The substantial growth rate of world industrial energy use along with an increase in environmental problems have prompted responses aimed at reduction of usage or enhancing energy efficiency especially in industry. While energy -use is increasing in many developing countries, the imperatives to enhance energy efficiency in industriy have received little attention. This gives rise to the question: if energy efficiency pays, why is it not happening in developing countries? This paper provides insights into this question with firm level evidence-based information from the industrial sector in Nigeria.
Information was obtained from a sample of Nigerian manufacturing companies located in Lagos state (the commercial capital of the country) across four sectoral groupings, namely food, textiles, iron and steel, and others. From each sectoral group, the sample firms ranged from small, through medium to large scale enterprises. Sampled firms were asked to give information on energy use, efficiency and especially investment in energy efficiency and management. On the spot visits were made to each firm’s location, in-depth interviews were conducted and production facilities inspected. Inferences were drawn from observations and the narratives recorded during the interviews.
Pertinent outcomes from the study were (i) the general level of information in Nigeria on energy efficiency was low; (ii) few companies have adequate awareness and knowledge about implementing energy efficiency projects; (iii) most companies have never carried out an external energy audit to determine areas where efficiency can be enhanced; (iv) most companies need active policy on identifying and repairing leakages such as air, heat and steam, through a combination of internal and external energy audit; (v) the relative low price of fuel in Nigeria, combined with the high investment costs of machines resulted in long payback period for investments in energy efficiency; (vi) despite the major problem of energy supply facing the companies, a number of them have no clear information on energy efficiency options; and (vii) finance for investment in energy efficiency not readily available either from retained earnings or bank loans due mainly to financial crisis. The key policy challenge is the need to address the paradox where companies pay fines for polluting the environment with generators, but are not rewarded for greening the environment with energy efficient machines/processes. The paper therefore recommends the need for incentives or subsidies on investments in energy efficiency.