How a slowdown in energy efficiency progress is jeopardising global climate goals

The Covid-19 pandemic has caused energy efficiency investments to tumble while increasing the energy intensity of the global economy, according to the International Energy Agency

Global progress on energy efficiency was stymied through 2020 by the Covid-19 crisis, intensifying the need for stronger government action, according to an International Energy Agency (IEA) report published today.

Global primary energy intensity – a key indicator of how efficiently the world’s economic activity uses energy – is expected to fall by less than one per cent this year, the weakest rate since 2010, the IEA’s annual update on efficiency trends estimates.

That is far below the level of progress needed to achieve the world’s shared goals for addressing climate change, reducing air pollution, and increasing access to energy, according to the IEA.

The downturn is due in part to a plunge in investments in energy-efficient buildings, equipment, and vehicles during the pandemic-induced economic crisis, with overall investment in energy efficiency forecast to fall by nine per cent through 2020, the report states.

Purchases of new cars, which are more efficient than older models, have also dropped, while construction of new, more efficient homes and other buildings is also expected to slow. Moreover, in industry and commercial buildings, lower energy prices have extended payback periods for key efficiency measures by as much as 40 per cent, decimating their attractiveness compared with other investments, the report notes.

Another factor higlighted by IEA is a slowdown in wider improvements in the energy intensity of the global economy, meaning that every unit of economic output uses more energy that it would do otherwise. The report argues the slowdown is primarily the result of structural issues – energy-intensive industries such as metals manufacturing and chemicals have been less severely impacted by the Covid-19 crisis than other, less energy-intensive parts of the economy, resulting in a more energy intensive economy overall.

The poor progress is in stark contrast to the energy generation sector, where renewables have enjoyed a relatively good crisis, as projects have proceeded and clean power has commanded a higher than usual share of national power grids. At the same time covid lockdowns and the resulting economic slowdown have meant overall emissions are expected to fall sharply this year.

But with emissions expected to bounce back as the economy recovers next year, IEA executive director Dr Fatih Birol said he was “very concerned” about the slowdown in “one of the mainstays of global efforts to reach energy and climate goals”.

Improvements in energy efficiency can contribute around half of the reduction in energy-related greenhouse gas emissions that is required over the next two decades to put the world on a path to meeting international energy and climate goals, according to the IEA, and yet the sector has consistently struggled to deliver energy savings at the required pace, even before the pandemic hit.

Consequently, the IEA is now urging governments to give more weight to future efficiency trends when designing their economic recovery and stimulus packages. It notes than more than 60 per cent of the funding for energy-efficiency related measures announced to date has focused on either the buildings sector or on accelerating the shift to electric vehicles, leaving many more opportunities untapped.

For example, the report highlights how no governments have to date announced moves to increase the uptake of super-efficient appliances, while spending on vehicle efficiency beyond support for electric vehicles has been minimal.

Planned green recovery spending is also imbalanced on a regional basis, with announcements from European countries dwarfing those from other parts of the world, it adds. Announced spending in Europe accounts for 86 per cent of global public stimulus announcements for efficiency, with the remaining 14 per cent split between the Asia-Pacific region and North America.

“For governments that are serious about boosting energy efficiency, the litmus test will be the amount of resources they devote to it in their economic recovery packages, where efficiency measures can help drive economic growth and job creation,” Birol said.”We welcome plans by governments to boost spending on energy efficiency in response to the economic crisis, but what we have seen so far is uneven and far from enough.”

The failure of governments and businesses to prioritise energy efficiency measures is particularly frustrating for climate campaigners, given the multiple long term economic benefits that flow from energy efficiency upgrades. The IEA analysis estimates that spending on efficiency-related stimulus measures announced by governments worldwide to date is expected to generate almost two million full-time jobs between 2021 and 2023, mostly in the buildings sector and mainly in Europe. However, previous analysis contained in the IEA’s Sustainable Recovery Plan published in June estimated a job creation potential of four million, if recovery efforts are further targeted at channelling public and private sector investment into buildings, transport, and industry.

Energy efficiency upgrades have been consistently shown to boast a high economic multiplier effect, as initial investments unlock long term cost savings, spark job creation, and deliver significant climate, health, and air quality benefits. The case for energy efficiency has always been compelling, but sadly coronavirus has become the latest in a long line of barriers that the sector has to overcome.

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