In 2023, despite many challenges, investments in energy efficiency and electrification held steady, mainly due to strong electric vehicle (EV) sales. However, the overall picture of investments in energy sectors was mixed, with high inflation and interest rates affecting governments’ ability to provide support.
Investments in energy efficiency and electrification in 2023 totaled USD 646 billion. This amount remained unchanged from the previous year. While the transport sector saw a 6% increase in investment due to the rapid growth of EV sales, the buildings sector experienced a significant drop of 5%, and the industry sector saw an 8% decline. The United States, Europe, and China accounted for about 75% of global investments in these end-use sectors. However, inflation and high interest rates made it difficult for people and companies to buy energy-efficient technologies and secure affordable financing. As a result, governments also found it harder to offer incentives for energy efficiency and electrification.
Several countries have recently announced plans to reduce or eliminate incentives for EVs, heat pump purchases, and building renovations. Lower gas prices and the slow recovery of industrial activity from global economic crises further complicated the situation. Looking ahead to 2024, the key question is whether investments can continue to be strong without as much government support and with increasing financial pressures on households and businesses.
In the transport sector, the recent drop in battery costs and price competition among EV manufacturers provide hope for continued growth, though at a slower pace. Some emerging markets, especially in Latin America and India, are expected to see increased EV sales, helped by the presence of Chinese manufacturers and local industry development. Policies like the Inflation Reduction Act in the United States and the Carbon Border Adjustment Mechanism in Europe are likely to boost EV production outside China.
The building sector faces an uncertain future. While construction activity in China has been more resilient than expected, uncertainty about the continuation of public incentives in advanced economies dampens optimism. In many developing countries, weak building codes and poor enforcement hinder investment in energy efficiency.
In 2023, energy efficiency investments in the building sector were around USD 280 billion, a 7% drop from 2022. This decline is expected to continue into 2024 due to high financing costs and the phasing out of government support programs. From 2019 to 2022, stimulus spending in Europe supported strong investment growth in energy efficiency, but 2023 marked a turning point as borrowing and construction costs rose, slowing the completion of buildings.
Many large economies saw a reduction in construction in 2023. For example, Brazil’s construction fell by around 2%, while China experienced a significant 16% drop. Most of Europe also saw declines in construction, leading to fewer energy-efficient buildings being built. In the UK, housing deliveries dropped by 12%, and Germany issued 27% fewer building permits compared to 2022.
In contrast, Italy saw significant investments in energy efficiency through its Superbonus program, which reimbursed 110% of the cost of energy-saving renovations. However, changes to this program in 2024 are expected to slow down investments. Germany also faced a reduction in energy efficiency investments after a court ruling limited climate budget funding. Meanwhile, the UK saw an increase in energy efficiency investment through various programs.
Despite these efforts, global investment in energy-efficient buildings is projected to fall by another 3.5% in 2024. Sustained policy support is crucial to maintain and accelerate heat pump uptake and other energy efficiency measures.
Overall, the energy efficiency and electrification sector faces significant challenges from inflation, high interest rates, and constrained government budgets. While some positive signs remain, particularly in EV sales and targeted policies, the future of investments in these critical areas will depend on overcoming these financial and regulatory hurdles.
In 2023, global investments in energy efficiency and electrification remained stable at USD 646 billion, driven by strong electric vehicle sales despite economic challenges. High inflation and interest rates impacted government support and slowed building and industry investments. The transport sector saw growth, but the future of energy efficiency investments depends on overcoming financial and regulatory hurdles.
