Energy crisis drives 45% increase in efficiency spending since 2020 – IEA

LONDON (ICIS)–The energy crisis brought about by the Russia-Ukraine war has driven a sharp increase in energy efficiency demand and policies, with growth in heat pump and electricity vehicle (EV) purchases helping to drive the improvements, according to the International Energy Agency (IEA).

• Energy crisis drives uptick in efficiency
• Rebound in petrochemicals, aviation, air conditioner demand offset improvements
• IEA calls for governments to target doubling annual efficiency improvements at COP28

Investments in energy efficiency have increased 45% since 2020, driven in part by a sharp move away from Russia-derived gas purchases from Europe the agency said in a report on the sector released on Wednesday in the run-up to the COP28 climate summit in Dubai.

However, the pace of improvements to energy intensity slowed in 2023, driven by an increase in productivity for energy-intensive sectors such as petrochemicals, a rebound in demand for air travel and the increase in air conditioner purchases and usage on the back of record high temperatures.

China is expected to account for 77% of the gains this year as its economy gradually bounces back after easing lockdown restrictions at the start of the year.

GAS DEMAND
Residential gas demand has peaked, and on a decline in 38 of the 74 countries that comprise half of global consumption, according to the IEA. In Europe, residential and commercial gas usage fell 15% in 2022, with a substantial portion of that a result of the milder winter that year, but the majority the result of gas-savings measures, demand destruction and efficiency gains.

“Since the global energy crisis started, governments representing more than three quarters of the global economy have come up with new energy efficiency policies or made existing ones stronger,” said IEA executive director Fatih Birol, speaking at a press conference on Wednesday.

The adoption in the US of the Inflation Reduction Act (IRA) and the substantial subsidy framework it sets out for clean energy investment is likely to drive a 4% reduction in energy intensity this year, hinting at a possible decoupling of energy consumption from economic growth in the country.

FUEL DEMAND
For fuel demand, the petrochemicals sector is expected to account for a growing portion of total consumption growth over the next five years globally, with  naphtha and LPG/ethane to increase from around 8% of total global growth apiece in 2022-23, to 36% and 42% respectively for 2023-28.

The scale of that increase will be driven in part by a projected decline in road fuel demand growth amid a sharp rise in EVs, which now account for one in every five purchases. This has resulted in a forecast 22% decline in gasoline demand growth over the next half-decade, according to the IEA.

Source: IEA

POLICY BLACK SPOTS
Air conditioners, which Birol referred to as one of the “black spots of policymaking”, have also seen a dramatic increase in usage and purchases in the face of escalating global temperatures, particularly in the developing world.

Brian Motherway, chief author of the IEA’s energy efficiency report, estimates that for every one degree Celsius increase in temperatures in Texas, air conditioner usage increases 4%, and that on a very hot day in a hot region, cooling can represent 75% of total peak electricity demand.

There have been improvements in the energy efficiency of air conditioners, but the increase and how widespread their usage has become, and the uptick in intensity of use, are factors offsetting gains elsewhere.

This “highlights the very important point we try to make that air conditioners need to have the best efficiency standards in order to build less power plants,” Birol added.

One of the IEA’s key hopes for the upcoming climate summit is for governments to agree to double levels of annual energy efficiency improvements, from 2% in 2022 to 4% going forward.

“Tripling of renewable capacity and doubling [in] energy efficiency are two pillars for successful outcome from COP28,” he said.

Focus article by Tom Brown.

Thumbnail picture: A Bosh heat pump production line in Germany (Source:
Ronald Wittek/EPA-EFE/Shutterstock)