A photo of two men installing a heat pump
With gas prices increasing, heat pumps are now outselling furnaces in the US © Andrew Aitchison/In Pictures via Getty Images

As wildfires have ravaged Canada, Greece and Hawaii this summer, and heatwaves put a strain on power grids worldwide, the pressure to help combat global warming through energy efficiency is building.

The consequences of those natural disasters were further exacerbated by Russia’s invasion of Ukraine in 2022 and the squeeze on oil and gas prices that followed. According to the International Energy Agency (IEA), global investment in energy efficiency investment is expected to reach a record level of $600bn this year.

“The regulatory and political environment is now a bigger driver than it was three to five years ago,” says Jonathan Maxwell, founder and chief executive of Sustainable Development Capital. “More recently, you’re seeing regulation kick-in in Europe, where local and national governments limit how much energy people can waste,” he explains.

In the US, state regulations such as Local Law 97 in New York — which will require most buildings over 25,000 square feet to reduce their carbon emissions by 2024 — have begun to take effect, Maxwell adds.

But research shows far more needs to be done. The IEA predicts that doubling the world’s progress on energy efficiency to a 4 per cent improvement per year, up from the 2.2 per cent achieved in 2022, could help cut one-third of global energy consumption and emissions by the end of the decade.

For that to happen, however, annual investment in energy efficiency would need to triple: from $600bn to $1.8tn.

Most existing energy infrastructure leaves plenty of room for that improvement. “The shocking piece of this is that we’re wasting more than 70 per cent of energy,” says Maxwell.

He points to research from the Lawrence Livermore National Laboratory, a federally funded research and development centre, which shows that as much as 65 per cent of energy in the US is wasted on its way from producer to consumer. Then, as much as 30 per cent of the remaining power is also lost by consumers’ power-inefficient systems.

The biggest contributors in terms of energy losses are electricity generation, transportation and industrial processes.

So where does all the wasted energy go?

“The answer is mostly related to heat losses,” says Maxwell.

Most of the world’s electricity generation comes from power plants that use steam-powered turbines. Creating that steam requires converting fossil fuels such as natural gas and coal or nuclear energy into heat — half or more of this is usually wasted because the resulting electricity is generated too far away from the point of use, and its energy is lost in transit.

Buildings can lose energy through inefficient lighting, insulation, ventilation, heating and air conditioning.

“Taking lighting as an example,” Maxwell says. “A 6-watt LED lamp can do the same job as a 60-watt conventional or incandescent lamp and last up to 20 times longer. Yet less than half of the lighting in the UK’s NHS has been changed to LED.”

Transportation is another major culprit in energy wastage. Motor engines lose heat in the process of converting petrol to mechanical energy. Conventional vehicles only convert around 12-30 per cent of the energy in petrol into usable power, according to the US Department of Energy. Electric vehicles, by comparison, convert more than 77 per cent of the electrical energy taken from the grid.

As energy becomes more expensive and power systems come under strain — raising the possibility of electricity shortages, blackouts and restrictions — companies are increasingly looking for new ways to reduce their reliance on the grid and save on skyrocketing energy bills.

Artificial intelligence has quickly emerged as a key area of growth in the search for energy efficiency, as new technology aims to match fluctuating supply with the demand posed by buildings — wasting less energy in the process.

From AI-based energy management software to automated fault detection and diagnostics, the upside for corporations could eclipse the upfront costs, suggests research by the IEA and academics at Kyushu and Duke universities.

Combined heat and power (CHP), or cogeneration, is another method that burns fuel to power an engine or generator, then uses heat recovery devices to trap the heat and convert it into thermal energy.

Flow diagram showing how CHP systems burn fuel to power engines or generators

Governments are now devoting more resources to many of these technologies, with overall spending on energy efficiency reaching an all-time high. Between 2020 and 2022, the US government allocated more than $250bn to efficiency in buildings and industry, and another $180bn to low-carbon vehicles.

Earlier this year, the UK government created an energy efficiency task force with the goal of cutting energy consumption across domestic, commercial and industrial buildings by 15 per cent by 2030. It has allocated £12.6bn to the cause so far, funding initiatives to insulate buildings, upgrade boilers and other improvements.

Although earlier this week Sunak announced a series of U-turns on some of his pledges. These included abandoning tougher energy efficiency rules for landlords and delaying a ban on new oil boilers from 2026 to 2035 — as well adopting a more relaxed stance on his 2035 target for the installation of new gas boilers.

But — despite adequate technology, more government-sponsored financial incentives, and the potential to save money — the numbers show that more needs to be done to achieve energy efficiency on a wider scale.

Energy intensity, defined as total energy consumption per unit of gross domestic product (GDP), is a helpful indicator to measure energy efficiency because, in general, according to UN metrics, energy intensity declines as energy efficiency improves.

In order to meet the UN Sustainable Development Goals, the rate of energy intensity needs to decrease by at least 3.4 per cent globally from 2020 to 2030, or 4.2 per cent to meet the IEA’s Net Zero by 2050 scenario.

However, 2020 was the worst year for energy efficiency improvement since the 2008 financial crisis, as energy intensity reduced to just 0.6 per cent due to low energy demand and prices brought on by Covid-19. Initial estimates suggest that figure has rebounded in 2022 to around 2 per cent, but that is still significantly below SDG targets.

The shortfall suggests that government policies on energy efficiency need to scale up significantly to make substantial progress.

“The technology and resources to double energy efficiency improvement by 2030 are all available,” noted the SDG’s 2023 Energy Progress Report, adding that current low-energy efficiency improvement rates point to a “major missed opportunity” globally.

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