The Role of Fiscal Incentives and Market-Based Incentives in Promoting Energy Efficiency in the Industrial Sector: Case Studies from Asia

Abstract

In recent years, awareness about climate change and the need for cutting greenhouse gas has spread. Policymakers have hence chosen to promote the use of renewable energy, as well as encouraging improvements in energy efficiency (EE). This study analyzes the policy strategies of four Asian countries with large greenhouse gas emissions and EE strategies: the People’s Republic of China, India, Indonesia, and Japan. The study first reviewed the type of instruments that can be used to reduce energy intensity, namely incentivizing policies (subsidies, tax reductions, and voluntary agreements) and market-based instruments (white certificates and tendering schemes). Through a review of the literature, the study identified advantages and weaknesses, as well as the effectiveness of said policies in the case studies. Fiscal incentives such as tax cuts and market-based instruments are shown to be efficiently reducing energy intensity. The study also highlighted the role of voluntary agreements and careful planning in successfully improving EE in the People’s Republic of China. On the other hand, direct subsidies represented a heavy burden on the government’s budget, with limited results.