Energy efficiency: an indispensable piece in the climate change puzzle

With sharpened focus on reaching climate ambitions set out in the Paris Agreement, there is an ever-growing focus on the need and benefits of energy efficiency and the critical role it can play in the energy transition.

The International Energy Agency (IEA) estimates while gross domestic product could double by 2040, proper utilisation of energy efficiency could limit the increase of the primary energy demand required to levels only marginally higher than those today and deliver more than 40 percent of emissions reductions to meet international commitments. Given this, energy efficiency is increasingly seen as an indispensable piece of the climate puzzle alongside the deployment of renewable energy. To highlight this, the IEA has coined energy efficiency as being the “first fuel” of economic development – a source of energy that should attract attention and investment ahead of more costly energy sources in the market, including renewables.

Countries that have begun to implement strong targets are seeing a multitude of benefits delivered to their economy. Some benefits, such as reducing energy bills, combating emissions, and increasing energy security are well understood, whereas more nuanced benefits such as the impact on poverty alleviation, resource management, and public budgets are increasingly coming to the foreground.

The benefits of energy efficiency are often self-evident. Between 2000 and 2017, there were 37 exajoules of energy saved via energy efficiency improvements in the world’s major economies – more than both Japan and India’s energy consumption.[1] While a number of countries have benefitted from relatively minor efforts to improve energy efficiency, there are a few countries where strong policy actions have resulted in substantial improvements for their respective economies.

For example:

  • In China, energy efficiency policies have cut household bills by around 20 percent alongside a 33.8 percent reduction in energy intensity between 2006 and 2015 despite a booming economy.[2]
  • In Japan, a strong focus on incentives for businesses to reduce peak demand and energy usage has led to a 26 percent reduction in electricity bills attributable to energy efficiency.[3]
  • In Germany 400,000 people are now employed in energy efficiency and households across the country are saving up to AUD790 per year as a result of continued investment.[4]

Despite these advances and the benefits on offer, investment into energy efficiency on a global scale stalled in 2018. While investment into sectors such as energy efficient transport solutions has increased, global investment into energy efficient buildings fell for the first time in four years, with a 2 percent drop in 2018 as government incentives in Europe were reduced.[5] Growth in China in spending on industrial energy efficiency initiatives also offset a decline in energy efficiency spending in the US. This global stall is despite a rise in the coverage of mandatory energy efficiency policies (with 34 percent of global energy use covered by some form of target in 2017)[6], and an increase in the strength of these targets.

At home, Australia has failed to harvest the benefits from energy efficiency investment. In 2018, we ranked 18th in energy efficiency out of the world’s 25 largest energy users, dropping two places since 2016.[7] While state governments have spurred investment with moderate success through market-led energy efficiency obligations and the federal National Energy Productivity Plan aims for a 40 percent increase in energy productivity by 2030, there has not been the same level of investment or policy action required to capture the sizeable gains seen worldwide. In fact, the Energy Efficiency Council has estimated that adopting leading international policies in energy efficiency for Australia could result in a $7.7 billion reduction in consumer bills per year, as well as half of our international commitments to carbon emission reductions.[8]

Unlocking the potential for energy efficiency requires a careful merging between the targets and ambitions set by governments, and the corresponding level of investment by the private sector. Policymakers have an increasing range of mechanisms available to them to promote energy efficiency, including direct grants and subsidies, tax relief, standards and codes, debt financing, and market-led energy efficiency obligations. As consumers begin to play a vital role in shaping demand in the energy sector, mechanisms to encourage energy efficiency at the household level are also becoming increasingly important towards unlocking further gains.

There is a role to play, across the board, in this transition– from governments, to the private sector, and even further to individual households and the uptake of energy efficient and “smart” devices and appliances. With the unveiling of the Commission for Urgent Action on Energy Efficiency by the IEA[9], there is now an opportunity to take stock of global progress in energy efficiency and demand side management. While Australia may have lagged behind other economies, this provides Australia with a clear opportunity to assess what has worked internationally and understand how this can be applied domestically in order to and reap the rewards of energy efficiency and support the energy transition.

[1] International Energy Agency, Energy Efficiency 2018: Analysis and outlooks to 2040 (2018), IEA

[2] Energy Efficiency Council, The World’s First Fuel: How energy efficiency is reshaping global energy systems (2019), EEC

[3] Ibid.

[4] Ibid.

[5] International Energy Agency, World Energy Investment 2019 (2019), IEA

[6] International Energy Agency, Energy Efficiency 2018: Analysis and outlooks to 2040 (2018), IEA

[7] Castro-Alvarez, F.; Vaidyanathan, S.; Bastian, H.; King, J., The 2018 International Energy Efficiency Scorecard (2018), American Council for an Energy-Efficient Economy

[8] Energy Efficiency Council, The World’s First Fuel: How energy efficiency is reshaping global energy systems (2019), EEC

[9] International Energy Agency, “IEA unveils global high-level commission for urgent action on energy efficiency” (2019), https://www.iea.org/newsroom/news/2019/july/iea-unveils-global-high-level-commission-for-urgent-action-on-energy-efficiency.html

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