Energy Efficiency: The leading cause of energy demand peaking by 2033

Let’s first set the scene with kerosene. On a daily basis worldwide, millions of people light up their kerosene lamps to work, do homework, and complement daily activities from eating to play. Typically, just 2% of the energy intrinsic to kerosene is converted to light when it is burned in a lantern with a wick; the rest is lost as mostly useless heat.

This scale of inefficiency goes some way to explain both why the world’s unelectrified poor spend from 50 to well over 100 times more per unit of light than do people who are grid-connected and why the off-grid solar products market is growing rapidly.¹ 

Yet, the transformative effect of energy efficient technology extends beyond this market. Efficiency gains are being made everywhere, from the flight patterns of modern aircraft to the manufacturing of microchips. In fact, as we project in our Energy Transition Outlook, the energy intensity of the global economy will improve more quickly than the rate of global economic growth in the next three decades. As a result, global energy demand will peak and flatten for the first time in our post-industrial history. 

It isn’t one specific technology like the vast solar parks and the great powerlines that are spearheading the transition. 

It is the combined impact of several technologies in all sectors contributing to the invisible, intangible phenomenon of energy not used that is the most dramatic feature of the transition unfolding today. 

The biggest efficiency gains are in the transport sector, where the dominant road sector electrifies with the uptake of highly efficient electric vehicles. Energy use in buildings will continue to increase but is dampened by electrification and lower use of biomass for heat-related end uses, such as in cooking where the switch from biomass to gas and electricity sees the biggest efficiency gains. In manufacturing, the highest efficiency improvements are expected in low heat demand through electrification and the introduction of industrial heat pump technology, significantly reducing heat losses due to combustion. Without these combined gains in energy efficiency the energy demand would continue to increase, and we would not see a peak in energy demand as forecasted in our Energy Transition Outlook, see figure to the right. 

However, energy efficiency measures are presently hindered by political, economic and societal barriers, for example: lack of policy support and access to capital to invest in new technologies, energy prices not reflecting real costs due energy subsidies, such that consumers have little incentive to reduce consumption, and opposing interests (split incentives) between for example, a landlord (responsible for the investment decision) and a tenant (paying the energy bill). In combination, barriers frequently lead to underinvesting in energy efficiency measures. 

Nevertheless, powerful drivers and enablers are pushing the progression towards efficiency gains. 

Drivers motivating energy efficiency 

• Money: Global spending on energy is close to USD 5 trillion per year, around 3.6% of global GDP. Naturally, nations, organizations and individuals wish to reduce their own spending, and that will remain the main incentive for improving energy efficiency. 
• The environment: Wasting resources is bad for the environment. Energy consumption, much of it wasteful, represents around 60% of the overall global environmental footprint of human activity. Policies promoting energy efficiency typically pursue the co-benefits of economic, human and planetary health, and as such often win strong public backing. 
• Energy security: Improving energy efficiency acts as a brake on the amount of energy that an energy-importing country must secure. Energy efficiency ambitions, in combination with domestic renewables, build energy independence for more countries by reducing their reliance on other countries and multinationals. 

Enablers propelling energy efficiency 

• Technology development: Anticipated efficiency gains are explained by the electrification of energy end use and the increasing share of renewables in the power mix. In a progressively electrifying energy system, there is a steady reduction in conversion losses, wherefore less energy is needed to produce the same services. Energy intensity benefits from there being lower losses in power generation from renewables than from fossil fuels. 
• Policies: Regulations and guidelines mandating and/or facilitating energy efficiency currently cover around one third of global energy use. Examples are standards for fuel efficiency, building insulation, and minimum energy performance standards (MEPS) for industrial equipment. Policies force change where market forces do not suffice. 
• Business model changes: New business models such as the sharing and circular economies will enable more efficient use of resources and further boost energy efficiency. Urban ‘mobility-as-a-service’ with ride-sharing is one example; another is new service-based models, enabled by digital technologies, such as energy service companies (ESCOs) providing services to reduce energy consumption rather than units of delivered energy. 
• Consumer awareness: Attitudes impact behaviour. Hence, environmentally conscious consumers boost energy efficiency by behavioural changes such as energy saving actions, switching to electric cars, or undertaking a transport-mode shifts altogether. 

Energy efficiency is probably the most cost-effective way to reduce emissions, and best practices exist for households, transport and industry sectors, alike. 

Gain a deeper insight on energy efficiency developments by downloading the Energy Transition Outlook. 

References

¹ Evan Mills “Can technology free developing countries from light poverty?” in The Guardian, 20 July 2015