Beyond simple savings: The added bonuses of energy efficiency

6 September 2013

Energy efficiency does more than just save fuel.

This article appears in the latest issue of IEA Energy: The Journal of the International Energy Agency.

Everyone knows that energy efficiency can reduce use of fossil fuels and emissions of greenhouse gases. But it affects societies in many other ways as well, in what the IEA calls the multiple benefits of energy efficiency.

IEA analysis suggests that these extra gains appear in five key categories: economy-wide impacts such as jobs creation and higher output, or health and well-being improvements; higher industrial productivity; lower infrastructure and operating costs for energy providers; increased property values; and lower public spending.

These five extra benefits are frequently overlooked, so the full value of energy efficiency is often underestimated. For instance, the US Environmental Protection Agency found that every dollar invested in energy efficiency increased a building’s value by triple that amount.

In other cases, benefits come as an additional result of energy savings achieved – for example, avoided investment in infrastructure. Others flow from efficiency measures independently of energy savings themselves.

Studies show a range of employment effects from energy efficiency investment whose impacts average about 17 to 19 jobs generated for every EUR 1 million spent on efficiency interventions. These jobs result from the direct creation of posts as well as new employment further up the production chain as efficiency provides consumers new savings that they can spend, bolstering overall economic activity.

The benefit of such new spending may help to explain where the energy goes when reductions in consumption expected from an energy efficiency policy fall short – the “rebound” effect.

The rebound effect presents a challenge to the effectiveness of energy efficiency policy. Consumers often choose to reinvest savings to satisfy previously unmet energy needs. For example, after installing insulation, a household might decide to turn up the temperature on the thermostat. In cases like this, the rebound effect may be negative for energy savings but is positive for society in other ways – increasing the health and well-being of occupants of that house, not to mention their productivity in society. To understand the real impact of energy efficiency requires evaluating its impacts across sectors beyond fuel savings.

The five multiple benefits at a glance

Among the many ways energy efficiency contributes to better health are improved indoor temperatures, minimising damp and mould in homes, and reducing respiratory and other illnesses, particularly among children. In the developing world, the replacement of inefficient and highly polluting cookstoves could halve the incidence of child pneumonia.

Improvements in the energy efficiency of a home, car, power plant or other asset can increase its market value. “Green” buildings have higher rental and resale values, studies show, as well as better occupancy levels and lower operating expenses and capitalisation rates. As energy is a top operating cost in most offices, resale value can include the net present value of future energy savings from improvements. 

The reduced demand for energy from efficiency limits brownouts or worse and also reduces the investments needed to install additional energy infrastructure to meet high demand. For energy providers, benefits range from improved service for customers to reduced operating costs and higher rates of bill payment.

In industry, efficiency not only raises profit through lower operating costs, it can also provide consistency and improvement in quality and output. Studies suggest that the multiple benefits in the overall industrial sector may be worth up to 2.5 times the value of energy savings.

Energy efficiency also offers positive macroeconomic impacts, encompassing a range of aggregate benefits for an economy. These include increases in gross domestic product, improved trade balance for fuel-importing countries, heightened national competitiveness – and the cumulative benefits of all other impacts. These macroeconomic gains are mainly indirect effects resulting from increased consumer spending and economy-wide investment in energy efficiency, as well as from lower energy expenditures, and are of particular importance during recessions.

The International Energy Agency (IEA) produces IEA Energy, but analysis and views contained in the journal are those of individual IEA analysts and not necessarily those of the IEA Secretariat or IEA member countries, and are not to be construed as advice on any specific issue or situation. To subscribe and receive the next issue, click here.

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