Energy efficiency is big business and plays a large and valuable role in the sustainable development of the global economy according to a new report from the International Energy Agency. It represents the most important plank in efforts to decarbonise the global energy system and achieve the world's climate objectives.

Amongst those investing in energy efficiency, particularly in buildings and transport, national, city and local authorities figure highly because of their large building stock and fleets, but much more can be done to save public money being wasted on the inefficient use of energy.

Doing so would also boost local economies by expanding the energy-saving technology manufacturing and service industries. For example:

• in the Netherlands, this industry has grown by 9% a year since 1995, with goods and services valued at EUR 4,134 billion in 2012.
• In Ireland, exports of energy efficiency-related products increased from around EUR 100 million in 2010 to over EUR 170 million in 2012 (66% increase). The main products are thermal insulation and energy-efficient lighting.

The market for energy efficiency investments is huge. It is estimated by the IEA as between $310 billion and $360 billion in 2011. This figure is nearly $100 billion higher than investment in renewable energy in 2013, ($213 billion), according to Bloomberg New Energy Finance.

This amount of investment is producing results: total final consumption in IEA countries is estimated to be 60% lower today because of energy efficiency improvements over the last four decades. This has had the effect of avoiding more energy consumption than the total final consumption of the European Union in 2011.

The IEA said this confirms the position of energy efficiency as the world's "first fuel". In its scenario which pictures what the world needs to do to limit 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.

The consumption of over 1,732 million tonnes of oil-equivalent has been avoided in 18 IEA countries since 2001 due to investment in energy efficiency. To put this in perspective, this is larger than the energy demand of the United States and Germany combined in 2012.

Among these countries, energy demand reduced by 5% between 2001 and 2011.

Maria van der Hoeven (right), Executive Director IEA, launching the report, said at the Verona Efficiency Summit as she launched the IEA's Energy Efficiency Market Report 2014: "On top of climate and economic growth, energy efficiency also provides a suite of other benefits, from enhancing energy security to supporting innovation, competitiveness and growth, to improved air quality. It often provides an important alternative to using more oil in cars, or coal for power plants, or even renewables."

Transport

For tackling climate change greenhouse gas emissions from transport are, along with agriculture, the toughest to reduce, but the report notes that fuel-economy standards and other policies are making a difference, and, perhaps surprisingly, the leading country is Greece. More energy efficient vehicles are coming on the market.

Vehicle fuel economy standards now cover 70% of the global passenger light-duty vehicle (LDV) market and will drive the market for more energy-efficient vehicles in the next five years. New standards are estimated to lead to energy efficiency investments of $80 billion a year up to 2020 and will save between $40 billion and $190 billion in fuel costs.

Trucks and other heavy-duty vehicles (HDVs) account for a growing share of energy consumption in the freight sector, but policies to deploy more efficient HDVs have been less extensive than for passenger LDVs. Japan, Korea and the United States are implementing efficiency-based standards, and standards focusing on greenhouse gases are being implemented in Canada.

Financial instruments

"We have estimated that 40% of the $300 billion energy efficiency market is financed with debt and equity meaning that the financial market for energy efficiency is in the range of $120 billion," said van der Hoeven.

In these markets, energy efficiency is growing as an important segment in its own right, aided by a growing number of financial products. Green bonds, corporate green bonds, energy performance contracts, private commitments, carbon and climate finance, and multilateral development banks and bilateral banks all offer expanded sources of finance for energy efficiency improvements.

Bilateral and multilateral lending alone amounted to more than $22 billion in 2012. On-bill financing programmes, such as Property Assessed Clean Energy (PACE), have achieved significant uptake, including in the United States, Mexico and Europe.

"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," Maria van der Hoeven said.

Energy savings equate to the entire fuel consumption of the European Union Energy efficiency savings of 1 337 Mtoe in 2011 in these 11 IEA member countries were larger than the combined TFC of the European Union or of Asia, excluding China. These efficiency savings were equal to 80% of TFC in China and 87% of TFC in the United States for that same year.

Buildings

Efficiency had the largest percentage improvement in the residential buildings sector, where energy demand reduced by 5% from 2001 levels among the countries analysed. This was driven by efficiency improvements of space heating, water heating, lighting and appliances.

The cuts in energy use may have been motivated by energy price increases, which were between 11% and 52% in the countries analysed over the same period.

Several countries, including Ireland, Italy, the Netherlands, Canada and Japan, offer support for increasing the energy efficiency of buildings.

• In Ireland, the Better Energy Homes programmes resulted in average annual investment of EUR 230 million in energy efficiency-related construction over 2009 to 2013.
• Italy offered a 55% tax deduction for energy efficiency investments (starting in 2014, the tax deduction has since been increased to 65% for some measures). Between 2007 and 2013, more than 1.8 million applications were approved and around EUR 23 billion of investments were leveraged by households, at a cost of about EUR 13 billion in undiscounted foregone tax revenue. In 2012 alone, more than EUR 2.8 billion was invested in 265,500 energy efficiency measures, which included 2.3 million square metres (m²) of window replacements and 1.2 million m² of rehabilitated solid surfaces.
• In the Netherlands, investments in energy efficiency in buildings have grown by 10% per year, reaching a value of EUR 680 million in 2012.
• Canada released the Model National Energy Code for Buildings in 2011, which would lead to a 25% energy efficiency improvement compared to the current code for commercial and multi-storey residential buildings, and is predicted to save CAD 70 million for occupants.
• Japan has continued to expand the Top Runner programme, strengthen energy auditing, certification and labelling of buildings, implement more stringent energy performance requirements for new buildings and scale-up efforts to improve the efficiency of the existing building stock.

This contrasts extremely poorly with performance in the United Kingdom where the poorly-designed Green Deal scheme has just 4,737 plans in progress after two years and millions of pounds of investment. 

MPs have criticised the decision to set the interest rate on borrowing for home improvements too high as discouraging home owners. It goes to show the importance of learning from success stories elsewhere.