EU Policies and Regulation on CO2, Renewables and Energy Efficiency: A Critical Assessment of Recent Experiences - Green Energy and Efficiency: An Economic Perspective - page 50

5.3 Analysis and Assessment of the Regulatory Framework
for Energy Ef ciency

The European regulatory framework, and the EED in particular, contains a broad
spectrum of regulatory instruments which are commonly used to address the barriers
and market failings that prevent full potential from being reached in the area of
energy ef ciency.

Energy prices are considered by many authors to be the most useful of all
economic instruments in promoting energy savings and ef ciency. In many cases,

there is a need to act on them because they do not include external issues or are not
high enough to encourage consumers to rationalise their consumption. 24 Some
studies go beyond the use of prices to send signals that encourage energy savings
and also consider the hypothesis of induced innovation, according to which an
increase in energy prices leads to technological changes that enable improvements
to be made in energy ef ciency (Newell et al. 1999).

Price measures have the advantages of being easy to implement and of their low
incremental cost for the administration, but they are unpopular because they mean an
increase in the cost of supply for consumers. To reduce popular dissent, in some cases
the revenue collected from these taxes is allocated to aims with an environmental or
social component (measures to combat climate change, care for certain ecosystems,
grants to low-income consumers, etc.). Although their impact may be limited, because
there is less

exibility in the short term, international experience has proven them to
be the most effective and ef cient measures in attaining energy ef ciency targets.

, i.e. of energy
consumption increasing in certain sectors. Therefore they must be designed very
carefully. On the supply side, more ef

In the case of standards there is the risk of a “ rebound effect ”

cient machinery may imply greater
energy consumption in the production process. On the demand side, more ef

cient

electrical appliances may be kept on for longer (e.g. air-conditioning).
One of the main barriers traditionally been identi ed in the diagnosis by the

European Commission and aggravated by the economic crisis is a shortage of
funding due to the diminished

nancial capacity of public bodies, companies and
households alike. The need to raise economic resources in order to make invest-
ments was probably behind the proposal for a framework of obligations on sup-
pliers as the main regulatory instrument included in the Directive, in the light of
European experience in this

eld. However, there are still many unanswered

questions as to its effectiveness and ef ciency, given how limited its application has

been to date, its lack of transparency and the dif culties encountered in comparing

24 Richmond and Kaufmann (2006) conclude that including energy prices in the analysis of
energy intensity helps to explain its changes over time in many countries. Other authors Metcalf
(2008) claim that enhanced energy ef ciency appears to have followed improvements in the energy
ef ciency of processes, partly led by prices and not by structural changes.