In the NZE Scenario, investment in end uses such as more efficient buildings, transportation and industry triples from around USD 650 billion per year today to about USD 1.9 trillion per year by 2030. The IEA highlights in its Taking Stock to Taking Action report how a comprehensive approach to energy efficiency action is the most effective way to accelerate progress, with an array of available diverse measures tailored to each country’s specific circumstances.

In emerging economies, where many people are getting access to new modern accommodation and appliances for the first time, investments in technical efficiency dominate. This involves improving the performance of buildings through better insulation and appliances, including heating and cooling. Transport electrification also plays a role, particularly through electric motorbikes and three-wheelers. In sub-Saharan Africa, the switch to clean cooking fuels dominates the mitigation measures. In advanced economies, the bulk of efficiency improvements come from replacing older infrastructure with newer, more efficient and increasingly electricity-dominated systems. This includes a large-scale diffusion of electric vehicles and charging infrastructure as well as heat pumps in buildings and industry. Retrofits of energy-intensive buildings – such as hospitals, shopping malls, office buildings, schools, and universities – as well as district heating and cooling also offer quick wins to accelerate energy efficiency progress. Behavioural change also plays an important role and can be supported through investments in public transport systems and digitally-enabled devices such as smart thermostats. 

While investment in energy efficiency has risen by 50% compared with 2019 levels, spending has not been evenly distributed around the world. Efficiency investment is highly concentrated, with almost 90% of spending occurring in China and advanced economies.

In the NZE Scenario, energy efficiency investments in advanced economies almost double by 2030, while in China and other EMDEs, investments grow four to seven times, compared to today. Due to the rapid rate of urbanisation in most developing economies and the need to construct highly efficient zero-carbon-ready buildings, the investment seen in the buildings sector stands out in the NZE Scenario. A sixfold increase in spending is seen in China and even higher increases in other EMDEs. While industry is one of the most difficult sectors to decarbonise, its funding often yields the best results. Key actions include upgrading facilities to handle more recycled materials; electrification, especially in light industry; and switching to efficient, electric motor-driven systems.  

In contrast to other areas of clean energy investment, the majority of energy efficiency investment spending comes directly from households, accounting for more than 70% of total spending in buildings and close to 50% in transport. Efficiency investments in the building sector are spent on constructing new homes and undertaking renovations, investing in rooftop solar and batteries, or purchasing an EV or heat pump. Households and businesses most typically use their own equity, sourced from savings or balance sheets to fund efficiency investments. This accounts for just over half of efficiency investment spending, with commercial debt making up the other half. Around 80% of debt finance is provided by commercial banks or other financial institutions.

Many households do not have access to debt finance at competitive interest rates and projects are often too small for commercial lenders to finance directly at scale due to the high share of transaction costs in each deal. Project aggregation and securitisation solutions such as sustainability-linked bonds can play a role here to lower costs of capital and provide access to more finance. These issues are particularly pertinent in EMDEs where the costs of capital can be up to four times higher than in mature economies – a key barrier for future investments.

Households and small and medium-sized enterprises (SMEs) also require technical assistance to access debt for financing of clean energy projects. In the industrial sector, and in EMDEs in particular, finance is more likely to come from public sources, such as DFIs. These institutions can act as holders of both debt or equity in projects and can assist in attaining grants and strengthening project viability to attract other commercial funding. 

Increasing investment on energy efficiency can be supported by a variety of financial instruments. A selection of possible financing solutions with proven ability to aggregate projects and achieve scale are described below.  

While different regions have varying needs and require tailored approaches, the following policy actions can help governments drive accelerate growth in energy efficiency-related investments:

1. Improve access to affordable capital for households and businesses. For instance, increasing the availability of sustainability-linked loans with low interest rates and providing technical assistance to households and SMEs can help drive investments, as well as low and zero interest rate financing for efficient vehicles.
2. Leverage public funds to attract private investment, while providing support for vulnerable groups. This may involve deploying public funds as a combination of grants, financial instruments and project development assistance to trigger private sector financing. Potential efficiency gains in public services and utilities (such as water and wastewater, street lighting) can be significant.
3. Put in place dedicated capacity building programmes for public officials to strengthen institutional capacities and ensure access to innovative solutions. This could involve training programmes on established and innovative financing instruments best suited for buildings, transport and industry sectors.
4. Strengthen international co-operation to direct the flows of funding to EMDEs. A particular focus can be given to lower the cost of capital to attract more investment in these regions. 
5. Focus on supporting industrial financing options. While industry is one of the most difficult sectors to decarbonise, it is also the one where financing can deliver the best results. Only 6% of the total rise in efficiency-related investment can deliver 20% of the total intensity improvements by 2030. This may involve a variety of instruments, including ESCOs, green leasing and green loans available for SMEs and heavy industry.