Promising Success with Decentralized EE Implementation & Linking with the Decision Maker

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Contents

Summary

Energy is a critical issue in Egypt since the world energy prices have skyrocketed and Egypt is a net importer of energy. In addition to the strain on the economy, energy is subsidized by the government and the consumer is not motivated to save energy.

The subsidy was originally set to reduce the economic burden on the poor, but it is the rich that have benefited the most. By helping steer the country to target policies to help the poor, EE can be attained. The most effective way to do so is by working with the decision maker and promoting decentralized Energy Efficiency by working with the specific Energy consuming sectors.

Purpose of the activity

The Energy Efficiency Unit (EEU) of the Egyptian Cabinet of Ministers has adopted an approach to building a new institutional structure to promote and support the implementation of Energy Efficiency (EE) in Egypt. The approach is based on making energy efficiency the responsibility of all major energy consuming sectors such as the industrial, commercial, tourism, transport, buildings and public building sectors instead of the supply side ministries. Setting up an energy accounting mechanism that links energy use to the productivity indices of each sector is a key requirement for the success of this approach. The broader objective is to integrate efficiency into the key sectors of the economy and link its impacts to economic development. The key to integrating energy efficiency is to share the progress of the economic indicators to the decision makers to share progress.

Original issue addressed by the activity

There are two key challenges to management of the demand of energy. There is lack of incentives and investments for efficiency measures and there is a continuous high growth rate in demand for energy. The development and implementation of effective EE policies and programs in Egypt are challenged by, among other issues, the lack of clarity on the institutional responsibility for EE. As a result, there are no clear EE goals and thus very limited interest in channeling investments in this field.

The existing allocation of energy subsidy does not provide adequate incentives for the demand sectors to pursue efficiency. In June 2009, a World Bank-funded study estimated the total energy subsidy bill to reach EGP 60 billion by 2007-2008, and assessed the subsidy distribution as 57% being captured by the top 40% of the population, and 26% accruing to the bottom 40% (‘poor’ and ‘near-poor’). Regarding energy market prices, the study stated that LPG sale prices in the market reflected only 4% of its cost, and gasoline prices at the pump were sold, on average, at 19% of cost, while electricity tariffs were at 22% of their relevant economic costs.

Strategy chosen to address the issue

It was necessary to reach an approach to shift the responsibility/liability of efficiency to each of the main consuming sectors. This approach is expected to achieve 1) more accountability by each sector for its energy accounting against their economic development targets, and 2) the development of sector-specific EE programs and activities that cater to the main sector objectives. Although the sector-specific EE units are expected to be fully managed and funded by their respective sector, technical support and capacity building efforts will be needed during their early stages of existence. This will ensure coordination between different units and maintaining consistency with Egypt’s overall energy policy. The EEU will also provide capacity building and assistance support in organizational planning, marketing strategies, development of sector-specific indicators, training, policy analysis and recommendations and program design and monitoring.

Implementation of the strategy

The EEU sponsored a review of several demand sectors focusing on identifying the most suitable location and form to establish these units within the existing organizational structure of the Government. A key recommendation of the review, which was concluded in August 2011, was to create at least 6 energy efficiency units in 5 demand sectors: Industries, Commercial/Residential Buildings, Tourism, Transport, and Local Government (Government facilities). Specific agencies within these sectors were proposed as the most suitable location for the EE units .

The EEU worked closely with 2 of the above 6 listed sectors towards establishing EE units stressing the potential advantages to each sector’s operation and strategic targets. Despite the political and administrative instability in Egypt following the January 2011 revolution, the EEU managed to convince both the Tourism Development Authority (TDA) and the Housing & Building Research Center (HBRC) to establish EE-dedicated units within their structures.

However, and given various changes of personnel at the Ministry of Industry, discussions for establishing 2 units focusing on industrial facilities and commercial buildings did not materialize into similar impacts as witnessed in the above 2 sectors. Preliminary discussions were initiated with the Ministry of Local Development but progress was very limited. The EEU is currently working with the World Bank on developing a roadmap for the implementation of energy efficiency in Egypt and on the suggested relevant institutional as well as legal and regulatory framework.

Results and Impacts

Given the novelty of this approach of decentralized EE implementation, actual market response is too premature to be assessed. However, the early response of the leaderships within the Ministries of Tourism and Housing show potential success for the adoption of this approach. Decrees have been issued in each of these 2 organizations to formally establish the EE units. Both organizations stressed the need to begin by having a reputable database for energy consumption in their respective sector with a focus on efficiency indicators.

Next Steps

The EEU intends to continue with the same approach with the remaining sectors, but more importantly, it will work closely with the 2 initiated units to ensure their early development in the right direction.

Potential replication / application

Replication of this model can easily be used in similar conditions in other countries where energy is subsidized to move towards an energy efficient economy. In addition, with the successful model in the 2 selected sectors, EE can be replicated to all consuming sectors to make a greater impact.

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