Energy Efficiency

Countries representing more than 70% of the world’s energy consumption have introduced new or strengthened efficiency policies since the start of the current energy crisis: 

The European Union agreed to stronger rules to boost energy efficiency in March 2023. These nearly double the rate of annual energy savings EU countries are obliged to deliver on average each year from 2024 to 2030 to 1.49%, up from 0.8% per year previously. This sees the energy savings target across the European Union rise to 11.7% by 2030 relative to a baseline forecast in 2020. 

The United States announced important new funding in 2022 under the Inflation Reduction Act (IRA), which is expected to substantially boost energy efficiency actions that bring energy bills down. This includes the USD 4.5 billion High-Efficiency Electric Home Rebate programme which provides up to USD 14 000 per household for upgrades to heating, cooling, insulation, air sealing and electrical systems including lighting and appliances. 

China strengthened its industrial energy efficiency policies in 2022 with new plans to improve the energy intensity of the sector by 13.5% by 2025 compared with 2020 levels. This includes detailed targets and plans for the 17 most energy intensive industries such as steel, aluminimum and cement. This also includes new targets to upgrade old electric motors and transformers such that 70% and 80% of the stock respectively use new efficient models by 2025.  

In support of its Lifestyle for Environment Initiative (LiFE), India passed new efficiency laws to strengthen building codes and policies covering appliances, vehicles, industrial facilities and commercial buildings. Mission LiFE aims to support an India-led global mass movement to nudge individual and community actions to save energy and promote more mindful use of resources and the environment.  

Over the past two decades, improvements in the energy intensity of the economy have halved the CO₂ emissions that would otherwise have resulted from increasing global population and income. Energy intensity improvement accelerated from 0.8% per year from 2000-2010 to 1.7% between 2010-2022 with associated avoided emissions accumulated over each period of 2.5 Gt of CO₂ per year in 2010 and 7 Gt CO₂ per year in 2022. In the NZE Scenario the rate of improvement in energy intensity rises to 4% per year on average this decade, avoiding around 10 Gt CO₂ per year by 2030.  

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 reduce the electricity and direct fossil fuel consumption of buildings.  

For every year of slower progress on energy efficiency, the level of energy consumption and CO₂ emissions in the global economy is higher and the decarbonisation task facing clean energy technologies becomes harder and more costly.  

The energy intensity of the global economy – a key measure of energy efficiency – improved by just over 2% in 2022. Higher energy costs, supply disruptions and looming shortages have sharpened the focus on improving efficiency, with consumers and governments moving to conserve and better manage energy. 

The global improvement in 2022 is around double the average of the previous five years and could signal a turnaround after years of slowing energy efficiency progress, especially during the Covid-19 pandemic. To get on track with the NZE Scenario, a sustained improvement will be required to lift annual progress from the 2% achieved last year to around 4% per year between today and 2030.  

Between 2000 and 2022, energy intensity at the sector level improved most in the buildings and transport sectors with the amount of energy consumed per unit of floor area and energy used per passenger kilometre travelled falling by around 35%. Efficiency progress has been slowest in the industrial sector with the amount of energy needed to produce a unit of value falling by almost 20% - or around 1% per year.  

During the second half of the last decade and in 2020 and 2021 there was a notable slowdown in efficiency in all sectors except transport. During this time efficiency progress in residential buildings stalled, and energy intensity in industry actually increased during the pandemic. The energy crisis in 2022 saw a reset of efficiency progress across sectors, with a return to a growth trajectory. This progress will need to be sustained and stepped up to get on a pathway of avoided energy demand consistent with the NZE Scenario. 

To reach the energy savings milestones in the NZE Scenario, efficiency will need to improve by almost 40% in residential buildings, by just under 35% in car travel and by just over 15% in industry by the end of the decade. This means that gains which took around two decades in the past will need to be achieved in just 8 years, highlighting the need for technological innovation and accelerated deployment.  

Energy performance standards and labels now apply to more than 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 to more than halve the average energy consumption of the typical air conditioner, refrigerator, electric lamp and television in use today. 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. 

Mandatory standards and labels cover around 90% of global energy consumption of major end uses such as space cooling and refrigeration, and around 80% in the case of lighting. Coverage of electric motor and vehicle efficiency standards is less well-developed, with around 50% of global energy use not covered by any scheme. 

In the NZE Scenario the average appliance in use consumes 25% less energy by 2030 compared with 2020. To get on track with the NZE Scenario, most appliances and equipment being sold in 2035 need to match today’s best available technology, but this does not necessarily require the development of new technologies. Meanwhile, in the NZE 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, space and water heating systems.

Energy efficiency investment increased by 16% to USD 600 billion in 2022 as a result of government stimulus programmes driving spending on efficient buildings and by the growing popularity of electric vehicles. Heat pump sales increased by more than 10% globally in 2022 and by nearly 40% in Europe. The share of electric vehicles in global car sales in 2022 was 14% and this is expected to rise to 18% in 2023.  

However, investment in energy efficiency is likely to face headwinds in 2023 as higher interest rates slow down economic growth and raise the cost of household borrowing and lending. Rising inflation is also putting upwards pressure on the costs of retrofits, new appliances, cars and other efficient equipment – even as higher energy bills increase the payoff of more efficient energy use. On balance this may slow efficiency investment as cost-of-living pressures reduce household budgets and consumers’ ability to pay for new efficient equipment or renovations.  

The outlook of slower growth in efficiency investment suggests global efficiency trends will remain well below the tripling of investment levels needed to lift annual intensity improvement to 4% per year in line with the NZE Scenario. This underscores the importance of building on the current momentum around government interventions that increase the rate of deployment of more efficient technologies. 

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: In March 2023 the European Commission strengthened the EU Energy Efficiency Directive as part of efforts in its ‘Fit for 55’ package to deliver the European Grean Deal and the The REPowerEU strategy. Under the new agreement, energy savings obligations will nearly double, with EU countries required to achieve a reduction of 1.49% per year in final energy consumption on average from 2024 to 2030, up from the current level of 0.8%.  

United States: The 2022 IRA includes major investment support for energy efficiency. For example, the High-Efficiency Electric Home Rebate Act provides up to USD 14 000 per household, including for heat pump heating, ventilation and air conditioning systems, hot water heaters, clothes dryers and electric stovetops, as well as insulation, air sealing and upgrading electrical systems. 

China: In 2022 China strengthened its industrial energy efficiency policies with new laws to improve the energy intensity of the sector by 13.5% by 2025 compared with 2020 levels. This includes detailed targets for the 17 most energy intensive industries such as steel, aluminium and cement. New targets have also been introduced to upgrade old electric motors and transformers such that 70% and 80% of the stock, respectively, use new efficient models by 2025.  

Japan: In 2022 the Ministry of Economy, Trade and Industry put forward a plan for stronger energy efficiency standards for heating and cooling by the second half of this decade including up to 35% efficiency improvement for air conditioners compared to current standards.  

Korea: the government is strongly promoting the ‘save 1kWh per day’ campaign in 2023, while co-operating closely with NGOs, business associations and local governments.  

India: During its G20 Presidency in 2023, India’s Lifestyle for Environment Initiative (LiFE) gained new prominence as a global movement to nudge individual and community actions to save energy and promote mindful use of the environment. Its Mission LiFE programme aims to enable pro-environment consumer choice and behaviour change, including through 19 energy saving actions. To support LiFE, India passed new efficiency laws in 2022, strengthening building codes and efficiency policies covering appliances, vehicles, industrial facilities and commercial buildings.