A new report from the Institute for Industrial Productivity describes the policy packages of six countries—China, India, Japan, the Netherlands, the United Kingdom and the United States—that directly or indirectly affect industrial energy efficiency or greenhouse gas (GHG) emissions. The report, Ten Key Messages for Effective Policy Packages: Sharing Best Practices in Industrial Energy Efficiency Policies) proposes that an effective policy approach requires a “policy pyramid” consisting of three policy levels:

• Sufficiently ambitious "effort-defining" policies that outline energy efficiency and GHG-reduction goals
• Supporting measures that address identified barriers, are mutually reinforcing, and encourage action
• An "implementation toolbox" that transparently and efficiently executes the first two items.

Summary for Policymakers

Using the policy pyramid, the authors explored whether the six countries could provide the impetus needed to achieve ambitious energy efficiency goals. The report provides key messages for those either designing new policy packages or evaluating existing ones. In addition to applying a policy pyramid for effective GHG reductions, the report concludes, in part, that:

• Barriers to energy efficiency investments still prevent the full potential to realise energy savings and emissions reductions in the industry sector.
• "Best practice policies" and the effectiveness of the policy package in achieving ambitious energy efficiency levels depend on a range of context-specific factors, including the specific barriers and drivers within a country and sector, how much effort has already been spent on energy efficiency improvements in the past, and a country’s cultural and political traits.

Ten Key Messages

The report presents ten key messages on 1) how policymakers can design effective policies and policy packages and 2) how policymakers can evaluate the effectiveness of existing policy packages.

1. As governments define their policy package to support their energy efficiency and climate change mitigation goals, they need to start by defining the overall energy efficiency or emission-reduction ambition levels through an effort-defining policy (i.e., the depth and breadth of the EE policies); what matters is not the quantity of effort-defining policies but rather their quality and scope.
2. Mandatory targets, such as cap-and-trade and white certificates schemes, negotiated agreements (when these are supported by rewards for participation or the threat of regulation), and industrial product/process standards can be viable effort-defining policies to encourage energy savings and GHG reductions.
3. As effort-defining policies, targets and standards can be effective in combination with each other provided they differ in scope (e.g. according to system boundary, participant definition, sectoral scope, primary objective, etc.). In a combined application of targets and standards, minimum efficiency standards would work on the bottom-end of the market (in terms of efficiency) to establish a floor, while targets can go beyond these actions and aim for higher ambition levels.
4. To define ambitious energy efficiency or GHG-reduction goals, governments, industry representatives and third-party experts should be involved in the design and negotiation process. Experience has shown that the hiring of third-party sector experts allows governments to negotiate more ambitious targets than would otherwise have been the case. A consultative process can also support targets that are more ambitious.
5. Although the use of aggregated-level data can be challenging in setting ambitious differentiated targets, the inability to improve on this data immediately should not be a reason for delaying action. At the start of a scheme, policymakers need to ensure that the data collection requirements become more detailed through time. As governments become capable of collecting granular process-level data, targets can be fine-tuned over time to ensure ambitious efforts while maintaining the visibility of prices, policy decisions and the rules of the scheme to provide long-term certainty for investors.
6. Where barriers to energy savings have been identified, supporting measures (in the form of carrots or sticks) are often needed to support effort-defining policies and encourage action. The choice and design of these supporting measures depend on the specific barriers of the country and sector, their interaction with other policies, and the political and cultural characteristics of the country in which the supporting measures are being developed.
7. Energy management programmes, if cohesively linked to effort-defining policies and supported by training and incentives, can be very effective as supporting measures. Experience in European countries has shown that such programmes can usefully contribute to enhanced energy-savings performance, facilitate company achievement of effort-defining policies and ease the burden of compliance checks on the government.
8. A comprehensive implementation toolbox is needed to support the implementation and achievement of effort-defining policies and supporting measures. An ideal situation is one where a country sets an effort-defining policy, and simultaneously, or quickly thereafter, develops a set of supporting measures and an implementation toolbox to facilitate the implementation of both policies and measures. In some cases, tools and guidelines can be developed first and can then form part of the implementation toolbox once policies and measures have been established.
9. A transparent monitoring, reporting and verification process is needed to assess the effectiveness of the policy, allow ongoing evaluation and possible adjustment of the policy, and build trust.
10. As policymakers define policies, governments need to identify, from the start, the parameters and indicators that will be monitored to allow ongoing and ex-post evaluations. Policy efficiency and free riding should be assessed, in addition to effectiveness, in ex-post policy evaluation to ensure that the policy is achieving the desired goals at lowest costs to society and the target group.