Energy efficiency: The most important fuel we didn’t know we had

Two new reports this week tell us energy efficiency can boost growth, create jobs and save Europe from the Russian gas giants. With these benefits and more, what's holding back action?

Carbon Brief

Forever the Cinderella of climate and energy policy, two reports published this week say we should remember to invite energy efficiency to the ball.

The International Energy Agency says investing in efficiency can boost growth, jobs, health, government budgets, industrial productivity – and those are just the benefits backed by robust analysis.

Meanwhile left-leaning thinktank the Institute for Public Policy Research says efficiency could reduce EU reliance on Russian gas.

It's an impressive list of benefits. So what's going wrong?

Multiple benefits

The positive effects of energy efficiency investment are "a reality that is often overlooked" according to the IEA's report, Capturing the Multiple Benefits of Energy Efficiency. Efficiency can make a major contribution to five strategic aims shared by most governments around the world, it says.

Top of the list is economic growth. The IEA says energy efficiency can boost GDP, create jobs and improve trade balances by reducing costly imports of fossil fuels. Its analysis finds large-scale energy efficiency policies would boost GDP by between 0.25 and 1.1 per cent per year.

Strained public finances can also be improved through energy efficiency improvements, the IEA argues. This can be directly through reduced public spending on energy. But treasuries can also benefit from increased tax revenues as the economy expands due to efficiency investment and reduced unemployment benefits as workers are employed to install efficiency measures.

Even public health can benefit from energy efficiency improvements, the IEA says, because indoor air quality will be improved as a positive side effect. The health benefits could save EU countries up to €190 billion ($A267 billion) a year, it concludes.

The IEA also challenges the idea that the benefits of energy efficiency are undermined by the so-called rebound effect, where money saved through wall insulation is spent in turning up the thermostat, for instance. Positive impacts of rebound are possible, it points out, with money saved being spent on health, poverty alleviation or improving productivity.

These are just a taster of the 15 different types of benefit the IEA says can accrue from energy efficiency investment. Its full report delves much deeper into the evidence behind its claims and the methods policy-makers can use to understand them.

Russian gas

The IPPR report highlights one of these 15 areas for particular attention – energy security. It says that more ambitious energy efficiency efforts could cut EU gas usage by a third, coincidentally the same amount that is currently imported from Russia.

The IPPR report is cleverly piggy-backing on the fact that energy security has become so central to the EU energy policy debate in recent months that it is now considered " integral" to EU climate efforts. When European Commission president-elect Jean Claude-Juncker appoints his cabinet later this week he is expected to create a new post of vice-president for energy security.

In a comment on the report, former UK government climate and energy security envoy Rear Admiral Neil Morisetti puts it like this:

"Recent events in Ukraine and the Middle East have served to highlight the vulnerability of our energy supplies and the political straitjacket that results from our over-dependence on fossil fuel imports from these volatile regions. The quickest and most effective form of energy security is to use less."

The IPPR report uses the energy security hook to argue for a more ambitious EU 2030 climate and energy package and an EU energy security strategy with energy efficiency at its heart. It would like to see a 35 per cent energy saving target rather than the 30 per cent that is currently on the table, along with greater ambition on emissions cutting and renewables.

It may be hard to push that 30 per cent efficiency goal higher, however. It was the product of weighty internal battles within the commission and must still be agreed by EU heads of state at a meeting of the European Council on 23-24 October.

The ugly sisters

So if the benefits of energy efficiency are so tangible, why is takeup slow?

Opposition to a higher energy saving target was led by current European Commission president José Manuel Barroso, who favoured a lower 27 per cent goal. His objection relates to the perceived costs of increased ambition, and not everyone agrees with the IEA's analysis that efficiency investments will boost economic growth.

The UK government is also less than enthusiastic about energy efficiency targets. It favours a single EU 2030 target for emissions with the market finding the cheapest means of meeting that through efficiency, fuel switching, or whatever.

Another barrier standing in the way of efficiency investment is identified by the IEA, which says:

"One main obstacle is the lack of attention paid to energy efficiency investment opportunities… relative to supply-side opportunities, including new resources such as shale gas and oil."

Efficiency lacks the excitement-factor of big initiatives and ground-breaking solutions. Even if it works, the savings it generates can be swamped by energy price increases, on top of which the results tend to accrue over long time periods. That makes spending today harder to justify, though the IEA says investments can pay back more quickly than realised if its multiple benefits approach is considered.

The failure of the government's Green Deal home energy efficiency scheme until it introduced – and then removed – cashback incentives tells a similar story. Both relate to humans' inability to properly weigh future benefits against current costs.

Academics looking at the problem say that factors like decision-making inertia and a lack of good information are also holding efficiency back.

The IEA's solution to these challenges is to spread improved knowledge about the multiple benefits of efficiency. It says:

"Armed with more comprehensive information about the value of energy efficiency, countries will be better able to design energy efficiency policies that maximise… positive impacts."

That's important, but as the IEA acknowledges it will take time and "significant further work". The IPPR approach is to drive political action by linking efficiency to energy security.

The IEA says energy efficiency can meet 40 per cent of the emissions-cutting challenge towards a two degrees target for global warming. If that potential is to be met then both the IEA and IPPR approaches to pushing efficiency will be needed – and probably much more besides.

Originally published on Carbon Brief. Reproduced with permission. 

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