Multiple Benefits

The multiple benefits of energy efficiency

The multiple benefits of energy efficiency capture and communicate the broader value energy efficiency measures can deliver. Revealing the potential of energy efficiency to support economic growth, enhance social development, advance environmental sustainability, ensure energy-system security and help build prosperity, repositions energy efficiency as an effective tool for economic and social development.


Energy savings


Energy efficiency improvements reduce the amount of energy use required to provide a service. Energy savings are at the heart of the multiple benefits of energy efficiency and link to many other economic, social and environmental benefits.

Energy efficiency reduces energy use worldwide

Globally, energy efficiency improvements achieved 13% energy savings between 2000 and 2016. Without this improvement, global energy use in 2016 would have been 12% higher – equivalent to adding the annual final energy use of the European Union to the global energy market. Energy savings from efficiency improvements in IEA member countries make up nearly half of the global total, equivalent to the current energy use of Germany, France and the United Kingdom combined, with the major emerging economies (Brazil, China, India, Indonesia, Mexico and Russia), accounting for around 40%.

Figure 1. Final energy use with and without energy savings from efficiency improvements globally (left) and by country grouping (right)

Source: Energy Efficiency 2017
Notes: Global energy savings are a combination of improvements in IEA member countries, the six major emerging economies analysed, plus the rest of the world, which represents 26% of global energy use. Energy savings for the rest of the world are estimated by applying the ratio of efficiency improvements to intensity gains observed in emerging economies to the gains in intensity observed in these other countries.

Energy efficiency reduces the need for additional primary energy

The total primary energy saved in 2016 compared with 2000 as a result of end-use efficiency gains was 30 EJ in IEA member countries and 23 EJ in the major emerging economies. Of these primary energy savings, around 40% came from reduced fuel input to power generation due to reductions in electricity demand.

Coal decline leading energy savings

Coal was the largest source of global primary energy savings in 2016, mostly due to energy savings in China. After coal, the next largest primary energy savings were in natural gas, with savings equivalent to 11% of global gas demand. Global oil savings, due almost entirely to efficiency improvements in passenger transport, are equivalent to 3.6 million barrels of oil per day (mb/d), equivalent to the daily oil consumption of Japan.

Figure 2. Avoided annual primary energy demand in IEA member countries and major emerging economies from efficiency improvements since 2000 by fuel

Source: Energy Efficiency 2017

Without the electricity savings made in IEA member countries and major emerging economies, global electricity use would have been 14% higher in 2016. To meet this additional demand, more than 1000 GW of additional power plant capacity would have been needed at an investment cost of USD 1.9 trillion.

Figure 3. Energy savings from energy efficiency improvements by regional grouping, 2000-15

 

Source: Energy Efficiency 2017
Note: Primary energy savings from power generation are determined based on the generation mix within IEA member and major emerging economies

 

Energy security


Energy efficiency can bolster regional or national energy security, enabling the uninterrupted supply of energy at an affordable price. By reducing overall energy demand, energy efficiency can reduce reliance on energy imports. Energy efficiency can, therefore, play a crucial role in ensuring both long- and short-term energy security in a cost-effective manner.

One way in which energy efficiency can benefit a country’s energy security is by reducing its reliance on imported energy. Energy efficiency also reduces the likelihood of supply interruptions; the only energy source that cannot be interrupted is the energy that is not used. Also, in the event of a disruption, efficiency measures can work with emergency conservation measures to reduce demand. This was demonstrated effectively in the wake of the Great East Japan Earthquake of 2011 (IEA, Saving Electricity in a Hurry, 2005).

Energy efficiency reduces the amount and cost of energy import

In countries that rely on energy imports to meet domestic needs, energy efficiency can enhance energy security by reducing imports of coal, oil, and gas. Efficiency improvements between 2000 and 2016 avoided nearly USD 50 billion in expenditure on energy imports. Gas import savings are particularly significant in IEA member countries, equivalent to 10% of global annual gas imports. Oil import savings are also significant, equivalent to 2.2 million barrels of oil a day (mb/d) – equal to almost one-third of China’s total oil imports in 2016.

Figure 1. Import reductions (left) and avoided import costs (right) in IEA member countries in 2016 from efficiency improvements since 2000 by fuel

Source: IEA, Energy Efficiency 2017

Among the IEA member countries most dependent on imports of oil and gas, Japan’s import savings from energy efficiency are the largest. This reflects Japan’s dependence on oil and gas imports and its long history of rigorous efficiency policies, especially fuel efficiency standards for passenger vehicles and heavy duty vehicles. Oil savings in Japan were equivalent to more than 20% of its oil imports in 2016 and nearly three times greater than oil savings in Germany, which has the second-largest oil import savings. Although gas import savings in the United Kingdom were slightly smaller than in Japan in absolute terms, they were much larger relative to total imports, reaching over 80% in 2016. This reflects the fact that the United Kingdom uses local resources to meet more than 50% of its domestic gas demand.

 

Figure 2. Reductions in energy imports in 2016 from efficiency improvements since 2000 in the largest IEA member country importers

Source: IEA, Energy Efficiency 2017

Reducing energy imports (or increasing exports) through efficiency can also benefit a country economically, particularly where energy is a large contributor to trade balances, by improving national accounts and reducing the need for costly supply and storage infrastructure. Reductions in electricity demand resulting from efficiency can also limit requirements for new electricity generation, transmission, and distribution infrastructure, particularly during a transition from fossil fuels to renewables-based generation.

Energy efficiency has substantially reduced European gas imports

The impact of energy efficiency improvements on gas imports has been particularly striking in the European Union, which accounted for more than half of imports by IEA member countries in 2016, and where domestic production has been declining in recent years. In 2016, the primary sources of gas imports to the European Union were Russia, Norway, and Algeria.

Energy efficiency gains since 2000 in Germany and the United Kingdom – the two largest EU gas markets – have been the main factor behind lower gas use and the reduced need for imports. Between 2000 and 2015, overall gas demand fell by 11% in Germany and 29% in the United Kingdom. This decline more than offsets the impact of factors that drove up gas demand, including increases in population, number of households, economic growth and changes in the fuel mix.

Had the efficiency of gas demand in the residential, industrial and services sectors not improved since 2000, gas consumption in 2015 would have been 21% higher in Germany and 27% higher in the United Kingdom. The savings from these two countries alone are equivalent to nearly a quarter of the European Union’s entire gas imports from Russia in 2015.

In both countries, the bulk of the savings came from efficiency improvements in the residential sector, particularly in space heating. Between 2000 and 2015, the amount of gas needed for space heating per unit of floor area fell by 44% in Germany, saving 11.5 billion cubic metres (bcm), and by 28% in the United Kingdom saving 7.5 bcm.

Figure 3. Decomposition of gas demand, 2000-15

Source: IEA, Energy Efficiency 2017

Notes: Residential factors combine changes in residential floor area, population, the number of households and the fuel mix. For the United Kingdom, electricity generation refers to the shift from gas-fired generation to other fuels and technologies.

Efficiency helped contribute to emergency response in Japan

Energy efficiency and conservation efforts played a major role in Japan’s response to the energy emergency that resulted from the Great East Japan Earthquake in 2011. The magnitude 9 earthquake and the subsequent tsunami on 11 March 2011 caused widespread devastation and significant loss of life in north-east Japan. This natural disaster also triggered a serious accident at the Fukushima Daiichi nuclear power plant – level 7, the most severe on the international nuclear event scale. Significant off-site radiation was released from fuel meltdowns in the three reactors in operation at the time at the six-unit facility. As a result of the accident and investigations into its causes, the remaining 48 operational nuclear reactors in Japan were gradually taken offline during regularly scheduled maintenance outages, leading to a shortfall in electricity supply in the country (IEA, CO2 Emissions from Combustion Highlights 2017).

To rectify the supply shortfall and compensate for the loss of Japan’s nuclear capacity, power generation from coal, oil and gas-fired plants was increased, and energy savings measures were implemented. Energy savings measures initially focused on emergency conservation, called “Setsuden” (saving electricity), in the service area of the Tokyo Electric Power Company (TEPCO), which was most directly affected by the nuclear shutdown. These were successful in avoiding blackouts over the summer peak time in 2011 and 2012.

 

Figure 4. Japanese energy conservation measures following the Great East Japan earthquake and Fukushima nuclear disaster

Year

Description of measures

2011

For 10 weekdays between 14 March and 28 March, planned power outages were executed across the TEPCO service area, which was heavily affected by the nuclear shutdown.

In August, large electricity users in the TEPCO area were forced to limit electricity use in accordance with the Electricity Business Act.

From July to September, large companies and factories were required to cut electricity use by 15% compared with the previous year.

2012

During summer and winter, consumers were required to save electricity through the continuation of the mandatory requirement to meet numerical targets for electricity savings.

2013

In May 2013, a partial amendment was implemented to the Act on the Rational Use of Energy allowing for the adoption of peak demand shift, giving large electricity consumers, particularly in industry, incentives to shift times of peak demand.

2013-15

Unlike the requirements in 2011 and 2012, savings were not governed by numerical targets.

Source: IEA, Energy Efficiency 2017

Energy prices


Energy efficiency can enable lower energy prices by reducing the need to add expensive new power generation or transmission capacity and by reducing pressure on energy resources. Decreased demand for energy services across several markets can prompt a reduction in energy prices.

Reduced energy consumption’s link with energy price

When energy efficiency results in reduced consumption, it can reduce prices. This is the case especially if energy efficiency activities are sufficiently widespread and of a large enough scale, for example, fuel economy standards for vehicles. Some energy sources (such as oil) are global commodities; change in demand in only one region may not have a significant impact on energy prices. Local supply constraints may, however, translate into changes in energy prices locally if energy efficiency measures free the supply of the energy sources and lead to improved security of energy supply. In time, global energy markets may be more closely linked, at which point if energy efficiency measures could reduce energy commodity prices across all countries.

Energy prices and price elasticity for economic modelling and behaviour

Economic models use price elasticities to represent how people and businesses respond to changes in the price of energy and goods. Policy makers need to be aware of the key price elasticities and assumptions included in a model, as these can be important determinants of macroeconomic analysis results.

The duration of energy price changes strongly influences behaviour, especially if revenues and return to capital changes – reducing the incentives to invest in or to replace stock. Several studies show that the long-term effects of higher energy prices or taxes may exceed the short-term effects by a factor of 3 to 4. Consumers of these services are less likely to respond to short-term changes in price.

Natural gas prices and energy efficiency on a global level

In 2016, while energy efficiency continued to have gains, retail energy prices declined (Figure 1). Natural gas prices dropped 5 percentage points in 2016 after falling 6 percentage points in 2015; prices are expected to continue to weaken further in 2017 due to shale gas production in the United States and LNG exports from Australia. Electricity prices remained stable or declined slightly, and composite prices for oil products dropped 9 percentage points in 2016 after a 20 percentage point fall in 2015.

Figure 1. Indices of average residential retail energy prices in OECD countries

Source: Energy Efficiency 2017

Since the sharp drop in oil prices after 2014, residential transport fuel use has decreased in some countries, notably in Japan (3%), has remained flat in others, including France, the United Kingdom and Mexico, and has increased in some of the strongest economies, including China (12%), Germany (1%) and the United States. In the United States, where fuel taxes are low and retail prices dropped by more than 30%, there has been a 6% increase in gasoline consumption since 2014. Fuel prices dropped by a quarter in China since 2014, but there was a 12% increase in fuel use due almost entirely to people driving more kilometres every year, fewer people taking public transport and vehicle occupancy rates decreasing (IEA, Energy Efficiency 2017).

Despite recent decreases in energy prices, improvements in household energy efficiency continued in 2016. For example, in Germany, even though residential energy prices have fallen since 2014, the intensity of household energy consumption continued to improve in line with the trend since 2000.