The urgent action we need to take on energy efficiency

Despite energy efficiency’s tremendous potential, the world is struggling to capture its full benefits. Recognising this, the Global Commission for Urgent Action on Energy Efficiency has issued ten recommendations to support governments in achieving more ambitious action on energy efficiency.

Global energy efficiency is not improving quickly enough to offset strong energy demand and carbon dioxide emissions growth.

In light of these worrying trends, there is a growing recognition by governments and leaders across the globe that efficiency efforts need to be stepped up.

Convened by the Executive Director of the International Energy Agency (IEA) in response to the global slowdown of energy efficiency progress, the Global Commission for Urgent Action on Energy Efficiency was established in June 2019 at the IEA’s Fourth Annual Global Conference on Energy Efficiency in Dublin, Ireland.

The Commission has 23 members and is composed of national leaders, current and former ministers, top business executives and global thought leaders.

With analytical support from the IEA, Global Commission members have examined how progress on energy efficiency can be rapidly accelerated through new and stronger policy action by governments across the globe.

In the year since the Commission was launched, the world has changed in so many different ways. The COVID-19 pandemic has resulted in a tragic loss of life, and has led to a global economic crisis from which all our countries are working hard to bounce back.

We need transformative change. As a result, the Commission has developed this series of ten actionable recommendations to support governments in achieving more ambitious action on energy efficiency.

The recommendations identify policies that can be implemented quickly to boost activity on energy efficiency globally; and focus on how to stimulate more action, more investment, and more jobs, especially in the COVID-19 recovery.

1. Prioritise cross-cutting energy efficiency action for its economic, social and environmental benefits

A stronger policy focus on energy efficiency will enhance social and economic development, energy security and resilience, and decarbonisation, as well as supporting immediate job creation and economic stimulus.

Capturing these benefits requires whole-of-government engagement, using narratives that highlight efficiency’s positive benefits and build support for stronger action.

Efficiency cuts across all sectors and all government departments, from energy to environment, from finance to education, to health, buildings, industry and transport.

A whole-of-government approach can ensure alignment of priorities and actions and, hence, greatly increases impact.

There are many good examples of whole-of-government approaches strengthening impacts. Energy efficient cooling, for example, is a cross -cutting issue of huge importance and is driven by all-of-government national action plans in both China and India, among others.

In Japan, energy efficiency progress has been steered by an overarching framework, the Energy Conservation Act, which has been in place for 30 years and provides a comprehensive set of targets, regulations and incentives across all sectors, and is regularly updated.

Building such cross-government support relies on the benefits of energy efficiency being made clear through the right metrics and effective narratives. Within any government, different narratives and benefits will resonate.

Highlighting, through real data, energy efficiency’s positive impacts on energy security, energy access and lower consumer bills, can build support within various branches of government.

2. Act to unlock efficiency’s job creation potential

Energy efficiency investment is a key strategy for immediate job creation, and the Commission believes it can, and should, be a central element of stimulus programs.

Evidence shows well-designed stimulus programs with efficiency considerations can rapidly support the existing workforce, create new jobs and boost economic activities in a range of key sectors.

According to the forthcoming WEO Sustainable Recovery Report, energy efficiency actions can be utilised to quickly create millions of jobs, particularly in construction and manufacturing. Key opportunities include building retrofit and technology replacement programs.

The Commission stated that governments can draw lessons from experiences from already established programs, drawing particular attention to our own National Australian Built Environment Rating System (NABERS) program.

3. Create greater demand for energy efficiency solutions

A range of policies exists to drive demand for energy efficient products and services, yet market uptake is still far from where it needs to be.

A focus on driving demand for efficiency technologies and services, and on removing barriers to their uptake, can greatly accelerate progress.

Policies such as standards and labels can increase demand for more efficient choices by informing consumers and by moving markets towards more efficient options.

Transition to more efficient options can also be accelerated by incentives for consumers to replace old, inefficient products with new, more efficient models.

Well-designed policies build market scale for new technologies in ways that bring prices down and make more efficient options more affordable.

4. Focus on finance in the wider context of scaling up action

Policies to get finance flowing can combine measures to increase demand with actions to remove barriers to investment and to enable appropriate finance and business models.

This is critically important now as governments look at ways to channel public funds and leverage private capital at a time when private investment is likely to slow.

Among the many initiatives and policies put in place to create flows of finance to efficiency actions, the most successful have avoided looking at finance in isolation, but rather treat it as part of the overall environment that centres on driving larger-scale activity.

In the short-term, governments should consider where to focus public funds, such as towards vulnerable communities, social housing, health care, education and other priority sectors.

Direct public financing, such as through grants, is likely to be particularly important in many sectors in the short term, and can be designed both to maximise immediate activity and to leverage additional private investment.

In the context of economic stimulus, funding is probably better applied to expanding pre-existing mechanisms rather than commencing new ones from scratch.

In the medium- to long-term, governments may prefer to shift away from direct grants and loans by offering technical and commercial derisking support to attract private sector capital.

5. Leverage digital innovation to enhance system-wide efficiency

Many aspects of energy efficiency are being transformed by the new possibilities created by digital technologies.

Digital technologies can reduce costs, overcome persistent barriers, create value, enable new business models, mobilise investment and boost the role of energy efficiency and demand response in energy systems.

They also allow for a more modernised, rounded concept of energy efficiency that considers system optimisiation, such as integrating variable renewable sources, rather than just looking at the end-use of energy.

The IEA has created the Readiness for Digital Energy Efficiency policy framework, a set of critical policy considerations for harnessing digital technologies for energy efficiency.

The framework is designed to ensure that the benefits of digital energy efficiency are realised through policies that address a range of issues: from balancing data accessibility with data privacy, to helping remove regulatory barriers to innovation. Consistent standards and measurement approaches are also important.

Digital technologies enable better control of energy use, for instance through smart building management systems that optimise the building’s conditions efficiently, enhancing comfort while lowering costs while also allowing for wider systems thinking, particularly in electricity grids.

6. The public sector should lead by example

Governments should be trailblazers in all aspects of efficiency action and lead by example, positioning themselves as leaders in implementing best practice, using procurement to build scale for efficient technologies and fostering new business models for efficiency services.

Investment in public sector efficiency improvements is a clear opportunity for maximising stimulus returns. These returns can be achieved through a variety of mechanisms.

Bulk procurement can help target technologies become more affordable and accessible by achieving scale and wide-scale transformation.

This has been done successfully in India, where more than 350 million LED lamps have been distributed. The economies of scale of the program have helped reduce the price of a LED lamp by a factor of ten.

7. Engage all parts of society

Because energy efficiency requires a particular focus on implementation, it is important to engage relevant parts of society at the appropriate levels.

Policies can be more successful if they recognise the relative strengths of different levels of government and empower them accordingly.

By empowering cities and sub-national actors to innovate and develop their own ambitious efficiency initiatives, and by collaboration between national and local levels, governments can enable transformation from the bottom up.

8. Leverage behavioural insights for more effective policy

Expected and actual behavioural responses to energy efficiency policy can often diverge. This is sometimes because policy design and implementation may resort to ‘rules of thumb’ about human behaviour, often based on standard economic theory rather than more subtle analysis of a given set of circumstances.

Learnings from behavioural sciences can inform policy making by ensuring that energy policies are based on a sound understanding of the mechanisms guiding human behaviours.

Behavioural insights are important for all policies designed to change individual, household and business behaviours that impact energy consumption and investment in energy efficiency; they can help identify behavioural barriers to policy effectiveness and help redesign policy actions accordingly.

The COVID-19 crisis has brought about significant changes in lifestyles and work practices, as employees in service sectors work from home and avoid business travel, thereby causing immediate implications for energy consumption.

Beyond the immediate crisis and society’s reflex reactions to it, longer-term changes in attitudes and beliefs may also affect people’s consumption and mobility patterns, as well as perceptions of energy efficiency.

Greater interest in climate change and air quality, as well as concerns raised over issues such as resilience, quality of life and job and energy security, all open up the possibility for new perceptions of the importance of energy efficiency.

9. Strengthen international collaboration

The range of examples and learnings discussed here demonstrate clearly the value of international exchange and collaboration.

International organisations can help countries to connect with each other for enhanced collaboration.

The IEA convenes governments and stakeholders from around the world and facilitates sharing of best practice and data.

Platforms such as the Clean Energy Ministerial and the IEA Technology Collaboration Programs serve to enable collaboration and exchange at many levels.

Global platforms of commitment, such as the Three Percent Club, also serve an important role in highlighting the efficiency opportunity and encouraging international collaboration.

The Global Alliance of Buildings and Construction has also been a strong driver of action and exchange.

Among the largest economies, the G20 has been an important forum for energy efficiency collaboration in a number of areas.

For example, in 2019, as part of its G20 presidency and as laid out in the Karuizawa Action Plan, Japan embarked on a global collaboration initiative to develop energy efficiency benchmarks for heavy industry as a means of supporting policy making.

10. Raise global energy efficiency ambition

The Commission is strongly of the view that significant potential exists to enhance global energy efficiency, and collective ambition should therefore increase.

Realising this ambition will entail action over a number of years that blends short- and longer-term perspectives.

At this critical moment, governments have a sharp focus on economic stimulus and delivering tangible, widely-felt social and economic benefits.

This can include a range of energy efficiency programs such as home retrofits that improve quality of life or action to reduce fuel poverty and enhance energy access, as seen in the IEA’s Sustainable Recovery Plan.

Governments can act as leaders by investing in efficient infrastructure, leveraging public procurement mechanisms to encourage manufacturing of efficient products, and incentivising actions and investments that help bring energy efficiency to scale.

In order to reach the rapidly approaching goals of 2030 and 2050, the global community cannot afford investments in infrastructure that are not aligned with making progress toward those goals.