Energy efficiency strategies, standards and investment

Methodology

Energy efficiency can significantly reduce carbon emissions over short time periods, making it an infrastructure priority for countries and development institutions. A major benefit of treating energy efficiency as an infrastructure priority is that supply side investment needs will fall, reducing costs to society. Furthermore, studies have shown that energy efficiency investments create more jobs than the equivalent investment in fossil fuels.  

Energy efficiency first principle 

DFIs must adopt an overarching energy efficiency first principle that directs ambitious energy efficiency standards across a range of sectors to support this, as well as mobilising more finance to be targeted at energy efficiency. “Energy Efficiency First” is a guiding principle that requires the delivery of energy savings or demand response among end-use customers whenever these resources are less costly or more valuable than supply-side alternatives. It begins with the use of a systematic procedure to assess the potential for energy savings and demand response as the first step in planning, investment, regulation and market design. Policies, investments, and practical measures that increase energy savings and demand response among end-use customers must be prioritised wherever they are found to deliver higher net benefits than investments in networks or supply alone. Outside of the energy sector, the promotion of a circular economy is crucial, especially for materials stemming from energy intensive industries. 

Operationalising this within each DFI depends on how each institution operates, ranging from taking a more rigorous and detailed account of demand projections in decisions about the scope and scale of production, generation and distribution investments, to rebalancing supply and demand-side investments across an entire portfolio. Whichever direction DFIs take, choices should be informed by asking project promoters to assess their project against demand projections with varying levels of deployment of demand-side reduction measures. Reducing supply side losses is also important, but it must not extend the lifespan and absolute emissions of high carbon (e.g. fossil fuel) assets. 

Building, transport and power generation energy efficiency standards will be covered in this metric. Whether DFIs require financial intermediaries to apply energy efficiency standards will also be addressed.  

Buildings 

One study estimates that to limit warming to 1.5°C, buildings built after 2020 must be zero carbon for OECD countries, and after 2025 for non-OECD countries. Building renovation rates must increase from less than 1% per annum to 5% by 2020 for OECD countries, and 3% in non-OECD countries. Each retrofit must achieve a 90% direct emissions reduction.  

The benchmark considered by the EU sustainable taxonomy for investment in new buildings is to achieve the EU’s ‘Nearly Zero Energy Buildings’ standard, which tightens over time. Outside of the EU, it recommends using equivalent national standards or recognised third party certification – such as the US Green Building Council’s Leadership in Energy and Environmental Design (LEED) – to qualify new building investment as sustainable. In the absence of such standards, the taxonomy recommends using the top performing 15% of the building stock as a minimum performance benchmark representative of the best level of energy efficiency that can be achieved in a local context.  

A similar approach could be adopted by the financial institutions covered in this study. For building renovation, the taxonomy suggests a principle of achieving performance equivalent to the top 15% benchmark or a threshold of energy savings of at least 30% in comparison to the baseline performance of the building before renovation.  

Transport 

The transport sector is important for mitigating climate change by shifting away from carbon intensive modes of transport, such as private cars, towards less carbon intensive modes such as public transit and railways. Rail only contributes 3% of transport emissions, despite accounting for 8% of passenger transport activity, and 28% of surface freight transport activity.  

The Avoid-Shift-Improve framework refers to reducing the need for motorised travel and is linked to transport demand management and wider urban planning. DFIs that provide technical assistance are well placed to support this area. Shift refers to moving transport systems to less carbon intensive modes of transport, such as public transport systems or railways. This typically involves large infrastructure projects, meaning DFIs play a critical role in ensuring they help prioritise projects that support this shift. Improve refers to increasing the energy efficiency of specific transport modes, through methods such as increased fuel economy or electric vehicle adoption.  

Evolution of this indicator

E3G will begin to look at energy efficiency in industry, due to the importance of sectoral decarbonisation in these areas. Furthermore, E3G also intends to look closer at policy support for energy efficiency.