World Energy Outlook 2006

With the exception of China (where stringent fuel economy standards have
been enacted) and, to some extent, Brazil, most developing countries’ new
light-duty vehicle sales over the projection period will be dominated by
proven technologies that are widespread in the OECD. The marked cost
advantages of adopting new vehicle fuel economy improvements in these
circumstances keep the payback period short. Developing countries, on
average, have payback periods for transport efficiency measures ranging from
one to five years. With its stringent standards, China is the exception: its
payback periods are the longest among non-OECD countries and range
from four to five years. However, the net benefits to China of reduced oil
imports have led decision-makers to accept the slightly longer payback
periods.
necessitate intervention to overcome the problem of financing initial capital
requirements.
Barriers to Investment in End-Use Energy Efficiency
Compared with investment in supply, end-use efficiency improvements in the
transport, industry, commercial and residential sectors involve many more
individual decision-makers and a much greater number of individual
decisions. Financing comes from the private sector or the consumers
themselves. The most effective way of encouraging investment in energyefficiency
improvements in these circumstances is well-designed and
well-enforced regulations on efficiency standards, coupled with appropriate
energy-pricing policies (World Bank, 2006a). In most cases, buying more
efficient energy-consuming equipment would bring a net financial benefit to
the consumer, at least over time. However, it is highly unlikely that an
unregulated market will deliver least-cost end-use energy services. Market
barriers and imperfections include:
� Energy efficiency is often a minor factor in decisions to buy appliances and
equipment.
� The financial constraints on individual consumers are often far more severe
than those implied by social or commercial discount rates or long-term
interest rates. The implicit discount rate in the services sector may be as high
as 20%, compared with less than 10% for the public sector and 4% to 6%
for long-term interest rates.
� Missing or partial information regarding the energy performance of end-use
equipment or energy-using systems.
� A lack of awareness regarding the potential for cost-effective energy-savings.
210 World Energy Outlook 2006 - THE ALTERNATIVE POLICY SCENARIO
© OECD/IEA, 2007