Is there a missing ingredient that is restricting financing for energyefficiency investments? We know that most efficiency projects have positive net present value and relatively short payback periods, and yet we are not seeing the volume of investment that we would expect to see. In fact, recent data by the International Energy Agency (IEA) shows that the rate at which technologies and processes are becoming more energy-efficient is slowing. At the Global Environment Facility (GEF), early support helped many developing countries pioneer successful policies that resulted in billions of dollars in energy efficient investments. To stimulate further investments, we believe it is time to launch a global refresh of policies that promote energy efficiency.
This is particularly important considering two elements: first, energy efficiency alone could deliver more than 40% of the emission reductions needed to meet the objectives of the Paris Agreement. And second, energy efficiency is one of the most cost-effective sectors stimulus packages can focus on to support
climate-compatible recovery and job creation in a post-COVID-19 world.
Since its inception in 1991, the GEF has invested more than $1.3 billion in support of more than 240 energy efficiency projects in developing countries, leveraging $14 billion in co-financing. From the early days, GEF projects
promoted enabling environments that de-risk private sector investments, testing innovative business models and creating capacity in government agencies and financial institutions. To remove barriers and incentivize efficiency, GEF resources helped clear a path for stronger building codes, energy efficiency labelling, and innovative investment vehicles while looking to establish ecosystems of technical intermediaries such as energy services companies. Countries such as India and China, and many others across Asia, Africa, and Latin America,used GEF funding to establish the foundational polices to legislate,regulate, and finance energy efficiency investments.
More recently, building on a successful partnership with Sustainable Energy for All, the GEF invested in a family of energy efficiency accelerators. Each accelerator covers a specific sub-sector – such as vehicle efficiency standards, appliances,buildings, lighting, industry, and urban district energy – and brings together public and private sector
actors to “accelerate” actions and commitments at national and sub-national levels toward more stringent energy efficiency policies and targets. These experiences illustrate a common-sense understanding within the GEF community that well-designed policies drive financing for energy efficiency investments. Despite this understanding, we see lower than expected demand for GEF support for policy interventions. One obvious explanation is that the nature of the GEF is to innovate and catalyze: once foundational policies are established,
national governments are encouraged to provide sufficient funding for implementation, enforcement, updates, training, and communication, as well as to continue to fund incentive mechanisms.
To counterbalance these trends and unlock energy efficiency’s full potential to contribute to both climate mitigation and postpandemic economic recovery, we propose a three-tiered approach:
1. We must initiate a global policy refresh for energy efficiency. The call for renewed and enhanced regulatory
frameworks should incorporate policies that create selfreinforcing and evolving ratchets; standards that areupdated on a regular basis; targets that are re-evaluated periodically; and funding streams for enforcement that are locked in through tailored funding mechanisms. To this end, initiatives such as the Three Percent Club are instrumental to promoting policy ambition while matching country needs with provision of support.
2. International development agencies and financial institutions, including the GEF, must work together to spearhead the development of a new generation of efficiency policy interventions. These interventions must address
changing country needs and help governments enact the plans presented in their NDCs, while enhancing their ability to follow a sustainable green recovery path after COVID-19.
3. We must provide credible investment roadmaps so that donors can mobilize resources for energy efficiency initiatives along with other critical global needs. We can do this by building on the momentum created by the efficiencyrelated initiatives presented at the 2019 Climate Action Summit, and by leveraging the UK COP Presidency’s intention of making efficiency one of the key themes for COP26.
The challenges of the post COVID-19 world and the stall in global efficiency investments call for a massive global refresh in energy efficiency policy – energy efficiency 2.0. We believe the approach outlined above will help national and local governments gain the support they need to launch and sustain this effort, which in turn will drive financing for energy efficiency investments at the project and product level. At the GEF, we will continue to place energy efficiency at the heart of our policy support for countries going forward, as we are convinced that efficiency
improvements play a pivotal role in maximizing returns for the economy and the global environment.
Senior Climate Change Specialist and Climate Change Coordinator,
Global Environment Facility (GEF)
former GEF Climate Change Coordinator