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The Climate Solution That Cuts Emissions and Saves Money

We’re not investing enough in energy efficiency even though it’s a crucial lever in the climate fight.

There’s a way to cut emissions and save money, but not enough people talk about it.

Perhaps it’s because the phrase “energy efficiency” induces some to yawn. Or that quietly making something more efficient isn’t as politically rewarding as building a new shiny solar farm. Whatever the reason, it’s clear that the world isn’t investing enough in this critical climate lever.

Energy efficiency, along with wind and solar power, will provide half the emissions savings in the next decade in the International Energy Agency’s roadmap for reaching net zero by 2050. “Without those efficiency gains, electricity demand growth would make it much harder for renewables to displace fossil fuels in electricity generation,” the IEA concluded.

The reduction in energy-related emissions that can be achieved with energy efficiency and behavioral changes

It’s hard to frame energy efficiency as a superstar solution, in part because the consumer experiences little change. Filling leaks in home ventilation systems cuts the energy used for heating or cooling without sacrificing comfort. Setting higher mileage standards for internal combustion engines reduces fuel use but doesn’t make the drive less pleasant. Insulating a kiln in a cement factory means fewer coal lumps are needed for the same production volume. And so on.

Some measures aren’t even seen as an efficiency play. Switching from an internal-combustion engine car to an electric car means going the same distance for the less than half the of energy. Replacing a gas boiler with a heat pump leads to using a third less energy for the same output. Increasing recycling rates helps reduce the amount of virgin materials that need to be extracted. And traveling by public transport instead of a car is a lot more energy efficient.

Crucially, even as falling costs of renewables and batteries are helping push the electricity and transport sectors in the right direction, emissions trajectories in other industries remain little changed. Efficiency measures are the strongest lever to reduce emissions from those hard-to-abate areas such as buildings and industry.

Efficiency measures can make a serious dent in the energy demand from sectors with hard-to-abate emissions

The catch is that taking these steps typically involves a high up-front cost. Someone has to pay for that electric car or home insulation first, while the return from lower fuel bills often takes a few years to materialize. Homo economicus, our most-rational cousin used as a model by economists, would make the investment knowing that long-term gains are worth it. But few act rationally, and fewer still have access to the capital to be able to act rationally.

In the last decade, energy intensity (defined as megajoules per dollar of gross domestic product) fell by about 1.7% annually. The IEA’s modeling shows that the rate will have to climb to 4.2% each year for the next decade if the world is to meet its net-zero goals.

There’s also a counterforce in the Jevons Paradox. The theory, named after the 19th century British economist William Stanley Jevons, posits that efficiency gains often lead to an increase in demand. For example, a lower electricity bill because of a more-efficient air conditioner might mean a homeowner installs another air conditioner. Total energy use remains the same, even as the air conditioners became more efficient. 

Most energy models do not account for this rebound. A systematic analysis of global energy models by academics in the U.K., the U.S. and France published last month found that scientists “may underestimate the future rate of growth of global energy demand.” That means the rate of energy efficiency improvements may need to be higher than even the IEA’s ambitious net-zero model states.

In the end, it comes down to a question of selling these solutions. If people get angry about rising energy bills (sometimes enough to take to the streets), then it’s possible to make them happy about lower energy bills. Many of the green measures that can help economies rebound after the pandemic can also help create jobs, say, in helping to insulate homes. In fact, we should celebrate continued efficiency gains— doing more while consuming less—as we celebrate the progress in healthcare that enable people to live twice as long today as a few hundreds years ago.

As the naturalist David Attenborough recently put it, “Tackling climate change is now as much a political and communications challenge as it is a scientific or technological one.” That’s especially true when it comes to energy efficiency.

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