Elsevier

Energy

Volume 189, 15 December 2019, 115996
Energy

Competence analysis for promoting energy efficiency projects in developing countries: The case of OPEC

https://doi.org/10.1016/j.energy.2019.115996Get rights and content

Highlights

  • We construct Energy Efficiency Country Attractiveness Index for OPEC member countries.

  • We aggregate indicators covering political, economic, social, and technological (PEST) dimensions.

  • Indicators are combined using Choquet integral based on fuzzy measures and experts' elicitation.

  • Experts identify economic and technological factors as the most important elements affecting energy investments.

  • Experts are moderately tolerant following disjunctive behaviour in dealing with PEST criteria.

Abstract

Enhancing energy efficiency is an important goal of climate change mitigation policies. Promoting energy efficiency projects in developing countries has faced several barriers, preventing optimal investments. One of the main barriers has been the lack of internationally recognized indices to compare projects across countries. In this era of global political turbulence and a looming trade-war that will likely lead to unjustified tariffs, it is critical to provide publicly available robust indices for investors. We construct the Energy Efficiency Country Attractiveness Index to evaluate countries' competitiveness in terms of energy efficiency potentials and related investment risks to aid investment decision-making in the oil and gas sector. Our index includes 30 indicators congregated in four pillars covering political, economic, social and technological factors, combined by means of Fuzzy measures and Choquet integral according to the preferences of a panel of experts. Although experts consider the economic and technological factors as the most important elements affecting investment in the energy related projects and they are moderately tolerant following disjunctive behaviour in dealing with the political, economic, social, and technological criteria, squared correlation analysis shows that, at least for OPEC countries, the political pillar is the crucial one in shaping the composite index.

Introduction

According to the United Nations Environmental Programme (UNEP) statement, “climate change is the defining challenge of our generation” [1]. In order to tackle the climate change adverse impacts, diverse mitigation policies and methods have been introduced to diminish the amount of greenhouse gas emissions which directly affect natural and built environments all over the globe. Mitigation actions are the efforts intended to reduce GHG emissions and increase the capacity of carbon sinks [2,3]. GHG reduction could be performed through either energy demand or energy supply along with technological progress in energy storage devices. In supply side, utilizing alternative low carbon energy sources and fuel switch leads to a paradigm shift in fossil-based energy production. On the other hand, energy efficiency and conservation could enhance the shift toward low carbon society from both supply and demand side.

Energy efficiency practices reduce production costs, enhance competitiveness, support energy security, and diminish carbon emissions per unit of production which guarantees the formation of future resilient and sustainable low carbon societies [4,5]. According to the Intergovernmental Panel on Climate Change (IPCC) fifth assessment report, annual investments in energy efficiency across the sectors will increased dramatically from 2010 to 2029 in compare to other alternatives such as renewables [3]. These investments are allocated in the most energy intensive sectors of the economy such as industrial, residential, transport and services sectors [6]. Sixty percent of the available cost effective opportunities to promote energy efficiency are located in developing countries, where the energy demand is increasing drastically [7,8]. However, these opportunities are still untapped due to several financial and non-financial barriers for investors and prevent optimal investments in energy efficiency projects.

Various factors have been identified as barriers to increase energy efficiency implementation in developing countries (explained in detail in supplementary material section 1.1). Lack of data on energy efficiency potentials, financial barriers, and economic and political uncertainties has been indicated as one the main barriers in implementing energy efficiency projects in developing countries. There are no internationally recognized indicators to compare countries in terms of the relative energy efficiency potentials and investment risks [9]. Investors are less likely to support the projects if they do not have essential data to compare projects in different countries, their relative energy efficiency potentials, existing regulatory/governance framework and macro-economic perspective of the countries [[9], [10], [11]]. The literature consists of several partial analyses on the aforesaid barriers. For instance, there are some indices which rank countries in terms of economic and political investment risk such as S&P, Moody, Fitch, ICRG, World Bank doing business, Global Competitiveness Report, MARSH, Heritage, and Hermes-Euler which cover economic, financial and political aspects [[12], [13], [14], [15], [16], [17]]. Also, it was found that some assessments have been done in the context of energy efficiency. For instance in the paper conducted by P. Kleindorfer [18], risk management of the energy efficiency projects has been performed through the analysis of the energy intensity and complexity of the countries. Accordingly, the success of the energy efficiency projects is often influenced by two sets of underlying factors: i) factors related to focal company and organizational complexity of the project; ii) the external institutional context within the market and the target country. In this study, lack of feasible approaches to finance and high perceived risk of investments along with lack of technological reliability have been identified as one of the most culprits for failing such projects in industrial enterprises. In another study conducted by Shilei and Yong (2009), the necessity for energy efficiency retrofit has been qualitatively examined considering political, economic, social, technological, environmental and legal (PESTEL) factors [19]. Nevertheless, there is no evidence of existing quantitative indices which include indicators related to energy efficiency beside the economic and political ones, and can be utilized to perform a country-based competence risk analysis. It should be added that in other sectors especially in renewable technologies, such indices are available to assist the decision makers (e.g. Renewable Energy Country Attractiveness Index) [20]. The reason could be difficulties in terms of technology and sectoral classifications (industrial, residential, etc.) of the energy efficiency topic which limits the construction of composite country-based indicators in this sector. Generally, the investments in this sector have been allocated by development banks such as KfW development bank and European Bank for Reconstruction and Development (EBRD). However, there is no public data on the criteria they have used to assess the competencies in terms of energy efficiency potentials [4,7].

The main scope of our paper is to produce an investment attractiveness index using a robust methodology that can be used as a flexible solution and at the same time favor case-specific choices. We targeted industrial energy efficiency in the oil and gas sectors to aid the designing of incentives to reconcile public and private interests with collectively agreed environmental goals. Our methodology - PEST analysis is a multifaceted strategic approach defined as one the most important stages of the multi-dimensional qualitative strategic analysis assessing political, economic, social, and technological aspects. PEST analysis allows investors to explore various macro-economic and environmental factors that needs to be considered to determine the risk of investment. Existing indices focus mainly on financial and organizational/institutional aspects of a country, thus are unable to provide a complete picture for long-term investment decision-making. Our index accounts for political, economic, social, and technological factors within countries, and models the experts' preferences by means of Fuzzy measure and Choquet integral. Since the PEST factors are closely interlinked with each other, using simple linear aggregation techniques disallow the consideration of the possible interactions among the dimensions and may discard considerable amount of information from the analysis. Choquet integral overcomes this issue, relaxing the preferential independence among criteria assumption and allowing to model these interactions too according to the elicited experts' preferences. Along with investors, policymakers could also utilize our index to identify sectors and pillars that are lagging behind.

We perform quantitative multi-criteria indicator-based assessment for analyzing countries' energy efficiency potentials and investment risk focusing on oil and gas sector in the OPEC countries. To perform such analysis, abovementioned barriers and expert-based assessments are considered implicitly as a basis to explore various indicators which cover political, economic, social and technological (PEST) dimensions of each country. Afterwards, we aggregate the indicators into a composite index to evaluate the Energy Efficiency Country Attractiveness (EECA) by means of multi-attribute value theory (MAVT). We first estimate the capacities of the countries for each dimension applying a hybrid Mean-Min aggregator with various degrees of compensation to show the trade-offs between indicators. Afterwards, we combine the aggregate results using fuzzy-based Choquet integral. The case of OPEC member countries has been chosen as the primary analysis target due to similarities regarding to energy exporting issues and the volume of the emissions in oil and gas sector. A general overview of the OPEC member countries can be found in supplementary material section 1.2.

Section snippets

Literature review

In recent years, a range of qualitative and quantitative decision-making support (DSM) methods has been proposed in the literature to assist decision makers in oil and gas sector in developing low carbon technologies and making justifiable investment decisions. Shafiee et al. (2019) presents a comprehensive literature review and classification framework for the latest scholarly research on application of DSM methods in energy planning (oil and gas sector) [21]. In the context of energy and

Data and methodology

Fig. 1 shows the main stages of our analysis. We start with a regular composition of the indices comprising the theoretical framework used, selection of indicators, data pre-processing, and data transformation and aggregation to estimate the EECA index.

Results and discussion

In this section, we present the outcomes of the second-order aggregation phases. The results and discussions related to the first-order aggregation are provided in the supplementary material section 3.1. The final EECAI rankings have been compared to available global indices to explore the robustness of the index.

Conclusion and policy implications

Improving energy efficiency is a critical goal to achieve climate change resilient pathways and mitigation policies. Energy efficiency facilitates a shift toward low carbon society and guarantees energy conservation as a crucial element of sustainable development. With increasing energy demand in developing countries, energy efficiency offers the opportunity to change the trajectory of energy consumption growth that will be crucial in enhancing the sustainability and reducing the environmental

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