Efficiency policy momentum builds, but global energy intensity progress slows

Energy efficiency is currently seeing a strong global focus among policy makers in recognition of its important role in enhancing energy security and affordability, and in accelerating clean energy transitions. This comes, however, as the estimated 2023 rate of progress in energy intensity – the main metric used for the energy efficiency of the global economy – is set to fall back to below longer-term trends, to 1.3% from a stronger 2% last year. The lower energy intensity improvement rate largely reflects an increase in energy demand of 1.7% in 2023, compared with 1.3% a year ago.

Annual primary energy intensity improvement, 2001-2023, and by scenario, 2022-2030


At the same, this year’s slower progress in global energy intensity masks exceptional gains in some countries and regions, where strong policy action, increased investments and consumer behaviour changes led to sharp improvements well above the average global rate. This year the European Union and the United States, among many others since the beginning of the energy crisis, including Korea, Türkiye and the United Kingdom, have registered robust improvements ranging from 4% to 14%.

In 2023, global momentum to target a doubling in the rate of efficiency progress to 4% gathered pace, which could cut today’s energy bills in advanced countries by one-third and make up 50% of CO2 reductions by 2030. In June, 46 governments participating in the IEA’s 8th Annual Global Conference on Energy Efficiency endorsed the ‘Versailles Statement: The crucial decade for energy efficiency’, agreeing to strengthen energy efficiency actions in line with a doubling of global energy intensity progress each year this decade to 203

Policy action is translating into investment and deployment

The energy crisis has unambiguously accelerated the energy transition, with energy efficiency policy action a central plank of government initiatives.

Since the start of the energy crisis in early 2022 there has been a major escalation in action, with countries representing 70% of global energy demand introducing or significantly strengthening efficiency policy packages. Annual energy efficiency investment is up 45% since 2020, with particularly strong growth in electric vehicles and heat pumps. Almost one in every five cars sold today is an electric vehicle and growth in global heat pump sales is now outpacing gas boilers in many markets.

Global energy use coverage of minimum performance standards for major end uses, 2000-2023


According to the IEA’s Government Energy Spending Tracker, since 2020 almost USD 700 billion has been spent on energy efficiency investment support, with 70% of this in just five countries: the United States, Italy, Germany, Norway and France. The Inflation Reduction Act of 2022 in the United States includes USD 86 billion for energy efficiency actions, while the European Union has strengthened its Energy Efficiency Directive to curb energy demand.

However, the impact of new government policies, regulations and energy saving programmes, coupled with an unprecedented level of investments to scale up more efficient technologies, are not always immediate, with efficiency gains and energy intensity progress realised over a period of years. Moreover, this year’s overall global intensity progress masks more significant gains in some countries and regions as others saw much lower progress.

After an energy intensity improvement of 8% in the European Union in 2022, another exceptionally high year is expected in 2023, with a 5% gain in progress. The United States is also on track to post a 4% improvement in 2023.

A strong post-pandemic resurgence in China’s economic growth of around 5% is forecast in 2023, along with a similar rebound in energy demand. These preliminary estimates for 2023 suggest that the overall level of energy intensity in China is not expected to change this year. It takes 40% more energy to fuel GDP in China than in the United States, and almost double the energy to fuel the same growth as in the European Union. This shift in the balance of economic activity, along with a slowing of the country’s energy intensity improvement along with that of some other regions this year, helps explain the slowdown in global energy intensity progress in 2023. 

The deployment of efficient technologies is curbing energy demand and heralding the peaking of fossil fuels

In the first half of 2023, heat pump sales were up 75%, compared to the same period a year ago, in Germany, the Netherlands and Sweden combined. An electric vehicle or heat pump not only shifts energy use to electricity that is increasingly coming from clean energy sources but also uses much less final energy than a conventional car or gas boiler to do the same job. Consumers now have better choices when renovating their homes or buying a new vehicle. These choices are starting to open up opportunities for new levels of energy efficiency. 

For example, global sales of gasoline and diesel cars, two- and three-wheelers, and trucks peaked in 2017, 2018 and 2019, respectively. This means global gasoline demand – which is mainly used by passenger cars – is expected to peak and stabilise in 2023 at around 27 mb/d. At the country level, 93 out of 146 countries representing 60% of total gasoline consumption have seen demand already peak, plateau or decline. This pattern is expected to culminate in road transport as a whole, which includes diesel-fuelled vehicles, such as trucks and buses, peaking at around 45 mb/d in 2025.  

Peaking of gasoline demand, 2007-2023


Peaking of residential gas demand, 2007-2021


Looking at the major heating countries around the world, residential gas demand has already peaked, plateaued, or is declining in 34 out of a total of 78 countries representing half of all demand. In Europe, residential and commercial gas demand dropped more than 15% in 2022 compared to the year before, under great pressure as a result of higher prices following Russia’s invasion of Ukraine. While 40% of this decline can be attributed to the relatively mild winter last year, more than half was through various gas-saving measures, although this includes demand destruction as well as efficiency gains.

This shift to electrification of transport and heating comes at the same time as renewable energy is taking on a rapidly increasing share of electricity production. This is seeing the role of energy efficiency evolving from a consideration of end-use alone to a convergence of overall use, demand flexibility, and optimised use of variable renewable resources. In electricity systems with higher levels of variable renewable penetration, early evidence suggests that such systems thinking can deliver energy bill savings of up to a third.

The world is seeing record hot temperatures, boosting the need for cooling and lowering the need for heating

In 2023 the world also experienced its hottest year on record, threatening to trigger a vicious cycle of both higher electricity use and carbon emissions. Heat waves can also worsen health disparities, reduce productivity, raise electricity costs, disrupt essential services, and drive migration. Extreme heat puts strains on electricity systems, requiring substantial investments in grid infrastructure and power generation while burdening consumers with high cooling costs, especially for the most vulnerable.

Data shows extreme heat drives increased demand for air conditioners, with sustained average daily temperatures of 30 °C boosting weekly sales by 16% in China, for example. During the May to September global heat wave this year, people were looking online for air conditioners more than ever, with the search term's relative popularity on Google up more than 30% worldwide compared with the historical average level of searches for those months.

Higher temperatures also have different impacts on electricity demand on a regional basis. For example, IEA analysis shows that every 1°C increase in the average daily temperature above 24°C drives a rise of about 4% in electricity demand in Texas, while in India, where air conditioner ownership is lower, the same temperature increase drives a 2% rise.

Between May and September in 2023, power grids hit record levels of peak demand in many of the largest countries in the world, including China, the United States, India, Brazil, Canada, Thailand, Malaysia and Colombia – together accounting for more than 60% of total global electricity demand. In some regions, such as in the Middle East and parts of the United States, space cooling can represent more than 70% of peak residential demand on hot days.

A milder winter, the second warmest on record in Europe, also contributed to reduced energy demand, helping improve this year’s energy intensity results in Europe and the United States. 

Doubling efficiency progress could cut energy bills by one third and make up 50% of CO2 reductions by 2030

As momentum builds around the global target to double efficiency progress from the 2022 level of 2% to 4% each year until 2030, international efforts, including those at COP28, have a major role to play in shaping future energy efficiency and demand pathways.

While doubling the rate of global energy intensity progress is a challenging target, it is not an unprecedented level of progress. In the past ten years, 90% of countries have achieved the 4% rate at least once, and half have done so at least three times. However, only four G20 countries – China, France, the United Kingdom and Indonesia – have done so over a continuous 5-year period within the last decade, though several others have come close.

In most sectors, governments can make rapid progress towards doubling by building upon best practice in existing policies and accelerating the deployment of already-available technologies. For example, lighting standards in the European Union, India, Japan, South Africa and the United Kingdom are already at or exceed the level set out in the NZE Scenario. Similarly, all industrial electric motors within a certain output range sold in the European Union, Japan, Switzerland, Türkiye and the United Kingdom must adhere to the efficiency class seen in the NZE Scenario. Similar cases can be found for building regulations, and vehicle standards improvements set to come into force by 2030.

Proportion of countries to surpass a 4% annual energy intensity improvement one or more times between 2012 and 2021


Compared to a higher energy demand scenario with around 2% annual energy intensity progress each year this decade, doubling to 4% per year would reduce CO2 emissions by 7 Gt CO2 – or 20% of current total emissions, taking the share of energy efficiency and related measures to half of all emissions reductions this decade. It would also cut today’s energy bills in advanced economies by around one-third. Achieving the doubling target would also see 4.5 million more jobs than today in energy efficiency across the manufacturing, building renovation, construction, industry and transport sectors.

These benefits only highlight that now is not the time to pause on energy efficiency action but the time to further exploit efficiency’s potential to address the multiple intersecting crises of energy, climate and cost of living.