By 2030, energy efficiency can contribute up to 40% in reduction of world-wide green-house gases, making the air we breathe cleaner, while at the same time reducing our energy bills and creating jobs. Earth Day is an appropriate moment to consider the potential gains from increased energy efficiency.
A new report from the Independent Evaluation Group (IEG) evaluates ten years of World Bank Group support to improve energy efficiency in more than 80 countries. It focuses on the use of energy, as previous IEG evaluations had looked at energy production. The evaluation assesses what has worked and makes recommendations on increasing the scale and impact of World Bank Group energy efficiency interventions. The report looks at the work of the three arms of the World Bank Group – the World Bank, IFC and MIGA – shedding light on what both the public and the private sector can do to use energy more efficiently.
Demand-side energy efficiency projects are effective, but much greater effort is needed for wider impact and scale
Achieving net-zero carbon emissions by 2050, which is needed to halt climate change, requires tripling the current rate of improvement in global energy efficiency. This in turn requires closing a $500 billion annual gap in global investments in energy efficiency, from approximately $290 billion in 2021 to $790 billion by 2030 and beyond.
These gaps are big and require action at scale from the public and the private sector, including the industrial segment, which accounts for 38% of energy use globally, the owners of public and private buildings (buildings construction and operation are responsible for 30% of energy use) and the transport sector.
The IEG evaluation looked at a World Bank Group energy efficiency portfolio of 408 projects approved between 2011 and 2020 and worth approximately $18 billion. It finds that World Bank Group projects have been overall effective at supporting energy efficiency across the public and private sectors.
World Bank Group lending worked particularly well when it was provided in combination with co-financiers such as the Global Environment Facility, the Clean Technology Fund, the Green Climate Fund, and other development banks. This approach helped to demonstrate scalable and viable packages for developers with clear climate abatement opportunities.
Yet, the World Bank Group projects were successful – one at a time. They did not usually lead to scale-up either vertically - for example, retrofitting hundreds of households after initially retrofitting only a few - or horizontally – for example, introducing energy efficiency measures across supply chains, such as cement production, cement transport and construction.
Challenges to the scaleup imperative and successful pilot cases
The evaluation recognizes that scaling up is essential to fill the financing and net zero gaps and identified constraints related to governments’ interest in electricity generation more than energy efficiency in lower-middle income countries, below-cost energy prices and lack of communications of socioeconomic outcomes as the main obstacles.
The evaluation also found that the Bank Group has been successful at scaling up energy efficiency programs in selected cases. These examples can serve as very useful references for future Bank Group work. India was a successful example of vertical scale up, as the Bank introduced energy efficiency solutions to 5,000 micro, small, and medium enterprises.
IFC’s support to the textile sector in Bangladesh is an example of successful horizontal scale up, as the project helped the actors of the entire chain, including spinning, weaving, and wet processing, to adopt cleaner production practices.
The IFC Eastern Europe Excellence in Design for Greater Efficiency (EDGE) standards for retail food chain programs, which greened approximately 100 stores as well as their logistic fleets across various countries in the region, is an example of horizontal and vertical scale up. The IFC and MIGA were particularly successful at helping clients introduce EDGE and other green building standards in various countries, which create the pre-conditions for scaling up both vertically and horizontally.
The evaluation flagged the transport sector as an area with untapped potential for scale up, as measures to improve vehicles, fuels, and energy efficiency in transport facilities constituted only a fraction of the Bank Group’s transport sector interventions. (See Box 1 for factors contributing to or constraining successful scaleup.)
Box 1: Success factors and barriers to DSEE scaleup
The way forward
The evaluation makes four recommendations to the Bank Group to scale up and increase the impact of its energy efficiency interventions.
- Intensify energy efficiency support to middle-income countries (MICs). Focusing on MICs would make the biggest impact on closing the greenhouse emissions gap while also contributing to economic and social development outcomes. This requires an increased focus by the World Bank on horizontal scaling and an increased role in MICs of IFC and MIGA, including on greening assets of state-owned enterprises.
- Develop energy efficiency sector-specific approaches in a select group of Low-Middle Income Countries (LMICs). The focus should be on LMICs with fast growing energy intensive sectors or sub-sectors that seek productivity gains via energy efficiency. These interventions can be pursued even if energy efficiency policy reforms in the countries are in early stages.
- Expand energy efficiency approaches by incorporating reduction of indirect emissions in project design. This entails considering emissions along the supply chain that is affected by a project, similarly to what the Bank Group has done in Bangladesh, India, Eastern Europe or other scale up interventions.
- Help client countries and companies leapfrog by developing innovative approaches that adopt and adapt digital and financial solutions from developed countries. Examples include intelligent monitoring and artificial intelligence (AI)-based energy optimization, designing behavioural policy interventions that support energy efficiency adoption and communicating the results of successful pilots.
Underpinning these recommendations, the evaluation highlights the importance of moving from a focus on energy savings to a broader outlook on decarbonization.
Our findings point towards a bright future for energy efficiency, which if scaled up will be a powerful weapon in the Bank Group’s – and the world’s – fight to save our planet.