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The transformation of energy demand in end-use sectors would contribute equally to direct and indirect CO2 emissions savings. |
Investment in the 66% 2°C Scenario compared the average annual investment needs to 2050 for the three scenarios. This section focuses on how the investment requirements of the 66% 2°C scenario evolve over time. |
Investment in end-use sectors would need to see an even more radical transformation over the period to 2050. Total demand-side investment in low-carbon technologies grows by a factor of almost six to around USD 2.5 trillion by 2050 in the 66% 2°C Scenario. |
An array of policies and measures drives this boost in the 66% 2°C Scenario, such as tighter minimum energy performance standards (MEPs) for a range of equipment, more stringent fuel-efficiency standards and a widespread push for near zero-energy buildings. |
The level of supply-side investment would remain broadly constant, but shifts away from fossil fuels. |
Facilitating the additional energy efficiency investment required in the 66% 2 °C Scenario would be an important challenge, but it would also open the door to considerable energy savings and resultant reductions in energy bills. |
Energy efficiency investments with quick payback periods are more likely to be taken, while investments with longer payback periods are less attractive and therefore require effective policy frameworks to incentivise adoption of the most efficient technologies. |
In the following sections, we take a closer look at energy efficiency requirements by end-use sector. |
One of the frequently discussed implications of ambitious climate policy is supply-side stranded assets. There is particular interest in the extent of fossil-fuel reserves that may not ultimately be produced. |
We estimate that the transition implied by the 66% 2 °C scenario would amount to stranded assets of around USD 400 billion from sunk costs in undeveloped oil reserves and USD 120 billion in undeveloped natural gas reserves, a small proportion relative to the total cumulative investments of USD 7.3 trillion in oil and USD 7.5 trillion in gas to 2050. |
Asset stranding from policy changes can also occur for transformation technologies dependent on fossil-fuel inputs, such as coal- or gas-fired power plants, part of an estimated USD 320 billion in stranded power sector assets in the 66% 2 °C Scenario. |
This totals about 12% of the USD 2.8 trillion cumulative investment in fossil-fuel generation to 2050. Most of the stranded assets are coal-fired plants as gas-fired plants continue to play an important role in helping to balance the high levels of variable renewables present in this scenario. |
More recently, the literature has started to explore whether stranded assets could also exist on the demand side. Buildings, vehicles, and industrial machines could lose value because of sudden regulatory changes such as the implementation of very stringent new energy efficiency standards. |
However it is important to recognise that this is a distinct consideration from f the year. However, this would again not be a stranded asset as the cars can continue to be used until the end of their economic lifetimes. In the 66% 2 °C Scenario , because the policies are known well in advance and because the economic lifetime of a car is generally quite short, stranded assets of vehicles themselves would be limited. |
Forced early replacement of industrial equipment could in some cases be considered a stranded asset, including in the automotive sector. Vehicle manufacturing companies may see significant losses |
as the growing trends of automation electrification and ride-sharing – trends which are not driven by climate considerations alone – combine to disrupt the industry due to lower demand for vehicles as automated vehicles may have much higher utilisation rates than conventional cars there are comparable cases of manufacturing machinery becoming “stranded” in the face of disruptive technology or regulatory shifts unrelated to climate policy |
however stranded assets in conventional vehicle manufacturing equipment may be tempered by manufacturers’ ability to continue selling cars in areas of the world that remain unregulated further efficiency or climate regulations are just one part of the shifting market and regulatory environment that influence investment decisions on industrial plant renewal and are unlikely to be the key driver leading to investment capital in industrial production capacity not being fully recuperated |
policy makers need to be aware of the potential impacts on asset values and to address the distributional impacts of climate-related regulations in general steady long-term price signals allow consumers more time to adapt to a changing system and moderate the changes in assets’ market value aligning short-term manufacturing and construction with long-term climate policy goals will minimise the risk of stranded assets emissions lock-in and major reductions in asset values |
the direct combustion of fossil fuels meets 36% of energy demand in the buildings sector resulting in direct CO2 emissions of more than 2.9 Gt direct emissions represent only 35% of the sector’s total emissions however while the generation of electricity and heat used in buildings resulted in more than 5.5 Gt of CO2 emissions in 2016 |
population expansion and economic growth are the major underlying drivers of energy demand growth in the buildings sector with the global population expected to reach around 9.7 billion by 2050 and gross domestic product GDP expected to nearly triple demand for energy services in buildings increases rapidly through to 2050 the number of households is expected to increase by 50% with residential floor area on a worldwide basis increasing even faster as average household size increases |
energy efficiency in buildings the ambitious pursuit of this potential in the 66% 2°C Scenario would represent a dramatic break from the sector’s energy demand trajectory in the New Policies Scenario despite energy efficiency efforts in the New Policies Scenario that mirror current policy intentions the increase in the number of households worldwide and in services value added drives up the buildings sector’s energy demand from 3000 Mtoe today to over 4000 Mtoe in 2050 |
Savings in space heating and cooling energy demand would be a result of additional improvements in the average performance of building envelopes and more energy-efficient equipment. |
Universal adoption of mandatory and stringent building energy codes for new residential and services buildings would improve building envelope performance and provide the most significant difference in the 66% 2 °C Scenario relative to the New Policies Scenario. |
Moving to NZEBs is especially challenging in emerging economies where half of the world’s new residences will be built in the coming 20 years. |
Improving the energy efficiency of space heating and cooling would provide more than half of the incremental energy savings in the 66% 2 °C Scenario. |
In addition to major improvements in building envelope performance, the 66% 2 °C Scenario would require an accelerated switch to heat pumps for space heating. Wide use of heat pumps would reduce energy demand for space heating by 25% in 2050 from current levels and 330 Mtoe compared with the New Policies Scenario. |
Household and commercial appliances, such as refrigerators, washers, dryers, televisions and computers, would also contribute to lower electricity demand in the 66% 2 °C Scenario as MEPs and other policy measures incentivise accelerated adoption of the best available end-use technologies. |
Enhanced energy efficiency in the 66% 2 °C Scenario would allow the energy intensity of buildings in both the residential and services subsectors to decline over the projection period. By 2050, the energy intensity of residential buildings per unit of floor area would decrease by 40% relative to today. The energy intensity of buildings in the services subsector, measured per unit of sectoral value added, would drop by more than 50% by 2050. |
Despite this improvement, electricity demand for appliances is 2 500 TWh higher than today owing to major increases in appliance ownership. |
Improving the energy efficiency of the global buildings sector in the 66% 2 °C Scenario would lead to major changes in the fuel mix used to meet the demand for energy services. The accelerated adoption of electric heat pumps for space and water heating, and the electrification of cooking, would lead to dramatic decreases in the use of fossil fuels in buildings. |
For end-uses other than space heat or cooling, electricity is the dominant energy source. The shift away from fossil fuels for cooking and water heating would see a significant decrease in demand for oil and gas in the 66% 2°C Scenario relative to today. |
Enhanced energy efficiency would have the largest impact on oil and gas demand in the buildings sector. Increased electrification would offset some of the energy efficiency gains for electricity. |
The divergence in trajectories between the New Policies Scenario and the 66% 2°C Scenario would be even starker for CO2 emissions. By 2050, total CO2 emissions in the buildings sector in the 66% 2°C Scenario would be less than one-fifth of emissions in the New Policies Scenario. |
Although the switch to direct renewables such as solar, geothermal and modern biomass would contribute to lower direct CO2 emissions, the main driver would be the additional energy efficiency in the 66% 2°C Scenario. |
Achieving the additional energy efficiency in the buildings sector in the 66% 2 °C Scenario would require an increase in investment of USD 11 trillion over the period 2017-50. |
The largest share of additional energy efficiency-related investment in would be in appliances and lighting. Efforts to move towards the best available technologies, such as refrigerators with vacuum insulation, would require average annual investment of USD 190 billion. |
The important share of appliances and lighting would also be a result of the expected dramatic increase in the number of appliances being taken up over the outlook period, and the costs associated with ensuring that the average efficiency of appliances would be converging towards international best practice in all markets. |
Increasing the energy efficiency of space heating and cooling would require additional investment in both building envelope performance and more efficient equipment. Owing to the importance of space heating needs in advanced economies, such as the United States and the European Union, as well as the costs involved with retrofitting the existing building stock, additional investment in the 66% 2 °C Scenario would be more significant in these regions. |
Improving the insulation of new and existing buildings would represent around 35% of the cumulative additional investment in space heating and cooling in the 66% 2 °C Scenario, with the remaining 65% directed towards more efficient equipment, such as heat pumps. Water heating and cooking would make up the smallest share of the additional investment required in the 66% 2 °C Scenario reflecting their lower energy demand profile and efficiency improvements embedded in the existing policies and measures of the New Policies Scenario. |
Decisions to invest in energy-efficient materials, devices and practices are often based on an expectation of reducing energy costs. Our analysis indicates that the average payback period for more efficient space and water heating, and space cooling equipment would be between five to ten years in the 66% 2 °C Scenario, well below the range of the typical lifetime for such equipment. |
The payback periods for more efficient space cooling equipment are lower than for space heating, underlining that shifting to the best available heat pump-based cooling equipment is economically attractive in almost all markets. |
Lighting presents a contrasting example; rapid declines in the cost of LEDs in recent years have seen the payback period fall dramatically, while the longer lifetime of LEDs ensures that adopting the most efficient technology is the most economically attractive option in all regions. |
Existing energy efficiency policy frameworks in many countries with high space heating demand, combined with low payback periods, could facilitate near-term improvements in the energy efficiency of space heating in the 66% 2°C Scenario. In the 2020s, the share of heat pumps in worldwide sales of space-heating equipment would expand as they move towards becoming the dominant technology. |
Perspectives for the Energy Transition: The Role of Energy Efficiency steep challenges to decarbonise. To meet the ambition of the 66% 2 °C Scenario, a wide range of low-carbon technologies and processes would need to be adopted at a faster pace and larger scale than seen to date. |
Energy efficiency gains would play the largest role in reducing CO2 emissions from the industry sector worldwide in the 66% 2 °C Scenario relative to the New Policies Scenario, complemented by more shifts to low-carbon fuels (mostly bioenergy, direct heat from renewable sources and decarbonised electricity supply), CCS and material efficiency. |
Material efficiency, or delivering the same level of material service with less overall use of materials, is closely linked with energy efficiency. Greater material efficiency would, for instance, contribute to the stabilisation of CO2 emissions from primary steel and cement production to 2050 (Box 2.2). |
In the 66% 2 °C Scenario, the introduction of new policies and significant technology deployment would reduce CO2 emissions from fuel combustion in industry by two-thirds in 2050 compared with the New Policies Scenario, and by more than half compared with today’s levels. |
The share of energy-intensive industries in total industrial emissions would decrease, from two-thirds today to 50% in 2050, mainly as a result of a sharp decline in emissions from the iron and steel and the cement subsectors. CO2 emissions abatement in 2050 in non-energy intensive industries would be on the same order of magnitude as in energy-intensive subsectors, relative to the New Policies Scenario. |
the key energy intensive subsectors driving down energy demand would be iron and steel one quarter of the total savings by 20 50 and chemicals one fifth while other energy intensive subsectors aluminium pulp and paper and cement would play a much smaller role in the 66% 2 °c scenario global industrial energy demand would stabilise at a level close to 4 000 mtoe from the mid 20 20s to 20 50 following a period of growth to then the lead time necessary to trigger the required energy efficiency related investment this trend contrasts with the new policies scenario where industrial energy use continues to rise by more than 1% per year on average through to 20 50 |
additional energy demand savings in the 66% 2 °c scenario would be almost evenly split between energy intensive and non energy intensive sub sectors at the sectoral level and without considering the energy penalty associated with ccs deployment in some energy intensive subsectors energy intensity expressed per unit of industrial output would decrease by more than 40% by 20 50 in the 66% 2 °c scenario driven by highly demanding mandatory energy efficiency standards table 2 2 this would be significantly more than the level reached in the new policies scenario in which most industry branches barely reach a 20% improvement of their energy intensity by 20 50 |
the important contribution of light industries to overall sector energy savings in the 66% 2 °c scenario would be supported by wider deployment of fuel and electricity efficient technologies and processes in all types of industrial activities these include efficient boilers and furnaces improved heat exchangers heat recovery improved insulation among many others in addition cross cutting efficiency measures would also provide benefits most notably in the small industries |
Among the electrification options, the large-scale deployment of heat pumps in the 66% 2 °C Scenario would deliver large fuel savings at the final energy demand level, but also at the primary energy demand level despite increased electricity demand. |
Heat pumps would displace 500 Mtoe of fuel in light industries by 2050, while they would boost electricity demand by about 1,600 TWh, more than the total electricity generation in India today. |
Overall, with the additional deployment of heat pumps in the pulp and paper, chemicals and petrochemicals sub-sectors (which require significant amounts of low-temperature process heat), the global average industrial heat supply efficiency would exceed 100% in 2050, an increase of about 25% above today's level. |
Further deployment of efficient electric motor systems would contribute 2,700 TWh of electricity savings in 2050, compared with the New Policies Scenario. |
Taking an extended system approach and adopting other system-wide efficiency measures would contribute to improving overall efficiency of industrial motor systems by almost 50% by 2050. |
Electricity savings would only partially be offset by additional electrification of heat demand and further electricity use for CCS in the 66% 2 °C Scenario: net industrial electricity demand would be about 2,400 TWh below the level in the New Policies Scenario in 2050. |
The additional use of bioenergy in the 66% 2 °C Scenario would also be relatively evenly spread between the energy-intensive and the light industries. |
Conversely, 90% of the increase in other direct renewables would be in light industries such as food processing and textiles, where 50% of the heat demand is at low-temperature (i.e. below 100 °C) and therefore has the highest substitution potential for solar thermal or geothermal heat. |
The biggest decrease in coal use would be in energy-intensive sub-sectors and the biggest boost in gas demand would be in the light industry subsectors in comparing the 66% 2 °C and the New Policies scenarios in 2050. |
Energy-intensive subsectors would also contribute a large share of energy savings in the 66% 2 °C Scenario. More than 60% of both coal and oil savings in industry in 2050 would occur in these industry sub-sectors, compared with less than 20% for natural gas. |
The iron and steel sub sector would be the largest contributor, with almost half the total savings and two-thirds of the coal savings by 2050, from energy-intensive industries in the 66% 2 °C Scenario relative to the New Policies Scenario. The improvement of energy intensity in global steel production would result from the deployment of secondary steel production routes and energy-efficient technologies and processes in all process routes. |
The share of global steel output produced from electric arc furnaces, based on availability of recycled scrap (through improved collection, segregation and processing) and further deployment of direct reduced iron, would rise above 50% in 2050 in the 66% 2 °C Scenario, more than doubling its current contribution. This shift alone would lead to savings of around 60 Mtoe of final energy use compared with the New Policies Scenario, with a limited increase in electricity demand in 2050. |
In the chemical and petrochemical industries, a portion of the energy savings in the 66% 2 °C Scenario would be the result of increased electrification of low-temperature heat demand, representing more than 10% of the sectoral heat demand today, and the increased efficiency of electric motor systems. Better process integration would also lower energy intensity in steam cracking, methanol and ammonia production, as well as in other petrochemical processes. |
The implementation of material efficiency strategies through increased recycling and light-weighting of final products would also lead to reduced energy use, as output of primary chemical products would decrease by about 5% to 15% by 2050. Cumulative energy efficiency investments reach about USD 1.6 trillion in the New Policies Scenario, or around USD 50 billion annually by 2050, while investment requirements would grow to about USD 4.3 trillion dollars in the 66% 2 °C Scenario or almost USD 130 billion annually. |
China would by some distance be the largest contributor to the additional investment needs in the 66% 2 °C Scenario, more than the United States and the European Union combined. However, the share of China in global energy efficiency investment in industry would be lower in the 66% 2 °C Scenario (one-quarter of the total) than in the New Policies Scenario (one-third), as other emerging and transition economies have more incremental efforts to realise. |
The key challenge of reaching very high levels of energy efficiency in the industry sector is maximising the diffusion of energy-efficient technologies and processes. The 66% 2 °C Scenario assumes two main channels for doing so. The first is removal of all non-economic barriers to the deployment of energy efficiency within the sector. |
Both heavy and light industries in developing economies would require almost three times more investment in energy efficiency than advanced economies. |
The relation between the payback periods of energy efficiency investment and the diffusion of efficient technologies is presented for two key industrial sectors. The average payback period of energy-efficient technologies and processes appears lower in less energy-intensive industries compared to the iron and steel industry: typically, more than 80% of energy-efficient technologies have a payback below three years in the less energy-intensive industries, compared with no more than 50% in the steel sub-sector. |
The large share of fuels and electricity in production cost structure for heavy industries, reaching typically around 40% for energy-intensive industrial products such as aluminium, and up to 80% for raw chemical products, plays an important role in triggering energy efficiency investments. Conversely, light industry generally places less focus on optimising energy use, as energy usually represents no more than 3% of the total production costs. |
Energy efficiency is not a crucial factor in competitiveness in these sectors, leaving untapped large potentials that offer short payback periods. The comparison between the New Policies and 66% 2°C scenarios indicates that while energy efficiency deployment in the industry sector is linked to the pace at which the required investment pays back, the broader economic context can play a significant role in unlocking energy efficiency potential. |
Constraints to the adoption of new energy-efficient technologies in industry include: the price and regulatory environment; existing industrial structures and their lack of flexibility to integrate new technologies and processes; awareness of potential efficiency gains; lack of skills in energy management; and strategic priorities other than energy efficiency performance. Removing those barriers, as assumed in the 66% 2°C Scenario, would expand energy efficiency potentials in the mid and long term, including a broad array of possible investments with short payback periods. |
In addition to the improvement in the economic rationale for energy efficiency investments, removing market barriers is an important efficiency enabler in all industrial sectors. |
The rise of energy prices, as well as the progressive decline of technology costs, reduces the payback period of an energy-efficient technology over time. Energy efficiencies thus increase over time as the integration of new technologies is eased by the renewal of industrial capacities. |
Material efficiency means reducing the amount of materials used, while still delivering the same service. This can lead to lower energy consumption and lower associated emissions. |
the manufacturing process of raw materials, there are two sources of emissions: fossil-fuel combustion and emissions that arise from the manufacturing processes itself. |
Both sources need to be addressed. For example, in cement manufacturing, 65% of the CO2 emissions arise from the chemical reaction of converting limestone into cement and 35% from fuel combustion. |
A instructive example of the link between production and end-use efficiency is the manufacture of a small passenger car. In this case, steel is substituted with lighter materials, which reduces the energy demand associated with steel production and, as the car weighs less, it also provides better fuel efficiency on the road. |
Material efficiency initiatives are a necessary supplement to energy efficiency initiatives for realising ambitious climate goals. |
They are becoming more widespread in policy, addressed in the European Union’s EcoDesign Directive and recent agreement on the Circular Economy Package, Japan’s Fundamental Plan for Establishing a Sound Material-Cycle Society, and China’s 13th Five-Year Plan. |
The capacity of the IEA World Energy Model (WEM) to capture manufacturing-side benefits of material efficiency was significantly improved in 2015 with the development of a Material Efficiency Scenario (IEA, 2015). |
Policies mostly focus on five key materials: steel, cement, plastic, paper and aluminium, which dominate industrial emissions (Allwood, 2012). |
Perspectives for the Energy Transition: The Role of Energy Efficiency schemes, which use mobile applications to optimize car-pooling options, have not significantly decreased car ownership, and may even increase the number of trips that people take in the United States (IEA, 2017c; Clewlow, 2017). |
The efficacy of many material and energy efficiency initiatives depends on consumer responses. This is particularly visible in the “rebound effect”, which is the reduction in expected gains from new technologies that increase the efficiency of energy because of behavioural or other systemic responses. |
On a related note, extending the durability of materials and lifetime of appliances can reduce manufacturing volumes, but also lead consumers to delay upgrading to more energy-efficient alternatives. This is where it becomes crucial to measure the income and substitution effects behind consumer expenditure decisions. |
Consumer expenditure decisions are not always based on economic rationale, making it difficult for modelling how energy efficiency initiatives will be taken up. Consumers may hesitate to take action in the face of an upfront cost which delivers delayed benefits, which is the case for most energy efficiency investments. |
Energy-efficient buildings are more expensive to buy, but less expensive to operate. This has been found to be a major deterrent for investors and discount rates in energy models must reflect this factor accurately. |
A t the same time policy makers must focus on policies to reduce and overcome barriers to energy efficiency investment. Barriers to investment can be particularly high in landlord-tenant situations where a landlord may have little incentive to invest in retrofits and upgrades. |
The transport sector accounts for all energy consumed in the carriage of people or goods by means as diverse as cars, ships, trucks, trains and planes. |
Today, the transport sector accounts for one-fifth of total energy demand. The key characteristic of the sector is its high reliance on oil, which supplies 92% of transport energy demand. |
Increasing population and incomes a long with relatively low fuel prices and technology advances increase demand for mobility over the outlook period in all the scenarios considered in this report: by 2050, the distance travelled by PLDVs doubles from current levels and road freight activity more than doubles in the New Policies and the 66% 2 °C scenarios. |
With its current high reliance on low-efficiency internal combustion engines, the transport sector is an important reservoir of energy savings potential. It offers a portfolio of available efficiency improvement options depending on the vehicle type, its propulsion mode and the type of service it provides (Figure 2.15). Options include, but are not limited to, friction reduction (tyres, enhanced aerodynamics), light-weighting, downsizing, hybridisation and switching to electricity. |
More than one-third of cumulative energy savings would come from LDVs although energy savings from HDVs would catch up by 2050. |
In the New Policies Scenario, even though oil demand growth in the transport sector slows down in the coming years, transport remains a cornerstone of oil demand accounting for an increase of more than 20% by 2050 compared with today. In the 66% 2 °C Scenario, it would be a radically different trend. |
Thanks to important energy efficiency improvements in ICEs and the switch to electric engines, energy demand in transport would peak by the mid-2020s and decline at an annual average rate of 0.8% per year thereafter to 2050. |
Energy efficiency improvements in conventional engines for road vehicles and ships or turbojets for aircraft are a key driver for energy demand savings in transport. Road transport accounts for 70% of end-use energy efficiency savings, followed by aviation (17%) and shipping (11%). |
energy efficiency in non-road modes, such as aviation and shipping, would contribute to around 30% of the cumulative energy savings in the transport sector. |
technical improvements and the switch to electric road systems would drive down the average on-road specific fuel consumption by more than 50% in 2050 in the 66% 2 °C Scenario, compared with today and they would be complemented by systemic improvements to the road freight system. |
the energy footprint of carrying a tonne of goods over one kilometre would be reduced by almost two-thirds thanks to higher load factors enabled by digitalization of the entire supply chain along with increased reliance on heavy-duty trucks for long-haul carriage of goods. |
energy efficiency enhancements in aviation would account for 18% of the cumulative energy savings in transport. |