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It is commonly known that energy efficiency decarbonizes the economy, although it doesn’t directly decarbonize energy supply in the way renewables do. Instead energy efficiency reduces the amount of energy being used and thus the amount of carbon. Less well known is the contribution that energy efficiency makes to reducing the costs of decarbonizing energy supply by reducing the amount of energy we need to decarbonize. The key question here is – by how much?


ClimateWorks Foundation partnered with The Fraunhofer Society, a German research organization, to answer this question. The findings were published in a new report — “How Energy Efficiency Cuts Costs for a 2° C Future” (aka The Cheaper Pathway report), in which we analyzed how energy efficiency policies and programs in Brazil, China, Europe, India, Mexico, and the U.S. can reduce the cost of economy-wide decarbonization. The results were not surprising but they are most certainly compelling. Taking an energy efficient pathway to reducing carbon emissions commensurate with a 2-degree pathway will save up to USD 250 billion per year for these regions, with no net cost to society through 2030. In contrast, an energy intensive pathway that focuses primarily on decarbonizing energy supply can help achieve a 2° C future, but at substantially greater expense. Between now and 2030, the energy efficient pathway can reduce the global cost of limiting warming to 2° C by up to USD 2.8 trillion compared to the more energy intensive pathway. The potential annual savings of the energy efficiency pathway vary by nation. Annual savings range from 0.1 to 0.4 percent of annual GDP and are not sensitive to macroeconomic shifts or to changes in fuel price. To put this in perspective, the cost savings from an energy efficiency pathway can eliminate energy poverty worldwide. Recent research by the World Bank shows that the world can achieve universal access to electricity through investments of between USD 40 billion and USD 100 billion annually. The USD 250 billion saved in the regions studied could help finance this critical goal.

TRACK RECORD UNDERPINSFUTURE POTENTIAL

While modeled results suggest significant future savings from current and new energy efficiency policies and programs, the future costs of decarbonization in China, the European Union and the United States have already been reduced by at least USD 750 billion between 2015 and 2030 by energy efficiency policies that have been adopted since 1990. These gains have been realized in the transport, buildings, and industry sectors through policies such as fuel economy and appliance standards, building energy codes, and best practices in industrial energy management. The Cheaper Pathway report most likely represents a conservative estimate of the contribution of energy efficiency to reducing the costs of decarbonization. This is because, even in the more energy intensive renewable pathway there is some energy efficiency baked in. To exclude efficiency would have required choosing renewables and other decarbonization options such as carbon capture and storage (CCS) on a larger scale that would have pushed the price per ton of carbon to levels we did not think society would bear, and thus we used a cut off of USD 200 a ton of CO2. If we assumed no energy efficiency in the renewable pathway then the cost savings of the efficient pathway would have been significantly higher. Furthermore, we account for moderate “rebound effects” from energy efficiency in some sectors and regions, where new energy demand partially consumes the gains made by energy efficiency. However even compensating for rebound effects, the analysis finds that energy efficiency continues to provide the lowest-cost carbon abatement for most policy interventions in the regions studies.

OTHER KEY FINDINGS

The Cheaper Pathway report finds that the mix of energy efficiency potential across different regions is heterogeneous, with some regions seeing substantial potential for cost savings in sectors where other regions see less potential. [For example, In India we found significant opportunities to improve energy efficiency as few sectors there are currently subject to best practice efficiency standards. India can prioritize efficiency gains while strengthening its economy and making decarbonization more affordable. Cost savings in India are however lower when one compares a renewables with an efficiency pathway. This is because of increasing energy demand in these regions; a significant amount of energy efficiency is required in order for them to contribute to any cost effective pathway that can help limit warming to 2°C. In contrast, there is a narrower range of opportunities in the US and EU, however the opportunities that do exist are substantial and make huge economic sense – the biggest emissions savings opportunities were found in existing buildings in the EU and US. These may be achieved through new policies and programs resulting in large scale retrofits. ]

This regional variation reinforces the need for policymakers to consider domestic energy consumption patterns when prioritizing efficiency interventions. Across regions, the INDCs submitted for the 2015 international climate negotiations mostly state national emission reduction targets, with some also stating energy efficiency targets. Plans for realizing these targets will have to be further developed. If nations are looking for the lowest cost options to limit warming to 2° C, which most national treasuries are usually keen to identify, then efficiency needs to be much more seriously considered than is currently the case.

“How Energy Efficiency Cuts Costs for a 2°C Future” shows that the world’s largest energy consuming countries and regions have much to gain from prioritizing energy efficiency in the policy queue. In addition to nearly USD 3 trillion in savings for decarbonization, such policies bring substantial societal and economic benefits in reducing the cost of energy access, reducing the need for more expensive expansions of energy supply, improving business competitiveness, creating jobs, and improving air quality and human health. INDC’s that overlook the contribution of energy efficiency, risk overlooking far more than just energy savings.

                                                             Dan Hamza-Goodacre, Energy Efficiency Program Director, ClimateWorks

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