How high energy prices stimulate energy efficiency and conservation
Rational consumers will tend to reduce energy bills to offset the rising prices. The high energy prices may stimulate the adoption of energy efficiency measures as well
There is no relief for the consumers, particularly of the low-income strata, as the soaring commodity market continues to affect their lives. Many people find their income eroded due to inflation and are fighting what appears to be a losing battle against the persistent crisis led by global disruptions.
And amid the high energy prices in the international market, Bangladesh has increased the price of gas. Being an energy-importing nation, Bangladesh has had little choice other than to increase the price of gas.
However, the country is yet to ride out energy problems that originated in the international market. Without any immediate solution, the government has opted for load shedding. Alongside this, a hike in electricity and liquid fuel price is imminent, as reported in the media.
Notably, the household energy bill has seen upward pressure and is expected to be further affected in the event of an electricity price hike. The business sectors exposed to price changes in energy are also at risk.
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Businesses and households, therefore, must find room for adjustments against the sky-rocketing energy prices. In parallel, load shedding will disrupt business operations severely. To that end, energy efficiency and conservation are proven levers, which have the potential to reduce demand and offset rising energy bills.
For instance, when energy efficiency and conservation result in reduced consumption, one can find his bill shrank. The high-scale contraction in energy demand may impact prices in the international market.
But Bangladesh, being a small economy, does not have an influence on the international fuel market and the likely scenario is that countries like Bangladesh may find themselves cornered in the LNG market as Europe will try to ensure their energy security.
At best, it is the opportunity for Bangladesh to save energy to ward off the effects of energy price hikes. In light of these, the opinion piece reveals the rationality of energy efficiency and conservation on the demand side, i.e., amongst the end-use consumers, against the rising energy prices and caseload shedding.
Implications of energy prices on energy efficiency
Energy prices in Bangladesh have seen significant upward adjustments during 2009-2022 aimed at reducing energy price distortions, stemming from fossil fuel subsidies and other related components. Energy prices might increase in the foreseeable future too.
Rational energy consumers, be they household, commercial or industrial, will tend to reduce energy bills to offset the rising prices. The high energy prices stimulate the adoption of energy efficiency measures, aided by energy-efficient appliances and equipment.
When energy is costlier, the payback period of a new efficient appliance becomes shorter. The scenario is suitable at both micro and macro levels. The decoupling of energy consumption from GDP growth, resulting from increased energy efficiency, is highly welcome in an economy.
Reduced energy demand at household and commercial levels, driven by energy efficiency, is equally desirable. It is even more expedient when fuel crises cause load shedding to take place.
And available data substantiate that energy efficiency in the major industrial sectors can bring down energy demand by more than 20%. Energy efficiency potential in the household sector is significant too.
Yet, in this extraordinary situation, emanating from the Ukraine crisis, when the rising commodity prices of all forms have eroded the financial capacity of individuals, people of lower-income strata may find it tricky to immediately invest in efficient appliances/equipment to lessen high energy bills. They may, however, plan for investment in energy-efficient appliances in the foreseeable future.
Large energy consumers, like the industries, may chart pathways to make transitions for enhanced energy efficiency. As Bangladesh taka has been experiencing record devaluation against the US dollar and energy-efficient equipment for industries are imported, industry management will perhaps need to work out to determine the ideal timing of their investments. Industries exposed to the international market will have extra motivation to bring down energy costs to remain business competitive.
High energy prices induce behavioural change
Many studies have revealed the role of behaviour in energy and resource consumption. Different countries even initiated national awareness programmes decades back, supported by information campaigns and other tools, to mould the behaviour of consumers to contain their wasteful energy and resource consumption patterns.
Now that energy prices are very high in the international market and the government of Bangladesh needs to reduce both fuel costs and subsidies, consumers may reshape their energy and resource use behaviours to minimise energy consumption and bills. This is the area that delivers a return without any investment.
The government is also urging people to optimise energy use as load shedding has returned to the country. And eventually, the decision to avoid unnecessary energy and resource wastage is a matter of awareness, willingness and responsible behaviour but it affects the national energy system.
End note
The final energy we utilise at the household or industry level is only one-third of the primary energy that is combusted far away from the household or industry. By the time a consumer uses energy (say, in the form of electricity) at home, two-thirds of the primary energy (e.g., gas/oil) is already lost. Hence, energy saving on the demand side is highly desirable. And needless to say, the cheapest energy is that we don't need to produce at all.
The benefits of energy-saving span across the economy – starting from reduced energy consumption-led cost savings at the individual level to minimise fuel imports, less exposure to external price shocks, economic efficiency and many more.
Thus, it is clear that energy efficiency and conservation on the demand side can deliver immediate results. Supported by the government, individuals and businesses may shape end-use energy consumption patterns.
Alongside running awareness and information campaigns, simple changes in regulations can do wonders. For instance, manufacturers of air conditioners in India are directed to set the default temperature to 24° C, limiting the cooling below that level.
Consumers are, thus, saving energy without doing anything by themselves. Bangladesh may consider a similar approach or other innovative options to stimulate energy efficiency and conservation on the demand side.
While addressing the challenges of the energy sector of Bangladesh will require long-term efforts, for instance, reducing dependency on imported fossil fuels by mobilising efforts on local gas exploration and implementation of cheap solar power systems, energy efficiency and conservation measures shall be sustained to reduce energy demand and wastage. Energy efficiency and conservation will allow us to keep national energy demand within a manageable level in the foreseeable future.
Shafiqul Alam is an environmental economist. He is a clean energy fellow of the National Bureau of Asian Research, USA.
