We’re getting less efficient at energy efficiency

Energy efficiency (EE) has been portrayed as the “low-hanging fruit” of climate policy. Apparently improving the efficiency with which energy is used is as easy as picking money up off the ground. The latest global summary of progress on EE suggests otherwise: global improvements in EE have been steadily slowing over the back end of the past decade, suggesting maybe squeezing improved performance out the energy we consume is a bit harder than first portrayed.

The Energy Efficiency 2020 report by the International Energy Agency paints a bleak picture: global energy efficiency is likely to improve by only 0.8 per cent in 2020, a weakening rate of change since 2015 crimped even further by the COVID-19 pandemic and soft energy prices. The pandemic has not only weakened the financial incentives to use less energy, but the economic slowdown has slowed investment in new buildings, vehicles and capital stock that drive most energy efficiency gains.

This highlights the fundamental reality of EE: most savings are not free at all, but derived from replacing or upgrading existing assets. New cars, for example, have been getting more efficient for decades, but consumers have also switched to larger and heavier vehicles, like SUVs.

Social distancing has been disruptive on energy use: reducing energy consumed in offices but increasing it at home. It has reduced the number of people using, and therefore the efficiency, of public transport and aviation. These trends are likely to wash out with widespread distribution of vaccines.

The impact of the COVID-19 pandemic has also impacted industrial energy consumption, which has fallen at different rates for different sectors in different economies. For example Us industrial electricity consumption was down 9 per cent, natural gas around 8 per cent. Reduced energy use is not energy efficiency. It’s a temporary, demand driven impact, not a structural change in the way energy is consumed to produce the same outputs.

The IEA warns of a COVID-19 shift from less-energy intensive goods like cars towards higher energy intensive goods like chemicals, increasing energy intensity overall. The IEA is pushing for energy efficiency measures to be implemented alongside stimulus spending for COVID-19 recovery reforms.

IEA energy efficiency abatement costs, Energy Efficiency 2020

The solution is more spending, in particular on transport and urban infrastructure. The IEA suggest energy efficiency spending is also labour intensive, which doesn’t necessarily make it cost effective.

And there’s the problem: EE is touted as the lowest cost form of abatement, but requires large capital upgrades to achieve it and expensive labour to support it. The IEA persist with its version of the McKinsey chart which shows the savings from recede energy, but does this include capital and other costs? Maybe that’s why EE is slowing. The low hanging fruit has been picked.