Efficiency programs, which could have a big impact on emissions, are flagging, IEA says

Energize Weekly, October 31, 2018

Energy efficiency programs could dramatically cut greenhouse gas emissions even as economic activity doubled—but those programs’ gains slowed as efficiency policies have weakened, according to the International Energy Agency (IEA).

Following two years of low growth, global energy demand grew by 2 percent in 2017, the fastest increase since 2010. That growth exceeded the 1.7 percent reduction in energy intensity per unit of gross domestic product (GDP) in 2017, the smallest annual improvement this decade.

“An increase in energy-using activities across many countries, regions and sectors outweighed ongoing progress on energy efficiency,” the IEA said in its Energy Efficiency Analysis 2018.

In modeling a more robust use of energy efficiency—an “Efficient World Scenario”—building space could increase by 60 percent, global population could grow by 20 percent, and GDP could double by 2040, with only a marginal increase in energy use and a 12 percent cut in greenhouse emissions.

“While various countries are endowed with different energy resources—whether it’s oil, gas, wind, solar or hydropower—every single country has energy efficiency potential,” Fatih Birol, the IEA’s executive director, said in a statement. “Efficiency can enable economic growth, reduce emissions and improve energy security.”

The IEA tracks three types of energy efficiency policies: mandatory codes, market-based instruments and incentives. In 2017, 34 percent of global energy use was covered by mandatory energy efficiency policies, but progress implementing new policies was sluggish for the second year in a row, the agency said.

Still, energy demand would be much higher if not for the energy efficiency initiatives. “Since 2000, improvements in energy efficiency in the world’s major economies offset more than one-third of the increase in energy-using activities,” the IEA analysis said. “Most of these savings were achieved in the industry and buildings sectors.”

“Efficiency gains will also reduce coal, oil and gas imports, enhancing energy security,” the report said.

The IEA scenario would require the average annual investment to double between now and 2025, and then to double again after 2025. These investments would pay back three to one on energy savings alone, the agency said.

“Global investment in energy efficiency is not on track to achieve the scale required,” the IEA said. Across all sectors, energy efficiency investment grew by just 3 percent to $236 billion in 2017.

Spending rose in Europe, but fell slightly in China and the United States. Globally, the building sector accounted for nearly 60 percent of total efficiency investment, similar to its 2016 share.

Among the initiatives that are needed to boost energy efficiency programs are:

• New financing mechanisms such as energy services companies, green bonds and green banks to provide investment opportunities.
• Increasing and strengthening mandatory energy efficiency policies and programs, which the analysis said increased only marginally in 2017.
• A greater emphasis on transportation efficiency programs so that transport energy demand remains flat even as activity doubles through among other policies fuel-efficient standards and the promotion of electric vehicles. “Transport is the sector with the largest global energy savings potential, whereas it has made the least efficiency progress since 2000,” the analysis said.
• Continue the improvements in building efficiency through technology, appliance standards and buildings codes. The EIA estimates that there is an opportunity to improve efficiency per unit of floor by 40 percent from current levels by 2040.
• An increase in energy efficiency in manufacturing. “The bulk of the potential energy savings in industry are in less energy-intensive manufacturing sectors, which could reduce their energy intensity by more than 40 percent by 2040,” the IEA said. “Policies that encourage the adoption of energy management systems and other incentive- and information-based measures will be essential, along with innovative financing mechanisms and business model.”

Energy efficiency programs can have a particularly big impact on emerging economies where the agency estimates that energy intensity can be halved.