Why energy efficiency is the cheapest path to climate action

Rocky Mountain Institute

Why energy efficiency is the cheapest path to climate action

energy efficiency and climate action financing
ShutterstockSergey Nivens
Energy efficiency is a valuable tool often overlooked in strategies to combat climate change.

An authoritative new study released earlier this week from a consortium of groups led by Fraunhaufer ISI, a German think tank, and funded by ClimateWorks shows how energy efficiency can be a low-cost pathway to keeping global warming to the critical 2 degrees Celsius mark.

The report, "How Energy Efficiency Cuts Costs for a 2-Degree Future," shows the results of a detailed study of the world’s largest and fastest-growing economies.

It finds that, by leveraging energy efficiency as a significant complement to decarbonizing the energy supply, those countries can realize savings of $2.8 trillion and achieve a net-zero cost to society by 2030 while still achieving decarbonization and minimizing climate change. 

This study presents further support for solutions RMI has been championing for decades, combining energy efficiency with clean-energy pathways. It is particularly welcome as nations of the world meet at the Paris climate change conference, also known as COP21. 

A least-cost means to limit warming

"How Energy Efficiency Cuts Costs for a 2-Degree Future" compared a business-as-usual pathway with an energy-intensive pathway, which included limited energy efficiency, and an energy-efficient pathway, which was much more efficiency-intensive.

"Energy efficiency holds the key to controlling costs," Jakob Wachsmuth, principal author of the report, said in a statement. "Each nation we studied should craft a strategy that reflects its domestic energy mix, but our research shows that everyone benefits from some form of aggressive policies to support energy efficiency."

Notably, the energy-efficient pathway cost from $2.5 trillion to $2.8 trillion less than the energy-intensive pathway in constant 2005 dollars while achieving the same temperature goal by 2030. The energy-intensive pathway relies on decarbonizing primary energy sources and was itself a whopping $1.2 billion to $1.6 billion less costly than business as usual.

This echoes the findings of RMI’s Reinventing Fire and Reinventing Fire: China analyses, which demonstrated the enormous savings that clean energy and energy efficiency can unlock to offset the investments needed to implement them. 

The report also underscores the tremendous potential for carbon-emissions reductions by means of energy retrofits of existing buildings in the U.S. and the EU.

The report calls for increased incentives for retrofits in the U.S. and improved standards for retrofits in the EU in order to unlock this tremendous — and cost-effective — potential. RMI, for its part, actively has been working to scale up retrofits of existing buildings. 

Efficiency is effective — and cost-effective — everywhere

The results were fundamentally the same across the six regions studied, although there was some variation between the U.S., the EU, China, India, Brazil and Mexico. The additional cost savings from focusing on energy efficiency ranged from 0.1 percent of GDP in Mexico to 0.4 percent of GDP in the EU, but the study found that energy efficiency was the least-cost option everywhere, saving as much as $250 billion per year.

The efficiency pathway achieves such favorable economics because, in addition to direct savings on energy expenses, the intensive deployment of energy efficiency achieves the same 2-degree temperature-rise target while requiring much less investment in new energy supply than the energy-intensive pathway.

The study took into account the effect produced by increased energy demand that partially consumes the gains made by energy efficiency. This "rebound effect" is moderate and is drowned out by other gains everywhere, including in India and China, where living standards and mobility are rising.

RMI's Reinventing Fire from 2011 showed how a mix of energy efficiency and renewable energy can be cost-negative while supporting a 158-percent larger U.S. economy and slashing carbon emissions 80 percent by 2050. The new study is a valuable additional proof point for the role of energy efficiency.

It is particularly valuable because of its methodological rigor and its focus on the largest emitters. The regions studied were jointly responsible for more than 60 percent of global greenhouse gas emissions in 2010. This study should make policy makers redouble their attention to energy-efficiency commitments at COP21.

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