Sustained weakness in energy efficiency

Sustained weakness in energy efficiency gains could lead to a markedly higher outlook for energy demand

Recent weakness in energy efficiency

But the pace of efficiency gains over the past five years has instead slowed: averaging just 1.5% per annum (measured in terms of total final energy consumption), down from 1.9% per annum in the previous 10 years, with particular weakness in both 2023 and 2024.

The causes of this sluggishness in efficiency gains are not well understood. The IEA suggest it may reflect a number of factors including: the increased importance of manufacturing-intensive industries in driving the post-Covid economic recovery in some emerging economies; the increasing intensity of extreme weather events and their impact on energy use; and, more recently, a slowing in investment on projects which improve energy efficiency¹.

Outlook for energy efficiency

In Current Trajectory, the recent weakness in efficiency improvements gradually dissipates, such that by 2030 the pace of efficiency gains is close to its historical average.

But there is considerable uncertainty about this outlook, and more persistent weakness in efficiency gains could have a significant impact on the energy system.

This possibility is explored in the Weak energy efficiency sensitivity, which is based on Current Trajectory but assumes that the recent weakness in efficiency gains persists until 2030, before gradually converging to Current Trajectory (and its previous historical average) by 2035.

Implications for energy demand

This weaker profile for energy efficiency – holding constant all other elements of Current Trajectory – leads to a materially stronger outlook for energy demand, with total final energy consumption growing by around 20% between 2023 and 2035, compared with less than 15% in Current Trajectory.

The higher level of energy demand in Weak energy efficiency increases fossil fuels and carbon emissions

Greater cyclicality of fossil fuels

Short-term cyclical fluctuations in energy demand are typically largely met by changes in fossil fuel use, rather than by fluctuations in renewables or other non-fossil fuels (see Modelling approach for Weak energy efficiency in the Annex for details). The greater responsiveness of fossil fuels to cyclical fluctuations in final energy demand reflects several factors, including:

For these reasons, much of the stronger energy demand associated with a further period of weak efficiency gains is likely to be met by fossil fuels, at least in the near term. Moreover, the difficulty of basing long-term energy investments on fluctuations in efficiency gains means it may take an extended period of weakness until the supply of non-fossil fuels responds materially. Given these factors, in Weak energy efficiency the growth of non-fossil fuels out to 2035 is held unchanged from Current Trajectory, with the additional energy demand implied by the slower efficiency gains met by fossil fuels. That is, the additional demand is distributed across oil, natural gas and coal in line with their relative shares in total final energy consumption in Current Trajectory. If it materialised, the sustained weakness of efficiency gains in Weak energy efficiency may prompt some additional investment in non-fossil fuels over the next 10 years. As such, the assumption that all the additional growth in energy demand is met by fossil fuels should be viewed as a limiting case. Boost to fossil fuels Under these assumptions, the stronger energy demand in Weak energy efficiency leads to a significant boost to both oil and natural gas relative to Current Trajectory:

Deterioration in carbon emissions

The stronger growth of fossil fuels in Weak energy efficiency leads to a marked deterioration in the outlook for carbon emissions. In contrast to the path in Current Trajectory in which carbon emissions peak towards the end of this decade and then gradually decline, carbon emissions in Weak energy efficiency continue to increase through much of the first half of the 2030s. As a result, carbon emissions in Weak energy efficiency in 2035 are still higher than in 2023 and are around 7% higher than in Current Trajectory.