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Energy Efficiency

Energy system overview
Not on track
Picture of LED street lamps

About this report

Energy efficiency is called the “first fuel” in clean energy transitions, as it provides some of the quickest and most cost-effective CO2 mitigation options while lowering energy bills and strengthening energy security. Energy efficiency is the single largest measure to avoid energy demand in the Net Zero Emissions by 2050 Scenario, along with the closely related measures of electrification, behavioural change, digitalisation and material efficiency. All together these measures shape global energy intensity – the amount of energy required to produce a unit of GDP, a key measure of energy efficiency of the economy. To get on track with the Net Zero Scenario, the rate of improvement in global energy intensity needs to be two to three times higher than historical rates and increase to just over 4% per year between 2020 and 2030. While all measures to avoid energy demand help improve energy intensity, and many do overlap, the energy performance of specific technologies – the main focus of this page – is the second largest contributor to emission reductions in the Net Zero Scenario, after renewable energy. 

CO2 emissions

An acceleration of energy intensity improvement to 1.7% per year between 2010 and 2020 reduced CO2 emissions from fuel combustion by 6 Gt CO2 per year in 2020. This compared to the 2000-2010 period where energy intensity improved by around 1.0% per year with a reduction of 3 Gt of CO2 per year in 2010. From 2020 to 2030 the rate of energy intensity improvement in the Net Zero Scenario increases by two to three times historical trends to over 4% per year on average, delivering even higher levels of avoided CO2 emissions.  

Global CO2 emissions from fuel combustion and drivers, 2000-2020

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Energy-efficient technologies slow growth in energy demand and play a vital role in reducing fossil fuel consumption and emissions in all sectors of the economy. For example, more energy-efficient cars, trucks and aircraft reduce oil demand in the transport sector, more efficient steel, cement and chemical manufacturing reduces fossil fuel use in industry, and better insulation and more efficient appliances reduces the electricity and direct fossil fuel consumption of buildings.

Energy

Between 2015 and 2020 improvement in global primary energy intensity slowed, averaging 1.4% per year, down from 2.1% per year over the period 2010-2015. Despite initial signs of a recovery, weak global energy intensity improvements of below 1% per year were observed in 2020 and 2021. This is well below the 4% per year required on average from 2020 to 2030 in the Net Zero Scenario.

Energy efficiency measures are front-loaded in the Net Zero Scenario as they are based on readily available cost-effective technologies. Furthermore, most efficiency measures result in cost savings to consumers, lowering energy bills and helping cushion the effects of unexpected price spikes, such as have occurred following Russia’s invasion of Ukraine. For example, citizens living in houses and driving cars with average to poor energy efficiency are suffering energy costs 60% to three times higher than those with high levels of efficiency.

With progress lacking particularly in the buildings and industrial sectors, each year of weak energy intensity improvement increases the rate of progress required to align with the Net Zero Scenario over the period remaining to 2030.

Road transport energy intensity improvement in the Net Zero Scenario, 2000-2030

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Global energy intensity improvement in the Net Zero Scenario, 2000-2030

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Residential energy intensity improvement in the Net Zero Scenario, 2000-2030

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Industry energy intensity improvement in the Net Zero Scenario, 2000-2030

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To get on track, a massive and unprecedented transition towards more efficient buildings, transport and industry is needed, adopting the full spectrum of energy efficiency-related measures to avoid higher energy demand. With the world facing one of the broadest and most serious energy crises of modern times, the value of energy efficiency in addressing concerns such as energy security, affordability and climate change is higher than ever. 

In addition to the energy performance of specific technologies, important measures to reduce energy demand and improve energy intensity include fuel switching from internal combustion engines to electric vehicles, from gas heating to electric heat pumps in buildings and low-temperature heat in industry, and replacing the traditional use of biomass such as charcoal with more modern forms of cooking and heating. Increasing recycling rates in the steel and plastics sectors can also provide major energy savings. 

This transition will also require a broadening of energy efficiency’s role through digitally enabled, grid-integrated technologies such as smart meters, appliances and sensors to help increase overall power system efficiency and CO2 reduction potential. For example, digital technologies can help schedule energy use to when renewables are at their peak and when energy costs are lowest for consumers, as well as reduce energy waste and support behaviour change. 

Technology deployment

Energy performance standards and labels now apply to over 100 types of appliances and equipment in the commercial, industrial and residential sectors. Almost all countries have put in place mandatory minimum energy performance standards for the most common appliances. Programmes running for over 20 years have helped more than halve the average energy consumption of the typical air conditioner, refrigerator, electric lamp and television during use. The energy savings from these programmes are lower in countries with more recent, less mature programmes, as it takes time for old, inefficient equipment to be replaced with equipment that meets the new standards. 

For example, long-running standards and label programmes in the United States have lowered overall electricity consumption by around 15%, saving consumers around USD 320 on their annual household energy bill. This benefit to households increases during times of high energy prices, such as today. 

Energy savings from energy efficiency standards and labels over the life of programmes as of 2022

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These huge gains have been achieved in tandem with the price of these appliances falling by an average of 2% to 3% per year, suggesting a faster progression towards stronger energy performance levels and a wider coverage of schemes could have reduced CO2 emissions ever further, while still benefiting consumers.  

Mandatory standards and labels cover more than 80% of global energy consumption of major appliances for space cooling, refrigeration and lighting. Progress on electric motor and vehicle efficiency standards is less well developed, with more than 50% of global energy use not covered by any scheme. 

In the Net Zero Scenario the average appliance in use consumes 25% less energy by 2030 compared with 2020. This does not necessarily imply developing new technologies, and can be achieved by increasing the number of new appliances bought with the highest efficiency available on the market. For instance, by 2030 100% of new lighting sales are LEDs in the Net Zero Scenario, while currently in Europe, for example, LED lamps constitute around half of all installed lighting. Accelerating the replacement of old technology with new efficient technology already on the market can deliver major gains. 

In the Net Zero Scenario all new buildings will need to use 50% less energy for heating and cooling by 2030 compared with 2020. This can be achieved through measures including better insulation and more efficient air conditioners and boilers for hot water and space heating.  

Policy

In response to the current energy crisis, governments are revisiting energy efficiency targets and policies to reflect increased urgency in a focused effort to lower reliance on high-price fossil fuels, protect consumers from high energy bills and reduce dependency on Russian gas in Europe. Regional developments include the following:  

  • Europe: The REPowerEU strategy is aimed at making Europe independent of Russian fossil fuels before 2030, with the aim of eliminating two-thirds of Russian gas by the end of 2022 in light of Russia’s invasion of Ukraine. This has included increasing to 13% the binding EU energy savings target for 2030, up from 9% in the Energy Efficiency Directive, doubling the deployment rate of individual heat pumps to reach 10 million cumulative units over 2023-2027, and accelerating electrification, especially in industry.  
  • United States: the Inflation Reduction Act of 2022 includes major investment in energy efficiency to reduce energy waste, cut costs for homes and businesses and reduce CO2 emissions.  
  • Canada: the government has increased funding for efficiency with the Deep Retrofit Accelerator, including CAD 200 million targeted to help low-income groups make their homes use less energy and more affordable to run.  
  • Japan: the government enacted stronger policies in 2022, promoting greater power and energy saving and use of demand response. The parliament has also passed a bill to strengthen mandatory building codes by 2025. The Ministry of Economy, Trade and Industry has put forward a plan for stronger energy efficiency standards for heating and cooling, with 2027 and 2029 as target years and up to 35% efficiency improvement for air conditioners needed compared to current standards.  
  • Korea: the government announced “The comprehensive measure for energy demand efficiency based on market mechanism” in June 2022. The plan aims to reduce national energy consumption by 22 Mtoe by 2027, and improve energy intensity by 25%. To achieve this goal, the new plan will push forward 15 major tasks in various fields such as industry, buildings, transport and digital energy management.  
  • India: compounding the challenge of rising energy prices, a significant heatwave has prompted an increased focus on cooling and access to efficient fans and air conditioning. In June 2022 the star labelling programme became mandatory for ceiling fans, with the more efficient models offering up to 50% energy savings.  

Policies

Policy
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Year
Status
Jurisdiction

In all sectors the greatest efficiency gains are achieved with a package of policies that combines three main mechanisms: regulation, information and incentives. Such policies are more effective when they are set in the context of clear strategies and targets and are supported by adequate resources to put policies into action through capacity building, enforcement and monitoring. Recent supply chain pressures also highlight the need to take market capacity into consideration, such as the availability of key materials, equipment and skilled workers to carry out efficiency actions. It is important to continually assess policies and programmes to keep up to date with technology and market developments. To ensure progress can be tracked, governments can collect appropriate data on energy consumption in different sectors to help with the policy cycle of implementation, monitoring and evaluation.

Recommendations for policy makers

Regulation is essential to exclude the worst performing equipment and practices from the market, to drive up average efficiency levels, and to set rules for measurement of performance.  

Providing clear and accessible information about the efficiency implications of technology options is vital in helping consumers make informed choices about the energy costs of what they buy and how they use energy. Consumer behaviour is also an essential lever to respond to current energy security and climate concerns. 

Incentives make efficient options more attractive and speed up the upgrade and replacement of appliances, buildings and vehicles. They also encourage the use of new technologies and practices. While high energy prices provide a powerful motivation to enhance efficiency, the first and best solution is to minimise the impact on households of high energy prices by supporting the installation of efficient technologies. It is also important that government support to lessen the impacts of high energy prices is targeted at vulnerable groups, where affordability and access to energy services are issues. 

Recommendations for the private sector

Inspecting existing buildings and commercial facilities through an in-house or external energy and CO2 audit is often the first step in identifying energy efficiency opportunities. Energy service and carbon management companies can help users identify, finance and implement projects by helping reduce the upfront capital cost of actions and provide access to commercial finance and government programmes.

With high energy prices putting pressure on margins for businesses around the world, modernising industrial processes with the latest more efficient equipment and processes can bring major cost savings and support profitability. Businesses can also prioritise the efficiency of buildings when leasing space or when retrofitting their inefficient commercial building stock to save energy, reduce emissions and lower costs.  

Resources

Analysis