Energy efficiency strategies

Key energy efficiency strategies for a low-carbon economy

Energy efficiency has become an essential strategy in tackling global energy and environmental issues, as highlighted by COP28's ambitious goal to double energy efficiency by 2030. Countries around the world are ramping up efforts through policies and regulations, recognising the importance of energy efficiency in promoting sustainability, economic competitiveness, and energy security. Despite significant progress, especially in the EU, numerous challenges persist, necessitating a collective and sustained commitment to achieve these critical goals. The following pages explore the current landscape, obstacles, and strategic actions needed to advance global energy efficiency.

Current situation and challenges faced

Energy efficiency is a critical component in addressing global energy and environmental challenges, with its significance underscored by recent international commitments, the main one being one of the outcomes of the COP28 to increase global efforts to double energy efficiency by 2030.

Moreover, countries worldwide are increasingly focussing on energy efficiency through various initiatives and regulations, recognising its pivotal role in achieving sustainability, economic competitiveness, and energy security goals. In this context, one notable policy implemented in the EU, the Energy Efficiency Directive (EED), introduced for the first time in 2012 and formally revised in October 2023 as part of the "Fit for 55" package under the European Green Deal, mandates energy-saving measures across various sectors. To support energy efficiency projects and investments, the EU has implemented financing mechanisms, such as the European Fund for Strategic Investments (EFSI), the European Structural and Investment Funds (ESIF) and the Recovery and Resilience Fund, providing incentives for businesses and governments to prioritise energy efficiency measures.

In the last few years, Europe’s progress in the intensification of energy efficiency has been the most pronounced one globally, followed by the US and China, given the heightened need to conserve energy during the ongoing energy crises. The EU overachieved the binding target of a 20% reduction in the its primary and final energy consumption by 2020 compared to the energy consumption projected in 2007, due to a cumulative impact of the economic downturn resulting from the Covid-19 pandemic crisis and the energy savings resulting from the respective EU policy measures. Reportedly, the most effective drivers were energysaving obligation measures, financial incentives and the implementation of taxes on energy and CO2, contributing to 33%, 14% and 17% of the total cumulative energy savings for 2014-2020, respectively. In the sectors addressed by the implemented policy measures, the greatest proportion of energy savings stems from crosssectoral measures, focussing mostly on the services, industry, and public sectors.

Breakdown of EU27 final energy consumption by sector compared to GDP growth

While GDP is growing, overall energy consumption remains stable with a slight decline, highlighting a continuous improvement in efficiency

Source: Eurostat
Note: “Other sectors” include commercial and public services

Despite the EU’s concerted efforts to enhance energy efficiency, several challenges persist. These include an inconsistent implementation and enforcement of regulations across member states, upfront costs of energy-efficiency measures, fragmented energy markets hindering coordination, energy poverty exacerbating social inequalities, the need to accelerate technological innovation, and the potential for economic disruption during the transition to a low-carbon economy.

Looking ahead

Efforts to enhance energy efficiency have gained momentum globally. The amended EED establishes a goal to achieve an 11.7% reduction in EU's final energy consumption by 2030, with a 2020 baseline. Additionally, it aims for 1.49% annual energy savings from 2024 onwards, applicable to buildings, industry, and transport. However, as discussed during COP28, global energy efficiency efforts need to increase from 2% annually to 4% to meet the 1.5° climate target. The EU's goals fall short in comparison. Energy efficiency targets, along with transport and electricity generation, are part of the easiest measures to implement through regulations, as the cost savings they entail in reduced energy usage offset high initial investments in the long run, as visible from the marginal abatement cost curve.

Effective measures to reach energy efficiency targets for buildings include so-called "building envelope improvements", enhancing insulation, sealing gaps, and upgrading windows to significantly reduce energy losses. Replacing old appliances with more energyefficient models and older types of bulbs with more efficient LED bulbs is also an effective measure. Further enhancements can be achieved through heat recovery systems, green roofs and living walls, cool roofing materials, smart building technology, and passive design strategies like insulation, orientation and natural ventilation. However, global warming will increase the need for additional cooling systems in the near future, counteracting some of the efficiency improvements.

Marginal abatement cost curve to reach net zero by 2050 (US energy and industry)

Energy efficiency targets are effective measures for achieving climate goals, as they result in long-term cost savings

Note: The marginal abatement cost curve illustrates potential carbon emissions reductions achievable by 2050 through various measures, each associated with different prices per ton of CO2. These measures are relevant to energy and industry emissions in the US, and are similary applicable for Europe, given parallels in economies and annual emissions of around 5 Gt of CO2.

Source: Environmental Defense Fund

In the industrial sector, efficient production methods, regular maintenance, and heat recovery systems are crucial. An emerging trend is "industrial symbiosis," where industrial players collaborate to reduce energy consumption by repurposing each other’s waste products, such as waste heat or emissions, for other processes. Additional measures include process optimisation, automation, lean manufacturing, optimised temperatures, and effective employee training. For households or commercial businesses, successful measures include incentives encouraging energy-saving habits and smart appliances, such as smart thermostats that optimise heating and cooling based on occupancy patterns.

Efficiency improvements in electric motors also represent a significant factor. These currently consume 43-46% of the world's electricity and with the ongoing electrification of the transport sector, this will most likely increase in the future. However, electric motors still have a great potential for energy efficiency improvements and newer, more efficient engines will be an important factor in improving overall energy efficiency.

Achieving energy efficiency targets requires not relying on a single technology without considering the overall system. Incomplete retrofits and low-priority upgrades, along with inadequate maintenance, hinder implementation, as they can be costly but not very beneficial. Overcoming financial barriers, balancing global investment priorities, and strategic resource allocation, also through public-private partnerships, are crucial. The EU has allocated EUR 350 billion for investments in energy efficiency measures to support governments in reaching targets and overcoming budgetary constraints.