The untapped potential of energy efficiency

What is the world’s single most important fuel? (Hint: it is also the energy resource that all countries have in abundance.) The answer to this riddle is energy efficiency, which is sometimes referred to as the “hidden fuel.” That is the powerful message of the Energy Efficiency Market Report 2016, published by the International Energy Agency.

A strong energy efficiency policy is vital to achieving the central policy goals of improving energy security and reducing CO2 emissions as well as air pollution in the most cost-effective way. More and more countries are discovering that the safest and the cleanest power plant is the one you don’t have to build thanks to higher energy efficiency.

Whereas energy policy has traditionally been dominated by a supply-side bias (i.e.: how do we produce more oil, gas, electricity?), policy makers increasingly understand that we need to focus much more on the demand side of the equation (i.e.: how do we consume less energy?)

Over the last 15 years, for example, vehicle use has increased substantially because of economic and population growth. Had efficiency levels not improved, energy demand in IEA countries would have been 12% higher in 2015 than it actually was. In China, the annual savings from higher energy efficiency now equal its renewable supply.

One reason demand-side policy is so underrated is because energy efficiency is not very sexy. It lacks wonderful ribbon-cutting photo-ops for politicians, and it often can mean higher upfront costs that may put off consumers, even if that leads to long-term savings. And yet the important efficiency gains that we have experienced in the last decades have been driven by stronger policies.

Today, a third of the world’s energy consumption is covered by mandatory standards and regulations, compared with just 11% in 2000. Significant progress has been made in the areas of lighting, cars, and space heating, and to a lesser extent,appliances. But there still remains a big potential for improvement since 70% of global energy consumption is not subject to mandatory efficiency standards.

Trucks and electric motors are two key areas where a lot more can be done. Electric motor systems account for more than half of today’s electricity consumption in a range of end-use applications, such as fans, compressors, pumps, vehicles, and refrigerators. In space cooling, 58% of energy consumption has no minimum efficiency standards. Applying average stringency standards would reduce energy needs by 30%.

Mandatory standards are a critical policy instrument to maintain the long-term drive to improve energy efficiency, particularly at a time of lower energy prices that generally dampen the enthusiasm for chasing energy savings. In terms of countries and regions, China and the United States are global leaders, followed by Japan and the European Union.

India, Brazil and Middle Eastern countries have made significant progress since 2000, but are still lagging. The share of Middle Eastern energy consumption covered by mandatory efficiency standards is 15% in 2015, just half the global average. For Middle Eastern oil and gas producing countries, improving energy efficiency would also help expanding their export potential since it would reduce domestic consumption.

How should we assess the current state of affairs in energy efficiency? The good news is that global energy efficiency gains are accelerating, even in the current low price environment. In 2015, global energy intensity improved 1.8%, three times the annual average of the last decade. In 2015, investment in energy efficiency increased by 6% to $221 billion, led by growth in the buildings sector. Intensity gains in 2015 were higher in the emerging economies like China, a trend that is expected to continue.

The bad news is that this progress on a global scale is still too happening too slowly. Annual intensity gains need to increase to 2.6% to achieve the global climate goals of the Paris agreement.

Since we know that there is so much untapped potential in energy efficiency, it should be feasible for all countries to further boost energy efficiency by applying already existing best practices in energy efficiency mandatory standards. As a famous slogan goes: “Just do it!”