Energy is a vital input into all productive sectors of the economy. In an environment of fierce global competition and shifting trade patterns, energy costs are a major determinant of long-term investment, jobs and business competitiveness. Finding ways to reduce energy costs while producing more or better products is good for both profitability and overall economic growth.

While energy prices are volatile in many countries, recent high prices combined with instability and fragmentation in energy markets have widened energy price gaps between regions. Concerns centre on how higher energy costs erode profitability, push up inflation and cause industries to downsize or relocate, due to shifting decisions on long-term investment.

Energy efficiency offers a way to structurally lower energy costs year after year, while providing the same or, in many cases, improved output. Investing in efficiency can also help firms to create or safeguard jobs, lower emissions, and achieve a more durable competitive advantage.

In the industrial sector, which accounts for 21% of world GDP (worth over USD 20 trillion), growing energy demand and rising trade pressures are placing energy – and the role of energy efficiency – at the heart of discussions on competitiveness.

For highly energy-intensive industries, managing energy costs can be a question of survival. These heavier industries (such as chemicals, metals, pulp and paper, refining and cement) are characterised by high fixed costs and capital-intensive processes, where efficiency improvements often require substantial upfront investment.

For less energy-intensive sectors (such as electronics, machinery, automobiles, textiles, and food and drink processing), energy generally plays a smaller role in overall costs. However, these lighter industries have significant potential to achieve cost-effective energy savings in the short term, with lower capital costs and greater potential for electrification. Managing costs in lighter industries is also crucial, not only to improve firm competitiveness but also to achieve broader economic objectives. While these sectors contribute around a quarter of industrial energy demand, they account for over half of industrial value added and two-thirds of jobs.

Over the last two decades, industrial energy efficiency gains, as measured by the energy intensity of global industrial value added, have been just under 1% per year on average. This means that, for a given amount of energy, the global industrial sector is now able to produce 20% more value added than in 2000. While this global improvement is also partly influenced by structural shifts, this trend underscores the substantial progress made in industrial energy efficiency over the years, enabling increased economic output without a corresponding rise in energy consumption.

However, not all regions and countries have progressed at the same rate. The People’s Republic of China (hereafter “China”)  saw strong progress, with average annual industrial energy intensity improvement of 2.4% since 2000. This rate of improvement was followed by Japan at 2.1% and the United States at 1.9% on average per year over the same period. India also achieved a 0.4% improvement per year, while Brazil’s industrial energy intensity actually increased over the period by 0.7% annually. Today, some countries use less than half the energy of other countries to produce similar economic output, in both heavy and lighter industry.

Progress in energy efficiency can also be observed in the manufacturing sector, the largest subsector of industry. In the European Union, for example, the manufacturing sector now produces 50% more value added using 25% less energy than two decades ago.

While the efficiency gains achieved at the national level are already significant, their combined effect across the G20 is even more substantial. Energy efficiency improvements in industry and services since 2000 have delivered cumulative savings of 46 EJ, equivalent to India’s entire primary energy consumption. Two-thirds of these gains were achieved in China.

Looking at countries that have made significant progress in energy efficiency over the past decades, there is strong evidence of support through a diverse range of regulatory, incentive, and information policies. These include setting clear energy intensity targets, such as China’s binding targets set through national five-year plans and Germany’s regulatory targets under the Energy Efficiency Act, and providing financial incentives and technical assistance, such as Japan’s energy management frameworks. Information initiatives, such as India’s labelling scheme for industrial motors, also encourage improvements. 

Driven by China and India, industrial energy demand has seen significant growth in recent years, increasing by 1.8% per year on average from 2019 to 2023, compared to 1.1% between 2010 and 2019. This has made the industrial sector the driving force behind the growth in global energy demand, accounting for 80% of the total increase in global final energy demand between 2019 and 2023, from around 430 EJ to 445 EJ. This came amid a surge in trading activity, with global merchandise exports growing by nearly 40% between 2020 and 2023.

At the same time, as detailed in the IEA Energy Efficiency Progress Tracker, industrial energy efficiency improvement has stalled.

Between 2010 and 2019, an annual energy intensity progress just below 2%  was achieved in industry on average. But since 2019, this figure has fallen to an average improvement of around 0.2% per year – remaining largely unchanged. While this is in part due to a particularly weak year in 2020, when global industrial energy intensity actually increased by 2.4%, progress in industrial energy efficiency has yet to return to historical averages. In 2023 alone, industrial energy intensity improved by just under 0.5%, a virtual flatlining compared with the average of the previous decade.

This stagnation in industrial energy efficiency is the main reason behind the recent slowdown in global energy efficiency progress more broadly. Since 2020, the average annual rate of progress in global energy intensity – for industry, transport and buildings combined – has fallen to around 1% per year, compared to around 2% per year between 2010 and 2019.

This slowdown has come at a time of increased policy ambition to work collectively to double the global average annual rate of energy efficiency improvements by 2030.

However, without a focus on improving progress in industrial energy efficiency, these trends risk weakening firms’ competitiveness and adding pressure on energy systems, including electricity grids, that are straining to meet growing demand.