Greater use of renewable energy and improved energy efficiency are crucial if we are to meet the world's decarbonisation and climate goals. Companies offering solutions to energy-intensive sectors like industry, transport, and buildings are expected to benefit - as should their investors.
The energy crisis following Russia's invasion of Ukraine, characterised by higher energy prices and supply disruptions, has highlighted the importance of energy efficiency. Reliable access to affordable energy is the backbone of a prosperous global economy and a stable society.
At the same time, humanity is facing possibly the greatest ever challenge in its long history: climate change. Using energy more efficiently is not only one of the most effective ways to reduce carbon emissions, it also reduces energy costs, promotes energy security, supports a stronger economy, and can even improve people's health.
UN Sustainable Development Goal SDG 7 seeks to ensure access to affordable, reliable, sustainable, and modern energy for all. Its subsidiary Target 7.3 identifies the need to double the global rate of improvement in energy efficiency by 2030, measured against the 1990 to 2010 average. Progress is calculated by energy intensity, which is defined as the amount of energy used to produce a given good or service. At a global level, this is the ratio of primary energy to gross domestic product.
This was always, and remains, a tough target. And it's one that the world is still failing to reach.
Although global energy intensity has improved in recent years, the reduction in the period 2010 to 2020 fell short of the target by 2.6 per cent per year. This means that an annual reduction of more than 3.4 per cent per year is needed during the current decade to meet SDG 7.3.
Another way to look at the target set by SDG 7.3 is to demonstrate how much more economic output each unit of energy expended would produce if energy intensity improved. If SDG 7.3 could be met in 2030, each unit of energy used would generate 40 per cent more economic output, a substantial increase.
According to the IEA, the recent energy crisis has pushed several countries and regions, which together account for 70 per cent of global energy consumption, to introduce or strengthen energy efficiency policies. Last October, the EU's revised Energy Efficiency Directive came into force, requiring member states to collectively reduce energy consumption by about 12 per cent by 2030, as compared to 2020. In the US, the Inflation Reduction Act of 2022 earmarked around 90 billion USD for energy efficiency.
The slow pace of change leaves plenty of room for improvement.
The IEA reports that around 600 billion USD is invested globally each year in energy efficiency measures in the three most energy-intensive sectors. This is likely to rise to 900 billion USD a year by 2030. But to reach the IEA's Net Zero by 2050 target, the current level of global investment will need to triple to 1.8 trillion USD by 2030.
Sectors with intense energy use: industry, transport, and buildings, account for over 90 per cent of the world's end-use energy consumption. Improvements in these sectors are critical to meeting energy efficiency targets.
The industry sector includes both construction and manufacturing, where fossil fuels still dominate the energy mix. High-energy businesses like iron and steel, chemicals and cement, as well as less energy-intensive industries like food and textiles, all fall into this category. The pace of change here has been slow - but this means there is plenty of room for improvement, and major opportunities for innovative solutions.
One of the main drivers across all three sectors is electrification. Electricity reduces energy demand because it usually works more efficiently than fossil fuels. If the electricity is produced from renewable sources, electrification also helps to reduce carbon emissions.
Electric motors and motor-driven systems account for about 70 per cent of industrial electricity use, so increasing motor efficiency helps to reduce energy consumption. Although a growing number of countries have introduced minimum efficiency standards for electric motors in recent years, only 60 per cent of industrial motors are required to meet these standards.
Upgrading older motors to newer, more energy-efficient technologies can make a big difference to emissions. Additionally, only a quarter of motors globally are fitted with variable speed drives, which allow the speed of the motor to be adjusted to meet the power demand and prevent motors from wasting energy.
Another focus of energy efficiency in industries like steel, cement, and aluminium production is waste heat. Because of the extremely high temperatures required, these production processes throw off waste heat that could be reused in other production steps, or to provide room or water heating, or indeed district heating. Creative approaches to energy efficiency in these industries include the use of alternative fuels, better equipment, process optimisation, and recycling.
Road and non-road transport such as shipping and aviation account for 26 per cent of global energy consumption according to the IEA. While there have been huge technological improvements in electrifying and improving cars and lorries, oil-based fuels still account for more than 90 per cent of the final energy consumption of the transport sector.
Supported by regulations and political decisions, the move to electric vehicles is already apparent. Electric cars are substantially more energy efficient than cars with internal combustion engines. In a petrol-powered car, just 20 per cent to 30 per cent of the energy input is converted into usable power, in contrast to 85 per cent to 90 per cent in an electric model. This conversion ratio is likely to get even higher as the technologies used to control, regulate, and convert electric current are improved.
Shipping and aviation pose a more difficult energy efficiency problem, as both industries are hard to electrify and decarbonise. While batteries may not be the answer - the size and weight of the batteries needed to operate an ocean-going container ship would probably leave no room for cargo - alternative fuels can help reduce emission levels. Other solutions include turbochargers, more efficient propulsion systems, and the optimisation of shipping routes through increased use of digitalisation and automation.
While most energy used in the operation of buildings goes towards heating rooms and water, and to power electronic devices, cooling is rapidly growing in importance due to climate change. There are two main complementary ways to promote energy efficiency and decarbonisation in buildings: heating, ventilation, and cooling (HVAC) systems can be electrified and optimised; and the building envelope can be re-engineered through better insulation.
However, renovation can be costly, so most effort today is concentrated on HVAC systems. Here the focus is on choosing the correct size of HVAC for the building. One that is too large will eat up energy unnecessarily. Interestingly, surface temperature control systems, such as underfloor heating, generally lead to lower energy use.
Energy efficient solutions contribute to the UN SDGs and drive innovation.
Digitalisation also plays a role here, optimising heating and cooling to meet users' needs. A state-of-the-art HVAC system isn't effective if it is heating or cooling to the highest level at all times. Rather, the building's automation and control systems need to be optimised to function only when rooms are occupied.
Heat pumps offer a different source of energy efficiency. They work by extracting thermal energy from the environment and using it to heat rooms, and often also to cool them. A heat pump does require energy to operate, and the level of efficiency depends on the type of pump, its design, and the temperature difference between outside and inside the room. But when electricity runs the pump rather than fossil fuels, the thermal energy produced is many times greater than the electricity used.
Reducing carbon emissions remains a critical goal of the UN SDGs. Energy efficient solutions to the challenges faced by the industry, transport, and buildings sectors help progress towards these goals, while also benefiting companies developing the innovative products and processes needed to achieve them.
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