Energy efficiency strategy, standards and investment

Explanation

Energy efficiency financing   

The WBG’s Energy Sector Directions paper sees energy efficiency as “one of the most cost-effective ways to expand supply and reduce environmental impact”.¹ The Bank Group consequently commits to scaling up its financing in this area, with the caveat that opportunities for this “vary widely”. As part of its joint leadership of the Sustainable Energy for All (SE4ALL) initiative, the WBG has also committed to the objective of doubling the global rate of improvement in energy efficiency by 2030. However, there are no details available as to whether a strategy has been adopted to implement this goal. There is also no mention (in the Energy Sector Directions document, or within any other related WBG energy strategy documents), to any form of energy efficiency first principle. Consistently considering energy efficiency as the first option to optimising supply to meet energy needs can be beneficial in mitigating incentives for new fossil investment and the associated stranded asset risks in the context of the energy transition. Moreover, it can increase the resilience of energy systems and support more sustainable levels of energy consumption in the medium to long term.

The WB invested around USD 6.5 billion in energy efficiency support over the period FY19–FY23. On this basis, the WB states it is one of the largest financiers of energy efficiency projects in developing countries. It has launched major initiatives to further increase energy efficiency financing, most notably the “Scaling Up Energy Efficiency in Europe and Central Asia Program” in 2024, through which it aims to deliver USD 1.46 billion in financing over ten years.

Buildings

In defining energy efficiency standards for building sector projects, IFC has made the strongest progress within the WBG. IFC’s “EDGE” (Excellence in Design for Greater Efficiencies) Green Buildings Certification System, defines a “green building” as one that reduces energy and water use by at least 20%. IFC aims for 20% of new construction in new markets to be certified green within seven years of launching EDGE. The same document also states there is a goal for at least 50% of building interventions to be green – although no clear deadline is associated with this target. IFC will also follow legally mandated national building codes, in cases where these are more stringent. Notably however, it is unclear whether any minimum efficiency standards are applied for building interventions not certified as green.

In contrast, the WB does not appear to apply any minimum energy efficiency standards in the building sector. Instead, the WB takes a project-by-project approach, assessing what standards are available and viable in local markets, including through considering local building codes and standards. This is then used to determine and deploy the most cost-effective available technology or technical standard in a given context.² Although a context-specific approach can be beneficial, without being anchored in minimum standards this can result in excessive variability due to case-by-case interpretation and application of suitable standards. International certification standards for energy efficiency in buildings should be prioritised to deal with instances where national standards are insufficiently aligned with the WBG’s own policies and/or with national policies and decarbonisation trajectories such as Long-Term Strategies.

In terms of dedicated initiatives, the WBG has various programmes targeting energy efficiency in buildings. For example, the Sustainable Urban Energy and Emissions Planning Programme (SUEEP) identifies opportunities to increase energy efficiency in the infrastructure sector (including buildings) in medium-sized cities. The Energy Sector Management Assistance Programme (ESMAP) also has an Energy Efficient Cities Initiative (EECI) through which it disseminates practical guidance on building energy efficiency, among other technical assistance, to support WBG urban operations. In 2024, the WBG also launched Building Green, a dataset of energy efficiency building code compliance and enforcement for the use of policymakers in evaluating regulatory efficacy, resource allocation, and the implementation of targeted interventions.        

Transport

As part of the transport sector note of the WB Paris alignment methodology, the Bank has adopted the best practice “Avoid–Shift–Improve” framework to guide emissions reduction and energy efficiency improvement in the sector. For most of the transport modes covered by the note, the WBG presents several options for how this framework can be implemented in practice. However, specific references to energy efficiency are limited to programs for digitalisation of airport operations and upgrades to fossil-fuelled waterway vessels. Moreover, the transport sector note (or any other relevant strategic documentation) does not set out any minimum criteria (such as minimum energy savings against a baseline scenario or emissions performance standards) for transport investments to qualify as contributing to improving energy efficiency.  

Financial intermediaries

The WBG does not appear to require financial intermediaries to apply specific sectoral energy efficiency standards. For WB projects, if deemed to involve a “potentially significant use of energy” (for which no threshold is defined), the WB requires borrowers to optimise energy usage “to the extent technically and financially feasible” and also apply the measures set out in the WBG Environmental, Health and Safety Guidelines. These guidelines require a “systematic analysis of energy efficiency improvements and cost reduction opportunities”, to include both demand-side and supply-side management options. However, reference to concrete and specific sectoral minimum standards are lacking.

In contrast, IFC has specific energy efficiency standards to be upheld by its financial intermediaries. For energy efficiency improvements in existing industrial, commercial, or residential buildings, the scope of the project must meet at least one of these minimum thresholds to qualify as energy efficiency:

• Reduce absolute energy consumption by at least 15%.
• Reduce GHG emissions by at least 25 ktCO₂e/year.
• Reduce electricity consumption by at least 50 GWh/year.

Energy efficiency is also considered as part of IFC’s Climate Assessment for Financial Institutions (CAFI) platform. This is designed to help support financial institutions in assessing and documenting whether subprojects meet the criteria set by IFC’s Definitions for Climate-Related Activities and the Common Principles for Climate Mitigation Finance Tracking. To qualify as climate-related, a building intervention has to be certified as green, in accordance with the EDGE certification standard. CAFI is currently used by 254 financial institutions across 44 countries.

Recommendations: 

• The WBG should explicitly commit to and adopt an “energy efficiency first principle” across its operations. This should include consideration of the transition risks relating to supply-side energy efficiency investments in fossil fuel infrastructure.³
• The WB should set minimum standards for energy efficiency for buildings projects through the adoption of IFC’s EDGE standards throughout WB operations. This could be implemented through a phased approach, similar to that used by IFC (which aimed for at least 50% of building interventions to be certified green). Relatedly, IFC should consider reviewing its own goal, and extending this to a broader proportion of its operations.   
• For operations financed through financial intermediaries, the WB should expand the use of minimum standards for subprojects to qualify as energy efficiency. To achieve this, it could consider implementing the minimum criteria already used by IFC across all WBG arms.
• The WBG should set minimum standards for transport investments to be considered energy efficiency. It could take the European Bank for Reconstruction and Development (EBRD) as an example, which dictates projects must achieve at least 15% GHG savings compared with the baseline “no project” scenario and also sets minimum emissions performance (<50 g/km CO₂) for light-duty vehicles, heavy-duty vehicles and rail.

¹ Published in 2013, this document predates the Paris Agreement, and therefore makes no reference to it.

² Information provided by WBG.

³ See the “Fossil fuel exclusion policies” metric for further details.