Energy efficiency is finally turning a corner as the world tackles the energy and climate crises

The quest for greater energy efficiency has united people around the globe over the past year, driven by the concurrent challenges of the energy and climate crises. It has brought together policymakers, consumers, investors and businesses eager to save on skyrocketing electricity and fuel costs, as well as to urgently abate CO2 emissions.

Their consolidated efforts to save and better manage our energy appetite resulted in a much-increased rate of improvement on energy efficiency in 2022. This is according to a new report from the International Energy Agency (IEA), Energy Efficiency 2022. Although the increase amounts to only 2% - based on preliminary numbers - it is almost double the rate achieved in the previous five years.

The IEA heralds this uplift as a potential turning point for making the energy savings needed to impact the climate crisis. However, energy efficiencies must increase by around 4% annually this decade if we are to reach net-zero emissions by 2050, in line with the Paris Agreement.

Existing energy conservation measures are already contributing significantly to offsetting some of the growing energy demand in the wake of the world’s pandemic recovery. And last year, their impact helped IEA member countries lower energy bills by $680 billion.

Some energy savings - like switching off electrical appliances or turning down the heating - are within easy reach of all of us. Others require significant capital investment.

The IEA notes that since 2020, around $1 trillion has been mobilized to boost energy efficiency, covering initiatives as varied as making homes and commercial buildings more efficient, electrifying public transportation and building electric vehicle infrastructure.

2022 alone saw $560 billion of investments in energy efficiency - some 16% more than the year before.

This combines both government and private investments, with the latter increasing steadily since the middle of the last decade.

The IEA report notes that momentum is building for electrifying transport and heating. It points to the fact that one out of eight cars sold around the world is now electric and to the success of heat pumps. Preliminary figures suggest 3 million heat pumps were sold in Europe in 2022 - doubling 2019 sales. This reflects homeowners trying to wean themselves off their dependency on natural gas for home heating - a struggle in which Europe does not stand on its own, as the chart below shows.

Policy has played a major role in achieving this acceleration. Energy efficiency obligations and minimum standards are as much part of this as labels and performance levels in homes, offices and for vehicles.

And government commitment continues to build. Whether it’s air conditioning, lighting or displays, minimum standards have been raised substantially in 2022 compared to previous years. The IEA points to evidence that the most efficient homes or vehicles cost between 40% and 75% less to run.

However, much of the progress here relates to advanced economies. Emerging and developing countries will require much greater investment and support in their transition - because that is where the largest energy efficiency opportunities lie.

The IEA report is also outspoken about other barriers to boosting energy conservation. One of these is the significant increase in fossil-fuel subsidies in response to shortages. If not applied very judiciously, such measures could ultimately prove detrimental to tackling the climate crisis. And then there is the challenge of maintaining the momentum reached in 2022 and ensuring that economies the world over don’t revert to their comfort zones.

Energy efficiency and building a sustainable energy system is one of the key themes to be discussed at the World Economic Forum Annual Meeting 2023, focusing on how cooperation can help channel our efforts to reach the Paris climate targets.