2. Definitions and Metrics

This section describes the basic concept of energy efficiency, as well as related concepts. Then it discusses how energy efficiency can be measured. Different units of measurement are consistent with the overall definition. The choice of measurement unit is important because it defines the scope of EE policy, as well as the numbers that are reported.

"Energy efficiency" (EE) may be defined as the use of less energy for the same productive activity. "Activity" could be, for example, a household service, level of steel production or movement of freight. "Energy conservation" is sometimes used interchangeably with "energy efficiency" in popular writing. However "conservation" is a reduction in total energy use, independent of any changes in activity.¹

Related concepts in energy analysis include:

• [Peak] demand management: programs to reduce peak load and therefore reduce new capacity requirements. Typically used by electricity and natural gas utilities, and in traffic and transportation infrastructure planning.
• Fuel-switching: serving the same end-use or energy service by substituting the source of energy supply, such as natural gas for electric in space heating or alcohol for gasoline in cars.
• Self-generation: energy generation by a utility customer that displaces load that would otherwise be served by the utility.

EE is measured as a ratio of two numbers: "energy per something". EE goes up when the ratio goes down and vice-versa.² The value of the ratio depends on the definitions of both the numerator and denominator. These definitions are fundamental to any discussion of EE policy. As shown below, differences of opinion over the appropriate definition of the denominator can reflect different views about broad policy objectives. Further, an upward trend in EE that uses one definition may be a downward trend when an alternate definition is used; or a measure designed to promote energy efficiency under one definition may decrease it under another definition.

Over time, conventional definitions for the numerator and denominator have been developed, but there is no formal standard throughout the literature. This section describes conventions, proposes some definitions and discusses some of the assumptions in the EEWG's terms of reference.

The numerator: "Energy" is the full potential energy content of a fuel or an amount of electricity, measured in Joules. A litre of gasoline contains potential energy of about 34.2 million Joules (MJ). One kilowatt-hour (KWh) of electricity equals 3.6MJ. Fuels and electricity have varying attributes and uses, which are proposed to be treated as follows:

• Environmental attributes: Differing attributes of fuels or electricity sources that provide the same number of Joules are not taken into account in the numerator. In particular, the numerator is not greenhouse gas emissions. Energy efficiency reduces greenhouse gas emissions in general but not, for example if the source of energy avoided is non-emitting.
• Energy quality: (The attribute "energy quality" derives from the 2nd law of thermodynamics and refers to the availability of energy, i.e. some portion of the energy quantity is not available to do work. High quality, highly available energy is in a sense wasted if it is used in applications that need only low quality.) In the EE numerator, "quality" of the energy used is not taken into account.
• Primary, secondary and tertiary energy: Primary energy refers to unrefined, unprocessed energy commodities at the point of production, secondary energy is defined at the point of end-user purchase or use, and tertiary energy is the amount actually providing the energy service. Crude oil at the wellhead is primary, gasoline at the pump is secondary and the kinetic energy of the moving vehicle is tertiary. End-use EE - where the user is a consumer − uses secondary energy in the numerator. On the supply side, EE would be the ratio of secondary to primary energy, with the difference between primary and secondary energy being conversion and delivery losses (refining, transport, internal plant uses, transmission etc.).
• Treatment of electricity: In some statistics, electrical energy has been reported in terms of the energy content of the fuels used in a typical thermal power plant. We believe it is more common to use the equivalent heat content of electricity, 3.6 MJ (megajoules) per KWh (Kilowatt-hour).
• Weather normalization: Statistics for weather-sensitive end-uses need to be adjusted to reflect average weather conditions. This is essential, for example, when comparing EE at two end-point years to get a trend.
• Self-generation: From a national or societal perspective, energy produced and used internally would not be distinguished from purchased energy, and would "count" in the numerator. However, energy consumption statistics are frequently reported in terms of purchases, rather than total use.

The denominator: The denominator is intended to measure whatever outcome applies in the definition of EE. The EEWG's terms of reference state:

"Terminology aside, the fundamental question at issue is how to induce changes in the relative energy intensity of the economy through efficiency improvements (that is, leaving aside structural factors, service levels or weather)"

Annual changes in sectoral energy use result from a combination of factors specific to each sector. Natural Resources Canada (NRCan) generally employs five categories that conveniently encapsulate these factors and provide terminology with which trends in energy efficiency can be discussed with some consistency across sectors. These categories include:

• Activity. Activity refers to the desired outcome, i.e. something of utility.
• Structure. Structure refers to the overall composition of the sector (i.e., in terms of end-uses, sub-sectors, etc.). Structural change describes changes in the shares of activity (or energy consumption) accounted for by different components (sub-sectors, end-uses, etc.).
• Service Level. In general, service level refers to the level of activity within a particular end-use. Additional levels of service do not always increase utility. For example, the use of lower output lamps is often prescribed when the level of illumination is more than sufficient for the given activity. Service level is therefore not necessarily proportional to activity. The service level associated with office equipment is defined in terms of usage and market penetration of many different devices such as computers, photocopiers and fax machines. NRCan has developed an index to estimate aggregate service levels for this heterogeneous sub-sector.
• Weather. Weather influences heating and cooling loads, which vary with the number of heating and cooling degree days. NRCan includes weather effects for the residential and commercial sectors. All results presented here are normalized for weather.
• Efficiency. "Energy efficiency" in its narrowest sense applies to equipment-related technical energy efficiency.

Note that energy intensity is not one of the above factors but is a combination of all the factors (efficiency, weather, structure and service level) that reflect energy use per activity level.

Although straightforward in theory the above conventions present some challenges in practice, including:

• Efficiency versus intensity: The EEWG ToR state "Energy intensity is the amount of energy used relative to some measure of activity [emphasis added] such as GDP at the level of the economy or floor space at the level of the commercial/institutional sector."
  
  The measure of activity could be at many different levels of disaggregation, and the choice has a strong effect on the statistics and on the scope of EE policy.
  
  For example, consider these denominators, in order of increasing disaggregation: GDP, industrial output, forest industry production, pulp production, chemical pulp production, bleached chemical pulp production. The "correct" denominator for EE would not be GDP, industrial output or forest industry production, because energy consumption changes due to shifts in the proportions of goods and services produced within each of these categories are large enough to be called "structural", e.g., goods and services are distinct structural components of GDP; forest industry output is a structural component of industry output; and pulp is a structural component of the forest industry. Some would argue that the jump from "structure" to "efficiency" would occur at the next stage, "pulp production". But it could also be argued that the shift to mechanical pulp from chemical pulp was structural: the products have very different attributes for consumers. And one could also argue that production of bleached and un-bleached pulp are different "activities", also driven by consumer preferences.
  
  In theory, it is important to establish where the shift from "structure" to "efficiency" occurs along the spectrum from "GDP" to "bleached chemical pulp", which is equivalent to defining the denominator. The "granularity" of the statistic used in the denominator defines how restricted EE policy must be if it is not to be based on structural changes. In practice, there are trade-offs: if the denominator is too aggregated, apparent changes in EE may be caused by what most people would describe as changes in structure. On the other hand, an EE definition that uses an aggregate unit in the denominator provides greater flexibility to energy users attempting to meet that objective. What some would call intensity may also be reported as "efficiency" simply because "efficiency" is what people want to report and the data is not available at a greater level of disaggregation. Furthermore, some would argue that structural changes and effects are an inherent aspect of the energy efficiency issue.
• Energy services and amenity levels: the denominator for EE is often defined as "energy services" - the light in a room, the coldness of a beer or the warmth of a shower, for example. However, this definition does not necessarily capture operational or behavioural change as an EE measure − the light that is on in an unoccupied room, for example. "Amenity (or utility) level" may capture behavioural potential better -- the energy services that are actually used and useful, including convenience, comfort, timeliness and security
  
  Product and service differentiation introduce definitional challenges. For example, not all lumens are equal − spectra are important to consumers and that largely drives daylighting design. Similarly, if, hypothetically, cold water wash works 90% as well as hot water wash but uses 10% less energy, is cold water wash an improvement in EE or has there been an offsetting reduction in amenity? Product and service differentiation is a large part of DSM program design. It is usually the differences in non-energy-related attributes that sway the commercial and household markets toward or away from specific products and practices.
  
  Some utilities have had large internal debates about whether certain DSM programs cross the "lifestyle" boundary. It is often not clear where the crossover is. For example, a transit incentive would be EE if all passenger-km were created equal but out of scope if it reduces travellers' amenity levels.
  
  The concept of 'amenity' is also multi-dimensional: if an EE measure causes a consumer to stay at home and do something enjoyable instead of taking a trip, the net loss of amenity is less than that ascribed to only forgoing the trip (and doing something else with zero amenity). Further, many measures will affect both amenity and efficiency as economic actors respond in different ways. For example, a road fuel tax typically reduces trip activity as well as changing vehicle choices. Such measures are usually considered within the scope of EE policy.

In summary, any program or policy that tracks EE or has a quantitative EE objective must clearly define the denominator of the EE ratio, thereby setting the boundary for what types of actions are within versus outside the scope. Section 4 below shows national trends based on standard denominator units at the sector level. The data uses aggregated denominator units [tending to intensity rather than efficiency; tending to include structure shifts] because there is no overall national reporting at more disaggregated levels; and because it is easier to see the big picture that way. The analysis of trends attempts to identify "hidden" structural shifts that have affected overall intensity.