An underused resource for lowering energy costs

[Music] Welcome back to the IA's podcast Everything Energy. I'm your host, Dan Hewitt. This week we're looking at the untapped potential of energy efficiency. Around the world consumers have been hit by the energy impacts of the war in the Middle East. Some regions have been facing extreme heat waves too. This is but pressure on energy systems, but there's a resource that can help and one that often gets overlooked, and that's energy efficiency. Government leaders recently gathered to discuss the role it could play at the IA's global conference on energy efficiency, which took place in Montreal. But here to unpack what it really means for our daily lives is Brian Motherway, who leads the IA's work on energy efficiency and affordability. [Music] Alright, Brian Motherway, thank you so much for joining us today. Now I want to start thinking about this topic by describing what an energy inefficient economy might look like. So just sort of playing devil's advocate, what sort of decisions could a government take that could result in energy inefficiency? I guess, well let me start by saying in a sense of where we are compared to where we could be, all of us are living in inefficient economies or inefficient societies. In the sense that there's a huge amount of efficiency potential we're not availing of. And why we're there is because none of us as individuals or societies or as governments really prioritize energy efficiency as much as I think we could, because if you make decisions about how we build our homes, how we build our cities, what appliances we buy, how we use the equipment we have in our homes, if we had efficiency more to the four of our minds when making those decisions, we'd be saving vast amounts of money, vast amounts of emissions, vast amounts of energy, because we're all wasting energy literally as we're sitting here speaking, put that on steroids and that's what an inefficient society looks like. Okay, I think it's just worth defining our terms. When we talk about energy efficiency, what are we talking about? Are we talking about government policies? Are we talking about technology? What are we referring to? So we're talking about how we use energy, right? In businesses running motors, running boilers in society, running our transport systems in my home, keeping warm in the winter, keeping cool in the summer, all of this uses energy. How efficient is that energy use? So of the energy I'm paying for, of the energy the system is generating, how much of it is turning into something useful versus how much of my just wasting, because my house is leaky, because the insulation's bad, or my factory is inefficient because I've really poor quality motorers running the system. There are a vast amount of moments where we decide how efficient our energy uses, and then it is technology, it is behavior, and above all it is policy, because policy can decide, are those motors being sold efficient? Do people buying those motors understand the difference between this motor and that motor becoming more efficient? And therefore, how much money and energy am I going to be wasting if I make the wrong decision? There's a huge opportunity to really build in energy efficiency into our thinking about everything we buy, and build, and invest in in the future, and then looking back at what we have now, what's the state of our housing stock? How do we make that more energy efficient? What's the efficiency of our transport system? What's the efficiency of our industrial sector? All of these offer opportunities for reducing bills, reducing fossil imports, enhancing energy security, enhancing energy sustainability, and energy efficiency policy is a lever to unlock all of that. OK, well let's have a look at energy efficiency in the context of some of the challenges that we're facing right now, and by that I mean the conflict in the Middle East, or some of the extreme heat waves we've seen in certain parts of the world. So how has energy and efficiency played out against that backdrop? I mean, from the perspective of energy consumers, the last few months have been challenging, right? As you say, bills have been high because of the crisis in many parts of the world. It's actually been hard to get access to energy, whether it's LPG for cooking, or gasoline for your car, or electricity for keeping cooler, keeping warm. Prices have been a little bit up and down. There's been a lot of uncertainty in the media about how it's going to play out, and then add to that here in Europe we've been smashing all the records in terms of heat waves. Parts of India have been hitting 50 degrees, which has been really creating huge, you know, human suffering and wider societal impact. So we've all been reminded that we're really dependent on being able to access affordable energy in order to be cool, to be comfortable, to be mobile. And when that's disrupted, when energy becomes less secure, when the supply disruptions, when prices go up and down, we're reminded of that of that vulnerability. And that's why we're here to talk about something like energy efficiency, which can really make a difference, because if I can keep cool, keep warm, cook food, travel for me to be all as much as I want to, but it's less dependent on energy. If I use less energy to do those good things, well, then I'm less vulnerable when the price spikes come, or when the supply disruptions come. So efficiency can really make a difference in terms of making us, you know, more resilient and more secure, having better access to affordable energy, more sustainable energy. And I do think these last couple of months have really reminded people of that. And that's why we're seeing a lot of talk about how we use energy and how we might use it in the future. I want to just talk about a little bit more about some of those tangible benefits. What sort of examples could you point to, maybe within countries where energy efficiency has had a real-term impact? And by that, I mean, the way people live their lives on their health or their wealth. So in Western Europe today, if you build a brand new house, it's going to use at least 50% less energy than an old house, because policies will go by the technologies of God better, building techniques will go better. So I'm going to move into a house or an apartment that literally costs half as much to run. When prices go up, when energy becomes more vulnerable, the impact on me is a lot less I can either economize, or I can stay just as comfortable, but I'm just less vulnerable to these disruptions, because I'm living my life to the full, but I'm less dependent on expensive, imported, unreliable energy. That's true of cars, that's true of appliances. We have just become more efficient over the decades. Broadly speaking, countries focusing on energy efficiency over the last few decades are importing maybe 20, 30% less fossil fuels than they were if they hadn't made those gains. So efficiency is already in the background, invisibly, making us more resilient, making energy more affordable, making it more sustainable. I'm interested to know the impact of efficiency on carbon emissions. What is the data, Sherris, about the way that efficiency or inefficiency can change the amount of carbon emissions produced? So again, the ultimate goal of energy efficiency is to allow for economic growth, for economic competitiveness, for industrial development, for socio-economic development, for all of us to live better lives, fuller lives, but just to use no more energy than we need to. So how do we maximize the benefits from any given unit of energy? And of course, when you do that, it means you maximize all those benefits while minimizing the energy-related emissions. And I think people don't appreciate how much energy efficiency has already contributed to emissions reduction. The energy efficiency gains the world has made in the last couple of decades mean that we're actually the energy system, the local energy system, is emitting about 20% fewer greenhouse gases than it would be if it were enough for those efficiency gains. So it's already one of the biggest contributors to abating carbon emissions. And it remains a tool we have for the future. In terms of the more efficient we become, the more we can manage greenhouse gas emissions, while also enhancing energy security and affordability. Now, I want to talk about the impact of crises. We're living through an energy crisis right now. What impact have they had on innovation in the past? What sort of big structural improvements have they had on energy efficiency? And what reason is there to think that that might happen again now? Well, let's go right back to the 1970s. I think, you know, in 1970, there was very little talk about energy efficiency. It was hardly a thing. Cars, use loads of energy homes, use loads of energy. Energy was relatively cheap and abundant, certainly in the richer parts of the world. Then the crises hit in 1974 again in the late '70s. And we saw a real wake-up moment when people started to realize, "Hold on, I'm vulnerable to import of fossil fuels. I'm vulnerable to prices going up and down. If I can do something about this led by government." So first of all, in the US, for example, for the first time, they started imposing efficiency standards on cars. And they encourage manufacturers to become more efficient. From the mid '70s to the mid '80s, the typical American car became twice as efficient. It used half as much gasoline as they say over there to run. So there was a massive gain of this untapped potential that government policy could lead, working with manufacturers, working with consumers. We saw a very similar pattern in Japan when they started introducing appliance standards, so that suddenly my fridge, my washing machine, whatever it is, again, became much more efficient. And now, you know, a typical house built in many parts of the world, typical appliance built in a typical car bought, then maybe using two-thirds less energy than they were 50 years ago. And that movement really started with the wake-up call that the 1970s energy crisis gave us. And is there anything to suggest? is something similar is happening now or is it too early to tell? I think the potential is there and I think there's some encouraging signs. We've seen a lot of discussion about energy vulnerability. We've seen a lot of discussion about, you know, are we just going to move from crisis to crisis? How can we really structurally address, you know, our dependence on the uncertainties of energy markets? And I, we've seen a lot of countries talking about actions they can take around energy efficiency and really tackling demand for the future. So I think the potential is definitely there. We've seen consumer responses in Western Europe. There's been a huge increase in the sale of heat pumps just in the last few months. Inside these Asia massive uptake in electric vehicles as a preference over fossil fuel powered vehicles. We've also seen more than a hundred countries take some kind of demand side policy response in the last few months since the crisis started supporting consumers, encouraging less energy use. But also and most importantly, introducing more structural energy resilience measures, talking about diversifying their fuel mix, talking about moving more towards electrification, and talking about becoming more energy efficient. So I do think the potential for today to be a real crossroads to a better future is there. I want to ask you a bit more about policy measures. So what are some of the levers that have worked in the past when governments have tried to increase efficiency, whether that's through tax breaks or trying to change people's behaviour? So I said at the start there's a lot of potential to become more efficient. And I think that's because, despite what I've said about this increased focus and the very real progress we have made, governments just don't focus on the demand side of energy as much as they do on the supply side of energy. That's fairly normal to think about how do we meet our supply needs, how do we build our infrastructure, where is our energy going to come from. But we see that governments that do focus more on the demand side are awarded in terms of greater levels of efficiency leading to lower bills, lower imports, lower carbon emissions. We know the potential is there. And we see around the world many really good examples of policy. It's almost as if if everybody did what everybody else is doing, we'd have the perfect energy efficiency policy mix because it's good examples in every continent of every types of policy. Now at the IEA we tend to talk about a policy package because it tends not to be one simple policy that's going to just solve all your energy efficiency needs. It tends to be a mixture of three broad categories. One is regulation. So do I have minimum performance standards for my appliances? Do I have minimum energy standards for my buildings? Those kind of measures. They have been really powerful over the decades in shifting markets towards more efficient stuff, more efficient buildings, more efficient infrastructure, more efficient energy using cars, appliances, etc. They tend to be best when they combine with information type levers. So a lot of us if we're buying a washing machine or a car and indeed a house, we see an energy label. This tells us if I have a berated house, as opposed to a derated house, my bills are going to be 30% less or whatever it is. So I have the option to make a choice and it really can shift my thinking in terms of if I'm looking at two identical washing machines in the shop and one is a rated and one is G rated. And turning it sometimes takes financial incentives because sometimes maybe building something better is a bit more expensive or particularly retrofitting something. It can cost money. Maybe if I live in an old house, I want to upgrade its insulation, I want to improve its heating system or its cooling system, I'm going to save over time. It's going to dramatically reduce my bills but it's going to take some investment upfront. No, not everyone can afford that. Almost every country in the world today has some kind of minimum standard for air conditioners. But, someone that we put in place 15, 20 years ago, the technology has moved on vastly so the minimum standard may be way, way out of date and the typical air conditioner being sold might literally be one third as efficient as the best in the market. So technology is moving forward, innovation is moving forward and policy needs to keep pace with that. So energy efficiency policies need to be well designed, well implemented and kept up to date. And you mentioned that difference in appliances for example with air conditioning units. Do you think individuals and people do they have equal access to the information that tells them how efficient certain appliances are? Is that something that people have universal access to? Well, clearly not because if I'm about to buy an air conditioner and I'm looking at two devices that are more or less the same price, one is going to cost me 40% more to run at infinitum. Why not will I pick that one? Either this one is available in my shop or I don't have that information or whatever else it is. There's something going wrong. People aren't stupid. People want to be able to afford the equipment but they also want to be able to afford to run the equipment. So I think there's something going on there and that's where government can really make a difference in terms of encouraging markets towards the better technologies, making sure that better technologies are available, making sure the information is there and also helping make it affordable because the best, for instance, appliance standards are introduced in a way where the most efficient equipment becomes more available, more recognised, but doesn't even cost more than the poorer equipment. So I literally don't have to pay anything extra to buy a much more efficient device which will keep saving me money, saving society, emissions and energy imports over decades. So policy can really make a difference there. And this is perhaps a difficult thing to quantify. But do you think energy efficiency gets the attention perhaps it deserves when it's being spoken about in terms of new policy ideas or levers that governments can pull? As somebody who works in energy efficiency I couldn't possibly say it gets as much attention as it deserves and we do sometimes joke about it here because like all energy policy thinkers we tend to think about the supply side first where we're getting our energy from what investment do we need in grids, in power plants, in energy resources. But we tend to neglect thinking about well hold on a minute how much control do I as a consumer do I as a society do I have as a government have over how that energy is used and what if the benefits to people could be just as much or even greater but with a lot less energy used wouldn't that be a good thing in terms of lower bills, lower imports, lower emissions. So energy efficiency is undoubtedly an under considered dimension to all of that. Now let's think about how energy efficiency plays out in the context of affordability and I'm interested in which systems are less efficient than others and how that plays out on prices, the prices that people are paying. So first of all energy affordability is a combination of two things, the price of a unit of energy and how much energy I use right. So first of all on your question on price energy efficiency shrinks energy systems it means they're not as big as they might be we can deliver the same level of quality of living and services and economic service for less we don't need as many wind farms we don't need as many wires because everybody is using energy efficiently the overall investment need is lower and therefore the overall cost is lower. So there's a lot of system efficiencies that can really help you know help us manage energy prices but just as importantly if I'm living in my house trying to afford my energy bills prices only half the story if I'm wasting energy because my homes inefficient because my appliances are inefficient then my bills are higher than they need to be. So just helping consumers in their homes in their workplaces in industry be more efficient gets bills down and I actually think it's kind of an untapped resource we have here to help energy affordability because everyone thinks about price. It's really important and there's a lot in government's power to help manage energy prices but there's also a lot in government's power to help manage energy use and to help consumers understand the choices they can make to lower their energy use and therefore to make the comfort and the benefits that energy brings more affordable to them. Now what is the data tell us about the impact on the poorest groups? How they hit hardest by energy shocks and if so why is that? So we track this quite closely so first of all if you think about energy affordability in terms of what proportion of my income do I have to spend to unenergy to keep comfortable to keep everything going and in advanced economies poorer households have to spend twice as much of their income as richer households because they simply it's almost like it's a fixed cost I have to keep the heating running I have to keep the washing machine running you know and then I maybe I have to make sacrifices in other places so already we see that vulnerability where poorer people are spending a much larger proportion of their income on energy. In emerging and developing economies it's actually the reverse where poor people spend less on energy but that's because they're simply going without they're simply using less energy than they would like to then they would benefit from either they're warmer than they'd like to be they're not you know as mobile as they'd like to be because they simply can't afford it so in both cases we see this impact where poorer sectors of society are suffering from their vulnerability to energy prices and energy costs we also see that when prices spikes as they did a couple of years ago particularly in Europe after Russia's invasion of Ukraine the relative bills of poorer households go up even further so again they either end up going without the benefits of energy or they have to make sacrifices in other places so we see this double impact on poorer households where they're they're already you know in a position where it's costing them a lot more relatively speaking to use energy and then when prices go up they're impact to the most so that's a real a real social impact we should be considering. - Just lastly, is there a universal access to this? And by that I mean, how much is efficiency available to each country, to each region? Are there some places where it's gonna be easier to find, or are there some regions that are gonna be fundamentally more difficult to find efficiencies in their system? - So the IA likes to refer to energy efficiency as the first fuel, because it's a resource available to us all, and we remind our colleagues sometimes that some countries have oil, some countries have gas, some countries have wind, some countries are hydro. If you think of energy efficiency as a resource to be tapped in, it is the one resource that every country in the world has in abundance. So countries vary a lot, of course, in their resource bases and their economic situations, but I can guarantee you, every single country has opportunities to become significantly more energy efficient if they put the right policies in place. Those policies might be different in different circumstances, but they're all based on the same broad principles in terms of, where are my policy gaps? For instance, lots of countries have really benefited from having building codes that drive up the efficiency of building stocks. If a country doesn't have a building code and it's still building lots of buildings, that's an obvious early opportunity to really lock in some of efficiency gains. There are many examples like that. Every country has a different set of tools to work with, but they're based on the same principles, which is, there is untapped energy efficiency potential available that can be captured by the right policies, and these policies can bring immediate benefits to businesses, to citizens, to societies, as I'll. Brian, thanks so much for talking to us today. Thank you. Thank you very much.