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Energy efficiency transactions |
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Recent technical studies point towards a huge potential for improvement of energy efficiency on a global scale. Mostly substantial cost reductions are projected to lead to this improvement. However they often exclude the vital concept of Energy efficiency transactions cost.
Transaction costs here arise from a host of issues, as mentioned below.
1. Cost of information collection
2. Cost of making decisions
3. Cost of monitoring performance of investments made
As per an empirical study involving energy efficiency transaction costs of a set of companies the following data emerge for the sample group of companies.
1. Information costs comprised around 2-6% of investment made
2. Decision making cost accounted for around 1-2% of investment
3. Monitoring cost was less than 1% of company investments
In totality, energy efficiency transaction costs accounted for around 3-8% of investment of sample companies (analyzed in the study).
Energy-Efficiency Gap
One pertinent question is why both business firms and consumers forego investment, which are apparently cost effective in realm of energy efficiency. This is often due to the fact that both firms and consumers apparently discount savings generating from an energy efficient investment at a future date at a rate, which is greater than the existent market rate of savings or borrowing. This phenomenon is termed as energy efficiency gap. This is an important issue for policy consideration amongst energy policy analysts as well as analysts engaged in climate change policies. There are also some interesting observations regarding behavior of big institutions on issue of energy efficiency. Large institutions while making energy-efficient investments often consider some salient points as mentioned below.
1. Budgeting of procedural application
2. Importance of payback period as prime decision-making tool
3. Existent split incentives
4. Moderate transaction costs
5. Effective communication of project results to concerned management
6. Proper handling of concerned incentive issues
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