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Industry

Improve industrial energy efficiency

Energy efficiency, or energy use per unit of activity, is often considered the “first fuel” or “hidden fuel.” It has the potential to mitigate over 40% of energy-related greenhouse gas (GHG) emissions by 2040 across all sectors.

Much of today’s industrial technology is far less energy-efficient than the best available systems. Updating and retrofitting industrial plants to become more efficient can reduce between 10–20% of industrial emissions while also delivering economic benefits through reduced fuel expenditures.

In the International Energy Agency (IEA)’s “Net Zero 2050” scenario, industrial energy consumption increases by 16% by 2030 (relative to 2020) when energy efficiency gains are not considered. With energy efficiency gains incorporated, the industrial energy consumption increases by 8% by 2030 (relative to 2020).

Most of the efficiency-related improvements needed are in developing countries and economies in transition, where relatively inefficient equipment is widely used and where most of the growth in energy demand is expected to occur. However, there are some exceptions, such as in the cement sector, where countries like India and China are leading in energy efficiency with a younger technology stock compared to Europe.

Concerted efforts necessary to accelerate the adoption of best available technologies

Public policies to accelerate the adoption of best available technologies and practices through a combination of measures range from financial incentives to audits to capacity building through information and training, but these have had limited success. Distorted energy prices, lack of capacity and lack of access to capital are key barriers. A combination of four solutions — regulations, information and training, energy audits and digital management systems, and financial incentives — can help to boost industrial efficiency.

Enforcing existing policies and regulations is just as critical as adopting more ambitious regulations. There are several recent examples of policies covering large energy users in the sector. For instance, India’s Perform, Achieve and Trade (PAT) scheme sets energy intensity targets, and China’s Top-1,000 and Top-10,000 programs require industry to implement energy-saving strategies. 

Efficiency gains need to be accompanied by long-term decarbonization technologies

Energy efficiency can make an important contribution in terms of short-term, cumulative emission reductions and lowered energy demand. At the same time, energy efficiency gains and emissions reductions from retrofits in the near term should be balanced with the adoption of new decarbonization technologies in the long term — particularly in industrial plants with long expected lifetimes, such as steel plants.

Data Insights

What targets are most important to reach in the future?

Systems Change Lab identifies 1 target toward which to track progress. Click a chart to explore the data.

What factors may prevent or enable change?

Systems Change Lab identifies 4 factors that may impede or help spur progress toward targets. Click a chart to explore the data.

Progress toward targets

Systems Change Lab tracks progress toward 1 targets. target. Explore the data and learn about key actions supporting systems change.

Final energy use per unit of manufacturing output

The continued rise in industrial production from energy-intensive subsectors is one of the key drivers of growth in energy consumption over the past decade; the industry sector’s energy use was responsible for 37% of global final energy use in 2022.

The industry sector’s energy use was responsible for 37% of global final energy use in 2022. From 2010 to 2019, industry energy consumption increased by an average of 1% every year. The continued rise in industrial production from energy-intensive industry subsectors is one of the key drivers of energy consumption growth over the past decade.

Deploying the best available technologies, upgrading industrial equipment and increasing investments in efficiency measures can help limit the growth in energy use by lowering demand.

Due to the lack of data and of appropriate Paris Agreement-compatible targets, we cannot calculate an acceleration factor or evaluate whether or not this indicator is on track. The chart shows data for the steel sector only and similar data for other industrial products is not available.

Enablers and barriers

We also monitor change by tracking a critical set of 4 factors factor that can impede or help spur progress toward targets. Explore the data and learn about key actions supporting systems change.

Annual investment in industrial energy efficiency

By one estimate, industrial efficiency investment needs to increase to $51 billion annually by 2025 and to $126 billion per year by 2040 to meet our climate goals, a notable growth from the fairly steady $35 billion of investment per year from 2015 to 2019.

Tracking annual investments in energy efficiency helps us to monitor progress in lowering energy use and conveys the level of access to capital. Global investment in industrial energy efficiency remained flat from 2015 to 2019 at about $35 billion per year; investments in 2020 are believed to have fallen as a consequence of the COVID-19 pandemic.

According to one estimate, industrial efficiency needs to increase to $51 billion annually by 2025 and to $126 billion per year by 2040 to meet our climate goals. China is the world’s leader in industrial energy efficiency investment and financed roughly 40% of the global total in 2017. The country’s industry sector also accounts for the majority of energy use by industry globally.

Companies tend to utilize their own financing to make the majority of investments in industrial energy efficiency. They might be motivated by the prospect of lower fuel expenditures or lower emissions. But investment in efficiency measures competes with alternate options for using the capital within the business. If energy-saving measures can yield a higher return than the alternatives — for example, if energy prices increase to reflect fuel cost and demand — it improves the economic return and drives greater investments.

Due to the lack of publicly available data on efficiency-related investments in industry, we cannot track trends for this indicator.

Share of industrial energy use covered by mandatory industrial energy efficiency policies

Mandatory targets and standards for industrial energy efficiency covered 36% of global industrial energy use in 2017.

Policies for industrial energy efficiency focus mainly on manufacturers and producers. A range of measures — regulations and standards, fiscal policies and targets — aim to provide an improved environment for implementing more efficient industrial processes and technologies. Their effectiveness depends on successfully addressing regulatory, institutional, informational and market-related barriers.

China and India are examples of countries with efficiency targets covering large energy users in industry. Several countries have standards for equipment such as electric motors, which are responsible for around half of the electricity used globally. In 2022, about 50% of the global electricity consumption of industrial motors was governed by mandatory standards, which are in place in 57 countries.

More broadly, mandatory targets and standards for industrial energy efficiency covered 36% of global industrial energy use in 2017. There’s a significant opportunity to increase the percentage of final energy use in industry that is currently covered by efficiency policies, adopt new standards and implement best practices.

Number of countries with energy efficiency obligations for utilities

Industrial energy efficiency obligation schemes can cover the cost of energy audits, offer rebates toward more efficient equipment or pay for large efficiency projects. In 2022, 23 countries had a total of nearly 50 energy efficiency obligation programs that together covered almost one-fifth of global energy use.

Governments may formulate energy efficiency obligation schemes that require utilities to achieve a set amount of energy savings over a defined time period through efficiency measures in energy users, such as industry or buildings. Industrial energy efficiency obligation schemes can cover the cost of energy audits, offer rebates toward more efficient equipment or pay for large efficiency projects.

In 2022, 23 countries, including 16 in the European Union, had a total of nearly 50 energy efficiency obligation programs that together covered almost one-fifth of global energy use. These programs encourage efficiency measures across a variety of end uses.

Number of companies with efficiency strategies/targets

Though there’s a lack of comprehensive data, as of 2022, only 16% of the top 2,000 public and private companies in the world by revenue had set efficiency targets.

Voluntary targets for energy efficiency signal companies’ commitments to invest in measures that can lower their energy use and related emissions.

While there is a lack of comprehensive data on this indicator, a 2022 analysis of companies’ progress towards net zero targets by Accenture provides a glimpse into the current state of efficiency targets. As of 2022, only 320 of the top 2,000 public and private companies in the world by revenue (in a list developed by Accenture) had set energy efficiency targets; some companies with greenhouse gas targets also used efficiency measures as a way to mitigate emissions.

Global initiatives such as EP100, which tracks and reports energy efficiency advancements by companies, can be helpful in accelerating the uptake of best available technologies.

Photo credits

Photo by Jay Hariani

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