How energy efficiency will power net zero climate goals

In the lead-up to COP26, countries around the world are committing to new targets to reach net zero by 2050 or sooner. The energy sector is responsible for three-quarters of global emissions, and transforming it will be critical to tackling the climate crisis. But a “business as usual” approach will do little to achieve change at the scale which is required.

Energy efficiency represents more than 40% of the emissions abatement needed by 2040, according to the IEA Sustainable Development Scenario. Maintaining global growth and supporting development in emerging economies implies a sharp rise in consumption habits. Meeting this need requires a transformation of the existing energy system. Energy efficiency is the “first fuel”: reining in the scale of this unprecedented challenge, supporting net zero energy goals at lower costs, and delivering a wide array of benefits for society.

According to the IEA Efficient World Scenario, currently existing cost-effective technologies are sufficient to double global energy efficiency by 2040. Next-generation solutions, like digitalisation of energy systems and behaviourally informed policy making are opening the door to even further potential for efficiency improvements. To reach climate goals without hindering economic progress, countries need to prioritise transformational energy efficiency strategies across the whole economy. Ambitious targets require a dramatic rethink of the systems and habits that power our economies through innovative policy frameworks, technologies and novel approaches for accelerating progress.

Digital technologies are transforming the energy landscape and creating a new generation of efficiency solutions. New digital solutions can limit production and distribution losses and accommodate growing shares of variable and distributed renewable energy while increasing grid flexibility. In recent years, energy management systems in buildings have also become smarter, integrating external data sources, like weather conditions, traffic patterns, and more. Using artificial intelligence, these advanced systems can forecast energy demand and improve response capabilities.

The potential benefits of capitalising on these existing digital solutions are significant. IEA analysis estimates that through using the technology already available, we could improve the efficiency of 3070 terrawatt-hours (TWh) – more than 12% – of 2018 global electricity consumption. By 2040 that improvement potential will nearly double, representing about one-quarter of global electricity consumption. Governments can play a key role in scaling the market for these smart devices through standards, regulations, incentives or information sharing.

Digitalisation can be especially beneficial in the world’s rapidly growing cities where dense populations, increasingly high concentrations of electric vehicles, and innovative district energy, heating, and cooling systems can work in sync to optimise demand and consumption for decarbonisation.

Meeting the goals of the Paris Agreement will require buildings across the globe to improve energy intensity by 30-50% per square metre. There is no silver bullet solution; governments need to rapidly increase the ambition and scale of existing buildings policies, while also employing new policy tools, technologies, and business models.

Comprehensive energy efficiency renovations are key for decarbonisation, potentially improving the energy intensity per square metre by more than 50%. These so-called “deep retrofits” go beyond one-off upgrades to insulation or heating systems, requiring a suite of upgrades to the building envelope, heating and cooling systems and lighting. Some companies are already undertaking this critical work but innovative business models are needed to bring deep retrofits to scale. One innovative company, Energiesprong, performs deep retrofits on entire neighbourhoods at once – an approach that leverages economies of scale to make deep retrofits more cost-effective.

To scale up building efficiency renovations, governments can create net zero or positive energy building codes supported by minimum energy performance standards at point of sale or lease, as well as building performance ratings and disclosure programmes, with careful design and implementation. Performance standards could also be implemented on energy-intensive appliances, such as air conditioning, lighting, and industrial motors. Currently, more than 80 countries employ some form of minimum energy performance standards, but those standards are too low to drive improvements, as they remain below the technological potential that exists. The IEA is working with the Super-Efficient Equipment and Appliances Deployment Initiative and the United Kingdom’s Product Efficiency Call to Action to accelerate change in this sector through international collaboration.

Governments can also prioritise public and social housing upgrades and large scale low-interest loan incentives programmes to support the most vulnerable members of society. Such energy efficiency investments in buildings will have the added benefit for creating jobs in the aftermath of the pandemic, potentially creating around 15 jobs per million dollars invested, the highest jobs per spend value of any energy subsector, according to the recent IEA Special Report on Sustainable Recovery.

Changing consumer behaviour will be critical to the success of ambitious climate goals, with shifts to more efficient transport choices representing the majority of behaviour changes that could support to achieving net zero by 2050. This may include reducing passenger flights for shorter journeys, increased walking and cycling, increased use of ride-sharing and micro-mobility systems, like shared bikes and scooters, and reduced speed on the road. A rapid conversion of the global passenger car fleet to electric vehicles will also contribute significantly to achieving net‑zero goals, not only because they reduce oil demand, but also because they are up to five times more efficient than conventional vehicles.

A range of new policies are needed to support these changes. Economic incentives can make more efficient consumer practices the easy and affordable choice, while regulatory measures combined with outreach and awareness campaigns can progressively eliminate more carbon-intensive options.

Insights from behavioural science should underpin the design and deployment of policy interventions to make them easy to adopt, attractive, and socially acceptable. In the transport sector, more streamlined ticketing systems, accessible platforms for real-time status information, and investments in infrastructure that make public transit more safe, convenient and reliable can help overcome behavioural and perception barriers to encourage hesitant or vulnerable users to take public transit, walk, or cycle more frequently. “Last-mile” solutions such as bike and scooter sharing are revolutionising urban transport systems by improving accessibility and convenience.

Next generation digital technologies can help to scale up efficiency solutions in residential buildings and encourage behaviour changes at home. Solutions like smart meters and thermostats, in-home displays, mobile applications, and web-based portals can provide consumers with real-time feedback on their energy consumption patterns and encourage behaviour change.

Industry is another notoriously “hard-to-abate” sector, involving capital-intensive, long-lived assets and complex, energy-intensive processes. Many discussions on decarbonising the industrial sector focus on material efficiency and low-carbon technologies and fuels, like carbon capture and green hydrogen. At the same time, reducing energy intensity is crucial, with an emissions reduction potential estimated between 25-30%, particularly in aluminium, paper and cement manufacturing.

The most effective approaches combine regulations, provision of information and incentives. Minimum energy performance standards for equipment are one of the best approaches to improving industrial energy efficiency. Setting specific targets for efficiency, consumption, or emissions for industrial subsectors is also fundamental. For example, China’s Top 10,000 Programme sets and closely monitors progress towards energy savings targets on more than 10 000 large energy intensive companies. Similarly, India’s Perform, Achieve and Trade scheme incentivises energy reductions through a tradeable energy savings certificate market.

Information campaigns and workshops for capacity building are particularly effective for small and medium-sized enterprises where investment decisions depend on a few individuals who may not be aware of efficiency benefits. Energy audits and digital management systems can also help policy makers and industries identify untapped opportunities and set ambitious and achievable efficiency targets.

Lastly, financial incentives can remove barriers to investments and trigger private capital. Governments can increase the supply of finance for efficiency investments by expanding pre-existing mechanisms and public funds for installing low-carbon technologies. Direct public financing is likely to be particularly important in many sectors in the short term and can be designed to maximise immediate activity and leverage additional private investment. Support for technical and commercial de-risking and agreements with energy service companies could help facilitate direct finance where it is needed and also attract additional private financing.

Energy efficiency is an essential tool for policy makers committing to high-ambition climate goals. The “first fuel” can reduce the overall costs of mitigating carbon emissions while advancing social and economic development, enhancing energy security and quality of life, and creating jobs. Governments can take full advantage of the opportunities presented by next-generation energy efficiency to accelerate progress toward net‑zero goals and higher global climate ambition.