The First Fuel: Why energy efficiency should be the first stop on our path to Net Zero
The scale of the Net Zero challenge is immense. Globally, residential buildings are responsible for nearly one-fifth of energy-related greenhouse gas emissions and poorly insulated homes exacerbate the emissions impact of the fossil fuelled generation, while imposing significant economic costs on their occupants. During the global energy crisis, governments spent close to $940 billion on short-term measures to shield households from surging energy prices, with $535 billion spent at the crisis’s peak in 2022. Despite this spend, millions of households remain at risk due to energy-inefficient homes, leading to higher energy bills, poorer health outcomes, and a significant, ongoing strain on public resources.
The disparity in progress across regions underscores the need for systemic action. While the USA charged ahead from 2020, powered by the Inflation Reduction Act, Europe has fallen behind due to an inability to fund both efficiency investments and crisis interventions. Differences in rollout are also seen at a micro level, with certain populations or geographies in advanced economies locked out of the energy transition, and thereby unable to access the economic and resiliency benefits that flexibility can provide, due to older or poorly built housing stock. The uneven distribution of advancements reflects the complex and interconnected nature of this challenge, requiring a systemic approach to overcome historical issues and address effectively.
Addressing energy efficiency requires navigating a web of interdependent factors. It is fundamentally a systems problem—one that transcends individual actors or sectors. The lack of coordination between policymakers, utilities, private investors, and consumers has led to piecemeal solutions that benefit only those who can afford the transition. As an example, due to policy changes including the switch to the ECO and Green Deal schemes and insufficient coordination between government bodies, local authorities, energy companies and contractors, the UK went from more than a million homes insulated a year in the 2000s, to just 60,000 in 2022. This fragmented approach has left significant emissions reductions, and resiliency benefits, unrealized, and a human cost that is hard to quantify or accept.
Typically, only wealthier households have been able to afford necessary upgrades, such as insulation or low-carbon heating. The poorest 10% of households in advanced economies spend four times as much of their income on energy as the wealthiest 10%, despite consuming half as much energy (IEA – Energy Efficiency 2024). Without systemic reform, energy efficiency risks becoming another dimension of inequality, rather than a universal benefit.
However, if we succeed in removing these blockers and increasing demand for the first fuel, the opportunities are transformative. Accelerating energy efficiency improvements could deliver over a third of all carbon dioxide emission reductions required by 2030 to align with net zero goals (IEA – Energy Efficiency 2024). The ripple effects extend beyond emissions reductions: households would enjoy lower energy bills, improved health and enhanced comfort, while nations would achieve greater energy security and resilience to price shocks.
Moreover, scaling energy efficiency could enable a rapid deployment of other low-carbon technologies, such as heat pumps, by reducing unnecessary investment to cover transitory peaks in capacity requirements. The result would be faster decarbonization and enhanced grid stability, especially given the global supply crunch we are already feeling relating to electrical and systems engineers. The health, wealth, and resilience benefits would also uplift vulnerable communities globally, creating a fairer and more sustainable energy transition.
Key Interventions to unlock and benefit from “the first fuel”
To unlock these benefits, international actors should collaborate to identify, share, and blueprint examples of three key interventions:
Digital Evaluation of Household Emission Reductions
Digital tools are essential for accurately assessing and tracking emissions reductions at scale. By leveraging smart meters, cloud-based systems, and real-time monitoring, policymakers can craft evidence-based strategies, derisk policy and thereby ensure accountability. This infrastructure enables transparent reporting and allows governments to identify and address gaps in energy efficiency programs effectively.
Utilizing and Scaling Property-Linked Finance
Addressing ownership and financability issues is critical for scaling energy efficiency. Property-linked finance allows decarbonization costs to be tied to the property rather than the owner, enabling smoother transitions between tenants and reducing financial barriers to technology uptake where there are still long payback periods. This model ensures that upgrades, such as insulation or efficient heating systems, can be implemented without requiring significant upfront investment from current occupants, unlocking opportunities and aligning incentives for all stakeholders.
Automation of Flexibility Benefits
Automated technologies such as integrated energy management systems, smart appliances, and AI-driven flexibility tariff optimization can simplify consumer engagement and maximize energy efficiency. Wrapping these technologies into single-touch delivery models ensures adoption, streamlining the customer journey and ensuring maximum benefit for both the household and the grid, particularly for low-income and marginalized communities. In developing economies, where electrification has been growing steadily but unevenly and capacity constraints are more severe, automation can play a vital role in bridging gaps and delivering resiliency in addition to economic benefits.
The path forward demands ambition, innovation, and collaboration across sectors. Energy efficiency offers a pathway to a sustainable future, delivering environmental, economic, and social benefits. While the energy transition will no doubt continue to prove demanding, by prioritizing the first fuel, we can build a world that is more resilient, equitable,and prepared for the challenges ahead.
