Energy Efficiency Funds: Insights from international experience

Policy Paper 2

Low domestic energy prices are the main reason for the high and continuously increasing energy-intensity of the Iranian economy. Because energy consumers do not face the real costs of energy, they consume more energy as they otherwise would and refrain from investing in energy efficiency projects, as such projects are not able to cover the investment costs from the corresponding energy savings in monetary terms. In order to promote energy efficiency measures, the Iranian government has implemented policies such as Article 12 and the Market for Energy Efficiency and Environment (M3E), aiming at assigning a higher monetary value to energy savings. While Article 12 makes the provision to export saved quantities of energy targets the M3E domestic opportunities for tariff arbitrage among different consumer groups. But the export channel under article 12 is not in operation yet, and for the M3E first findings indicate that tariff differences are too small, so that many of the energy efficiency projects remain economically non-feasible. To overcome the latter are additional incentives necessary. Among several options considered is the creation of a supportive energy efficiency fund.

The paper presents a selection of illustrative international cases to assess various options to support energy efficiency projects via public energy efficiency funds.

Link to Policy Paper [2,7 MB | en]