Blog from Peter Sweatman: And how much of the $100 trillion is earmarked for energy efficiency, Mark?

On November 3rd, during the first week of COP26, Mark Carney, the UN Special Envoy on Climate Action and Finance, announced that 450 financial organisations from 45 countries pledged to deliver the estimated $100 trillion of finance needed for net zero over the next three decades. This is the Glasgow Financial Alliance for Net Zero (GFANZ) alliance of over $130 trillion of private capital that is committed to transforming the economy for net zero.

The next day, also at COP26 in Glasgow, the EU’s Energy Efficiency Financial Institutions Group (EEFIG) launched two landmark reports in a side event at the EU Pavilion. The first updates EEFIG’s 2015 report that provides policy and market-led recommendations on how to increase the energy efficiency investment flows in European buildings, industry and SMEs. The second provides statistically significant evidence that shows that lending against energy efficient buildings produces lower defaults and arrears. This data came from 800,000 mortgages from four EEFIG members across four European countries, and for the first time is controlled for income, wealth, typology and other possible leading factors.

Energy efficiency really does pay, but how much of the GFANZ banks’ climate commitments will deliver these energy savings? I asked the EEFIG expert panel in our launch event, and a former EIB banker suggested that it was 80% of 20%, so some $16 trillion.

Earlier in the day, I had heard the CEO of a $2 billion fund manager focusing on energy efficiency say that energy efficiency was a $20 trillion opportunity, especially given that two-thirds of all fossil energy dug from the ground is wasted in excess heat through the inefficiencies of the conversions processes to heat, light or motion.

There is no “energy efficiency zone” or “energy savings pavilion” at the COP26, and there wasn’t in any COP that I recall. Energy efficiency is certainly the elephant in the room, representing the major share of all Paris aligned emissions reductions needed and money invested. In my case, being an energy efficiency advocate is more like being an elephant stalking the very long corridors connecting the plenary sessions (where leaders speak and countries negotiate) and the climate action zone (where business meets investors meets NGOs and science).

The intensity of a COP is always extraordinary, and after being cooped up in our homes and offices for almost two years, COP26 is manic. Not only is there a “last chance saloon” feeling among its participants, and the necessary sense of urgency which that promotes, but – in a room where the billions really have now been converted into the trillions – the size of the task, and hence opportunity is similarly daunting. Experienced leaders and negotiators this year are reminding everyone that “this is going to be hard” and we all fight to limit global temperature rise to just 1.5 degrees centigrade over pre-industrial levels.

Perhaps the tide has also turned on buildings renovation. The idea of a Mortgage Portfolio Standard which requires GFANZ pledging banks to align the energy and emissions performance of the buildings they lend against with the Paris agreement, by a target date, and with interim check-points starts to look more and more like a highly appropriate and facilitating next step in developed economies. As generous recovery grants stimulate demand for deep renovation, and the retrofit supply chain is mobilised, perhaps the time has come for homeowners to make good on their personal climate action commitments by investing in savings and a more comfortable and cost efficient home. I do hope so, as we have 35 million deep renovations to get done in Europe in the next 9 years to stay on track.

At 7pm, towards the end of the COP’s “energy day”, I look for a slice of pizza in the just-emptying central canteen, and see the IEA’s head of energy efficiency and his boss. Like me, looks like they hardly ate all day, and I wave. He tells me that the IEA and our UK government hosts had just together announced that Australia, Indonesia, Japan and Nigeria just joined the other ten countries signing the COP26 Product Efficiency Call to Action. This aims to double the efficiency of lighting, refrigerators, air conditioners and industrial motor systems by 2030 in order to help drive reductions in global greenhouse gas emissions and consumers’ energy bills. Interestingly, together these four products account for over 40% of global electricity demand and over 5 billion tonnes of annual global CO2 emissions.

As with so many high-level calls, doubling energy efficiency requires better product standards, labels and incentives to raise the efficiency of high-energy consuming products and will bring substantial energy demand savings, avoided greenhouse gas emissions, promote business innovation and ensure consumer access to affordable and high-performing technologies.

Elephants can always see and pick the low-hanging fruit, so perhaps energy efficiency is about to have its day in the sun as 450 financing teams now figure out where the best returns for the $100 trillion of climate action funds can be found.

About the author: Peter Sweatman is Chief Executive of Climate Strategy & Partners