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The global energy efficiency market is worth at least USD 310 billion a year and growing, according to a new report from the International Energy Agency that confirms the position of energy efficiency as the world’s “first fuel”. The report also finds that energy efficiency finance is becoming an established market segment, with innovative new products and standards helping to overcome risks and bringing stability and confidence to the market.
“Energy efficiency is the invisible powerhouse in IEA countries and beyond, working behind the scenes to improve our energy security, lower our energy bills and move us closer to reaching our climate goals,” IEA Executive Director Maria van der Hoeven said.
The annual report, now in its second year, shows that investments in energy efficiency are helping to improve energy productivity – the amount of energy needed to produce a unit of GDP. Among 18 IEA countries evaluated in the report, total final energy consumption was down 5% between 2001 and 2011 primarily as a result of investments in energy efficiency. Cumulative avoided energy consumption over the decade from energy efficiency in IEA countries was 1 732 million tonnes of oil equivalent – larger than the energy demand of the United States and Germany combined in 2012.
Previous IEA analysis has shown that energy efficiency is not just a hidden fuel but is also the “first fuel” in the IEA’s largest economies. This year’s report shows that energy efficiency investments over the past four decades have avoided more energy consumption than the total final consumption of the European Union in 2011. Efficiency investments and policies are reducing a continent’s worth of energy demand in a time when fast-developing economies are adding energy demand to the global energy system.
Indeed, the report reveals that huge potential for energy efficiency exists in emerging economies outside the OECD, with efficient vehicles and transport infrastructure a major opportunity. The IEA estimates that efficiency can reduce up to USD 190 billion in fuel costs in transport globally by 2020 and can help alleviate local air pollution and even address critical congestion issues in rapidly developing urban transport systems.
According to the IEA, some 40% of the global energy efficiency market is financed with debt and equity, meaning that the financial market for energy efficiency is in the range of USD 120 billion per year. The number of products and the volume of finance have greatly expanded in recent years, with green bonds, corporate green bonds, energy performance contracts, private commitments, carbon and climate finance, and multilateral development banks and bilateral banks all offering expanded sources of finance for energy efficiency improvements. Bilateral and multilateral lending alone amounted to more than USD 22 billion in 2012.
“Energy efficiency is moving from a niche interest to an established market segment with increasing interest from institutional lenders and investors,” said the IEA Executive Director. “As energy efficiency is essential to meeting our climate goals while supporting economic growth, the increasing use of finance is a welcome development. To fully expand this market, initiatives to continue to reduce barriers will need to strengthen.”
Energy efficiency represents the most important plank in efforts to decarbonise the global energy system and achieve the world’s climate objectives: in the IEA scenario consistent with limiting the long-term increase in global temperatures to no more than 2 degrees Celsius, the biggest share of emissions reductions – 40% – comes from energy efficiency.