26 - Electricity Market Liberalization and Energy Sustainability

Summary

INTRODUCTION

Many countries have adopted a market approach to the reform of their electricity industries. Whether such changes help or hinder energy sustainability is debatable. Do they contribute to energy efficiency and conservation, and the uptake of renewable energy? This chapter examines the inherent characteristics of a market approach in comparison with a political or regulatory approach, for example in relation to energy pricing and investment. The role of subsidies is considered. It examines the legal design of energy market institutions and the manner in which the details of market design can affect energy sustainability, such as in demand-side management. It appraises policy instruments grafted onto a market strategy in order to improve energy sustainability. It concludes that, while the record is mixed, a market approach can make a contribution to energy sustainability.

ENERGY SUSTAINABILITY

Three elements can be identified in energy sustainability. Energy efficiency concerns the productivity we obtain from the primary energy we consume. Although in technical terms some energy is always wasted when it is converted from one form to another, or put to use, the amount can be reduced. Improvements in energy efficiency mean that the amount of economic output or satisfaction of human needs per unit of energy can be increased. Some countries, like Japan, have made dramatic improvements in the measure of gross domestic product obtained per unit of energy consumed. The second element, energy conservation, is the reduction of energy use, for example in eliminating unnecessary heating.