Energy efficiency: the net-zero no-brainer that has come of age

• Energy efficiency dubbed "first fuel" in green transition
• At COP28, leaders pledged to double energy efficiency
• Companies could save trillions by cutting energy demand

BRUSSELS – If last year's COP28 climate talks signalled the beginning of the end for the production and use of fossil fuels, they also marked a coming of age for energy efficiency, hailed as the "first fuel" in the transition to a greener future. 

As well as committing to triple installed renewable energy generation capacity, nearly 200 countries pledged to double the global average annual rate of energy efficiency improvements by 2030. That would raise it from around 2% now to over 4%.

Cutting back energy use is the cheapest, most effective way to save on bills, while also reducing carbon emissions to slow the pace of global warming, according to energy experts.

"As the Americans say, it's a 'no brainer'," Fatih Birol, executive director of the International Energy Agency (IEA), said during a discussion at the World Economic Forum in Davos this week.

Campaigners, however, say red tape, knowledge gaps and limited financing are holding up the energy efficiency revolution.

Here's why energy efficiency is important and how energy is being saved.

What role can energy efficiency play in reaching net zero?

While renewables are a key part of the transition to net zero, the IEA calls energy efficiency the "first fuel" of the green transition as it offers a quick and cost-effective solution to reducing planet-heating emissions.

Ramping up renewables, like solar and wind power, improving energy efficiency, cutting methane emissions and increasing electrification would deliver more than 80% of the emissions reductions needed by 2030, according to the IEA's Net Zero Roadmap report, first published in 2021 and most recently updated last September. 

Energy efficiency measures include using appliances, technology or electronics that are designed to consume less energy, such as heat pumps or LED lighting. Energy use can also be saved by designing buildings with better insulation and eliminating leaks from industrial or urban properties.

Some of these measures can be introduced quickly and relatively cheaply, meaning there would be less demand for fossil fuels as they gradually make way for renewables. 

What cost savings can be made?

In a new white paper, Transforming Energy Demand, the World Economic Forum (WEF) estimates that energy demand could be cut by 31% across all sectors, saving $2 trillion a year, if businesses take action to curb demand by 2030.

The paper calls on companies to reduce the amount of energy they use in current and future operations, noting that affordable technologies already exist, including heat recovery and reuse and behaviour change. 

A global energy efficiency effort could reduce oil consumption by almost 30 million barrels per day - about triple Russia's production in 2021 - and lower household energy bills by $650 billion a year by the end of the decade, recent IEA analysis shows. 

The WEF's report says reducing energy demand would help companies boost growth, save cash and maintain their competitive advantage while reducing emissions.

"Actions are doable today, at attractive returns with existing technology, and so it is believed this establishes a compelling case to act as much on energy demand as supply in the journey to net zero," the report said.

Industries worldwide could save $437 billion per year by 2030 through improved energy efficiency, according to an October report by the Energy Efficiency Movement, an industry collective.

What are the best energy-efficient technologies to invest in?

Households looking for quick fixes to reduce energy consumption can replace appliances with products designed to gobble less energy such as LED light bulbs and heat pumps.

Heat pumps can be up to five times more efficient than gas boilers, the IEA says.

Households could also retrofit homes with better insulation in roofs, walls and windows to reduce the need for air conditioning or heating, but these measures are more costly and time-consuming.

Energy-saving measures for businesses include using artificial intelligence (AI) to optimise factory design, retrofitting buildings and electrification of transport.

How much progress has been made globally?

Since 2020, countries have mobilised about $700 billion for energy efficiency projects, from building retrofits to public transport and support for electric vehicles, according to the IEA's annual Energy Efficiency Report. 

Electric vehicles are energy-efficient because they waste less of their energy reserve than combustion-engine vehicles powered by gasoline.

In a report last July, the IEA said energy efficiency policies were strengthened globally in the previous 12 months, citing in particular India, which enacted new policies for appliances, vehicles, industrial facilities and commercial buildings.

The IEA has also said that there are particular opportunities for improvement in developing countries, where authorities could better plan for energy-efficient buildings as their economies grow. 

At consumer level, there has been considerable progress. Heat pump sales were up by 75% in the first half of 2023 compared to 2022 levels in Germany, the Netherlands and Sweden combined.

In the U.S., the energy efficiency improvement rate stood at 4% in 2023, with $86 billion allocated for the goal under the Inflation Reduction Act, introduced by President Joe Biden in August 2022.

In September, Germany's lower house of parliament passed a bill to make saving energy compulsory in all economic sectors.

The Energy Efficiency Act, introduced by the Greens-led economy ministry, includes regulation for energy savings in public buildings, industry and fast-growing data centres across Germany, with the goal of a 26.5% cut by 2030 from 2008 levels.

And last March, the European Union agreed to cut final energy consumption across the bloc by 11.7% by 2030, a move that would require countries to renovate millions of draughty buildings to waste less energy.

Why aren't we seeing a retrofit revolution?

Red tape, a lack of skilled workers and cost has put the brakes on a speedier roll-out of existing energy efficiency measures across the world. 

In Europe, families grappling with a cost-of-living crisis, which has been exacerbated by the war in Ukraine, are often unable to take on the upfront costs of retrofitting buildings or buying new technology.

Meanwhile businesses are sometimes discouraged from taking action because they are unaware of the swift returns on investment, experts say. 

"We must convince businesses they will have a competitive edge," Birol said at Davos.

Regulations must be made more business-friendly, say energy and industry experts, who have called for necessary planning permits to be processed more quickly. 

Brussels introduced emergency rules to accelerate the permit-granting process for heat pumps at the end of 2022, to boost deployment of the cleaner technology.

(Reporting by Joanna Gill; Editing by Clar Ni Chonghaile.)