The Mexican Government's ambitious energy efficiency programme plans to save $1 billion over five years. Michael Rea, COO of the Carbon Trust, looks at the potential for energy efficiency in fast growing emerging economies.
If you could save $1 billion over five years for an investment of $26 million you would wouldn’t you? Well that’s exactly what the Mexican Government are planning to do – with some expertise and guidance from ourselves and support from the UK’s International Climate Fund. Last month Nick Clegg, the Deputy Prime Minister, in his visit to Mexico announced our intention to put an ambitious energy efficiency programme for some 150,000 Mexican small businesses into operation over the coming year.
As well as saving $1 billion in reduced energy costs, it will contribute to economic development by increasing competitiveness while cutting carbon emissions by over 6 million tonnes. At the Carbon Trust we are excited on a number of counts. It enables us to deliver on our mission and to take the knowledge and hard earned experience of delivering commercially proven energy efficiency programmes to growing and emerging economies around the world. It also means that we will be opening an office in Mexico and putting a team on the ground to help deliver the programme. In addition we plan to work with the Mexican Government and businesses to take full commercial advantage of the economic opportunities from early action on climate change.
Our work in Mexico will build on another important programme announced last year where we are supporting South African businesses to take action on cost effective energy efficiency measures. We are working with South Africa’s National Business Initiative (NBI), to implement the programme and to help South African businesses take action on the ground. With support from DFID, the programme will work with over 1,000 businesses to help them identify opportunities for energy efficiency improvement. The programme aims to save £240 million in energy costs by 2015 and save 3.6 million tonnes of CO2 equivalent – some 1% of South Africa’s total emissions in 2008.
These two projects while important are just a taster of the potential around the world to implement well thought out and cost effective energy efficiency drives – especially in fast growing emerging economies. We see this as a key priority for Governments and multilateral development banks looking to make immediate and cost effective policy interventions that will make a material difference. Emerging economies, including China, have an enormous opportunity to implement energy efficiency and account for 49% of energy efficiency potential worldwide. These investments make perfect business sense too. Research by the European Union and the Climate Group have shown that investments of $170 billion a year (0.4% global GDP in 2008) could generate an average 17% return on investment and deliver savings of $900 billion a year by 2020.
The scale of investment needed is clearly significant. In Mexico alone, the International Finance Corporation estimates that $6.2-7.4 billion will be required between 2011 and 2025 to meet Mexican SMEs’ need for energy efficiency finance. Multilateral and bilateral development organisations have the resources to fill a large part of this gap and increasingly the will to do so too, but all too often they appear to struggle to actually get the money out the door when it comes to energy efficiency. Above all, what is needed is a commitment to creating a pipeline of projects to invest in - by helping to create demand, raising awareness of the opportunities, empowering companies with the expertise they need to drive change, and taking steps to de-risk projects so that private finance can be leveraged too. That is exactly what our approach aims to achieve.
Our mission at the Carbon Trust is to accelerate the move to a sustainable, low carbon economy. To date we have largely focussed our work in the UK. This is changing fast. As the pressures for action on climate change and resource use grow, we are determined to expand our impact to parts of the world where it is most needed. Energy efficiency along with innovation in new low carbon technologies will be critical to moving the world onto a sustainable footing. Emerging economies over the coming decades will have a critical role to play. We are excited by the prospect of being there to help where we can and to put our expertise, knowledge and learning to good use.