsidies should be used only to solve the
problems the market cannot solve—for example,
to alleviate the energy problems of the
poor and promote research and development.
In principle, current efforts to promote fiscal
austerity and free-market economics should
work to eliminate energy supply subsidies, but
even in this political climate, doing so will not
be easy. For example, the historic tax legislation
passed by the U.S. Congress in late 1986
preserves major subsidies long enjoyed by the
U.S. oil industry, even though the legislation
was designed to eliminate distorting subsidies
and promote fairness.
Rationalizing Energy Prices. Economic efficiency
would be enhanced and consumers' incentives
to use energy efficiently would be increased
if energy prices reflected the high costs
of new energy supplies—that is, if controls
designed to keep energy prices artificially low
were eliminated and utility rate structures were
redesigned to sensitize consumers to the costs
of new supplies.
However, policies enacted to bring energy
prices in line with long-run marginal costs
must be carried out in conjunction with
policies that address the problems that the
original pricing policies were designed to solve.
For this reason, and because entrenched interests
may fiercely oppose price rationalization,
it may be necessary to phase in price
reforms slowly.
Improving the Flow of Information. Lack of
information about energy-saving opportunities
impedes investments in cost-effective energyefficiency
improvements. Government can help
improve market performance by enhancing the
flow of such information to consumers.
One option is making generic information
available through "energy extension services,"
akin to the agricultural extension services that
have been so successful in facilitating the transfer
of productivity-enhancing technologies from
i\\? Moratory to the farmers' fields in the industrialized
countries.
Energy utilities might also be required to offer
advice that reflects customers' unique
needs, as determined by energy audits. Most
large gas and electric utilities in the United
States are required to offer such audits to residential
customers. The challenge is to ensure
that customers receive accurate and useful information.
Measurements made in instrumented
audits can be far more reliable than
paper-and-pencil audits, but such information
is also much more costly to obtain. However,
these higher costs can often be justified if
audits are carried out in conjunction with corrective
actions, as in the case of the "house
doctor" concept developed in the United
States. (See Chapter IV.) The success of any
audit program depends on the reward system;
a law simply requiring utilities to conduct
audits without making it profitable for them to
provide good ones probably won't succeed.
Another way to improve the flow of information
would be to require that certain energyintensive
products be labeled to indicate their
energy performance at the time of sale. Labeling
is useful for products whose energy performance
is readily measurable, relatively
unambiguous, and easily understood. Candidates
for such labels are automobiles, various
household appliances, and even whole houses.
Targeting Energy Performance. Many of the
same energy-intensive products eligible for
mandatory labeling are also candidates for
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