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Article | 18 January 2023 | ESG
Global investment in energy efficiency surges
Sky-high energy prices and supply worries mean the world is suddenly prioritising energy efficiency. 2022 was marked by various milestone policy announcements designed to boost investment in clean energy and improve energy efficiency: the US Inflation Reduction Act, Japan’s Green Transformation (GX) drive and the EU’s REPowerEU programme. These initiatives are set to boost investment in energy efficiency by hundreds of billions of dollars over the coming years.
An analysis by the International Energy Agency (IEA) finds global efficiency investment jumped by 16% in 2022. Data suggests the global economy used energy 2% more efficiently during 2022 versus 2021 – this is nearly four times the improvement of the past two years and almost double the rate of the past five years. The IEA’s analysis also finds further progress is vital to achieve the net zero carbon goal by 2050 – efficiency improvements would need to average about 4% this decade.
The IEA says increased energy efficiency is the best way for the world to respond to higher energy prices, energy security worries and the cost-of-living crisis. It estimates today’s running costs for the most efficient homes or cars versus the least efficient can typically be 40% lower, even 75% less in some cases.
Increased investment in electric-vehicle (EV) infrastructure and growing EV adoption alongside steady efficiency improvements for buildings bodes well. However, the fact energy efficiency investment has grown at a time of higher energy prices begs the question whether this can be sustained, and if energy efficiency investment will falter once energy prices subside from current levels.
Highlighting some of the positive steps being made around the world, the IEA applauds Southeast Asian governments for universally implementing efficient cooling programmes, especially given the region’s rapid growth in electricity demand. However, it laments an overall lack of energy efficiency investment in emerging and developing economies versus their advanced counterparts. So far, packages like the Inflation Reduction Act have been firmly concentrated in the developed world.
It’s encouraging to see substantial progress being made on the energy efficiency front last year. Given the continuing Russia-Ukraine conflict and the ongoing cost of living and energy crises, energy efficiency couldn’t be more important. Uncertainty on natural gas supply in particular looks likely to continue as a key theme over the next few years. Given the sheer scale of the possible cost savings increased energy efficiency can bring, we anticipate further growth in energy efficiency investment. However, much more needs to be done, if the world is to achieve net zero by 2050.