In this article, we take a closer look at the IEA report Gaining an Edge: The Role of Energy Efficiency in Industrial Competitiveness and highlight its main insights on how efficiency is shaping the future of global industry. The report shows that competitiveness is increasingly tied to energy costs, and that efficiency is becoming a practical lever for firms navigating higher expenses and stronger trade pressure. For a global industrial sector worth around $20 trillion, this shift carries major economic implications. Energy efficiency goes beyond saving energy, supporting profitability and enhancing global competitiveness. Over the last twenty years, industry has learned to create nearly 20% more value with the same amount of energy. However, recent trends are raising concern. Since 2019, the industrial sector has driven about 80% of global energy-demand growth, yet energy intensity has remained almost unchanged.
At the same time, a significant economic opportunity remains untouched: in IEA member countries, an estimated $600 billion in cost-effective energy-efficiency potential is still unused. Companies are aware of the challenge—80% of firms in an IEA survey identified efficiency as essential to staying competitive.
In this article we will explore:
- Energy at the center of competitiveness
- Energy efficiency trends
- The $600 billion opportunity
- Beyond energy bills
- Implementation roadmap
- The market opportunity
- Survey insights
- Policy framework
Energy at the center of competitiveness
The new competitive reality: energy costs shape investment decisions
Across global markets, energy has become a decisive factor for industrial competitiveness. Volatile prices in many regions, combined with growing instability and fragmentation in energy markets, have widened cost gaps between countries. For energy-intensive sectors, these differences directly influence long-term investment choices, employment, and the future location of production lines. When energy costs rise, margins shrink, inflation pressures increase, and companies begin to reconsider where to operate and where to expand. Efficiency provides structural cost reductions, stabilizing operating costs while improving performance. In an industrial economy worth more than USD 20 trillion, and under growing demand and trade pressure, efficiency is emerging as one of the few tools that both stabilizes operating costs and reinforces competitiveness.
Two industrial worlds: heavy vs. light manufacturing opportunities
Heavy industries—such as chemicals, metals, cement, pulp and paper, and refining—are the most vulnerable to energy-related risks. They depend on capital-intensive processes with high fixed costs, and in many cases, survival hinges on managing energy expenses effectively. These sectors represent more than three-quarters of industrial energy demand, and efficiency upgrades often require substantial upfront investment. Yet the potential gains are significant, especially where waste heat can be valorized through technologies like ORC systems.
A concrete example comes from the cement sector. At the Cementirossi plant in Pederobba (Italy), a 3.5 MWe Exergy’s ORC system was installed in 2020 to recover heat from a 2,500 t/day clinker line. Operating with diathermic oil between 280°C and 100°C and using an air-cooled condenser, the system achieves a gross efficiency of 22.8%. The project improves energy performance while meeting strict safety requirements, as the customer requested a non-flammable working fluid due to Seveso III constraints. The installation avoids 10,500 t of CO₂ per year—equivalent to the electricity use of roughly 2,000 homes—demonstrating how efficiency can support both competitiveness and compliance.
Lighter industries—electronics, machinery, automotive, textiles, food—face lower energy intensity but offer strong short-term savings potential and greater opportunities for electrification. Although they account for only 25% of industrial energy demand, they generate 50% of value added and 67% of jobs. Their flexibility enables faster payback from efficiency improvements.
Across both segments, the European manufacturing sector shows what long-term progress looks like: today it generates 50% more value added using 25% less energy than two decades ago, highlighting the strategic importance of efficiency as a driver of competitiveness.
Industrial energy efficiency trends
Over the past two decades, global industry has steadily improved its energy efficiency, with energy intensity declining by just under 1% per year on average. Today, the industrial sector produces around 20% more value from the same amount of energy than in 2000. In G20 countries, economic output has doubled while energy use increased by only 60%, resulting in cumulative savings of 46 EJ—equivalent to India’s entire primary energy consumption. Despite these gains, recent years have seen a marked slowdown. Between 2010 and 2019, industry improved energy intensity by roughly 2% annually, but from 2019 to 2023 this fell to 0.2% per year. In 2023 alone, the improvement was just 0.5%, while industrial energy demand grew 1.8% annually, up from 1.1% in the previous decade. As a result, industry has driven 80% of the growth in global final energy demand since 2019.
Historically, efficiency gains have been supported by comprehensive policy packages combining regulation, information, and incentives, such as China’s five-year targets, Germany’s Energy Efficiency Act, and Japan’s energy management frameworks. The current slowdown highlights the need to refocus on industrial energy efficiency: without renewed progress, firms risk losing competitiveness, and energy systems—including electricity grids—face mounting pressure to meet rising demand.
The $600 billion opportunity: untapped potential at firm level
Massive variations within the same industries
Energy performance varies widely across firms operating in the same industry, revealing a large untapped efficiency potential. Across IEA countries, the most efficient cement sector is 52% less energy-intensive than the least efficient—an indication of how much improvement is technically achievable. Similar gaps appear within national borders. Benchmarking shows that energy intensity in electric arc furnace steel production can vary by up to 67% within the same country, while ammonia production shows an even larger spread, with a 144% difference between lowest and highest performers. These disparities mean that many firms are carrying unnecessary costs related not only to energy use but also to raw materials, production processes, and waste management. Facility-level data confirm significant variation in energy use. Structured energy management can help close these gaps and unlock substantial savings. At the national level, if all firms in IEA countries matched the energy performance of the least intensive 25% in each subsector, total energy costs could drop by up to USD 600 billion. While not all facilities can reach the top performers due to differences in processes and product design, the scale of the opportunity is substantial across both heavy and light industries.
From energy costs to bottom-line impact
For sectors with high energy expenditure such as iron and steel, building materials, and pulp and paper, efficiency directly translates into improved financial performance. A 10% reduction in energy use can generate a profit impact equivalent to achieving 4–16% additional sales. For an average EU industrial SME operating at a 10% profit margin, EUR 5,000 in annual energy savings corresponds to EUR 50,000 in extra sales—an impact that is both immediate and easy to compare with existing business metrics.
Survey data from 1,000 industrial firms worldwide reinforce this dynamic. Around 70% reported a return on investment above 10% for efficiency measures implemented over the past five years. Nearly 80% believe that energy efficiency will provide a competitive advantage over the next five years, confirming that the financial case is strong enough to influence both short-term decisions and long-term strategy.
Why performance gaps persist
Despite the significant savings potential, many firms still struggle to invest in energy efficiency. High upfront costs are a major barrier, particularly for capital-intensive heavy industries. Companies also tend to prioritize measures with short payback periods, even when longer-term options deliver larger benefits. Limited internal capacity and information gaps further slow adoption, especially where firms lack detailed insight into the business case. Skills shortages in key technical occupations add another layer of complexity. As a result, large performance gaps remain in place—leaving substantial economic value on the table.
Beyond energy bills: the multiple benefits multiplier
Productivity gains: higher utilization, lower costs
Energy efficiency provides more than savings on energy bills—it delivers multiple benefits that can strengthen industrial competitiveness. Improved efficiency allows higher equipment utilization, increased production capacity, and more streamlined processes. This often translates into reduced downtime and fewer unplanned shutdowns, lowering maintenance costs. In Europe, a pilot assessment found that 40% of companies reported reductions in unplanned downtime. Efficiency reduces waste and improves workplace conditions, enhancing labor productivity and employee satisfaction. Solutions such as ORC systems and industrial waste heat recovery can help companies achieve these gains while also lowering energy costs.
Quantifying the full value: benefits beyond the meter
The total value of energy efficiency often exceeds direct energy savings. An IEA analysis of 3,300 SME cases shows that including all associated benefits—productivity, resource use, waste reduction, and labor improvements—can more than double the value, with total gains increasing 40–250% compared to energy savings alone. Case studies reinforce this multiplier effect. For example, a German polymer producer combined reduced energy costs with lower waste disposal costs.
These examples demonstrate that the broader benefits of energy efficiency—productivity, resource optimization, and operational improvements—can outweigh the direct reductions in energy bills. Recognizing and quantifying these multiple benefits strengthens the business case for efficiency investments and supports long-term competitiveness.
Implementation roadmap: from quick wins to transformation
Phase 2: Deeper system upgrades
While “quick wins” can improve efficiency with payback periods under two years, achieving substantial energy and process improvements requires deeper upgrades. These involve more significant changes to equipment or production processes and generally require higher investment but deliver greater returns. Key interventions include process redesign, ORC-based heat recovery, industrial heat pumps, and integrated energy solutions. Performance comparisons highlight the impact: quick wins typically achieve around 2% savings per measure, while deeper system upgrades average 5% per measure. Industrial heat pumps can reduce process heat energy by more than 30% in some cases. Despite this potential, implementation rates remain lower for deeper upgrades—around 33% compared with 50% for quick wins—mainly due to higher upfront costs, complexity, and the need for production process modifications.
Phase 3: Energy management culture for continuous improvement
Embedding energy management as a core business practice unlocks continuous savings over time. Strategic frameworks, such as ISO 50001 and 50001 Ready, guide companies to quantify energy demand, set goals, implement measures, and monitor results in repeating cycles of improvement. In the first three years after adoption, firms typically achieve 11% savings, followed by 4% annual reductions in subsequent years, with cumulative gains of 40–60% over the long term.
The approach works for both light and heavy industry: light industry often realizes faster, cost-effective improvements, while heavy industry achieves larger absolute savings. Case studies illustrate the potential: an Irish food manufacturer improved energy efficiency by 45% over nine years, an Indonesian sports footwear company cut energy demand by 37.5%, and a Chinese household appliance facility increased efficiency by 43% over five years. Emerging tools such as AI further enhance continuous improvement, identifying inefficiencies, enabling predictive maintenance, and optimizing operations in real time. Existing use cases in steel and cement show energy savings of 2–6%, and widespread AI adoption could reduce global industrial energy use by up to 8 EJ by 2035—roughly equivalent to Mexico’s total current energy consumption.
By making energy management a strategic element rather than a simple cost-cutting tool, firms secure long-term competitiveness while fostering resilience and continuous improvement across operations.
The market opportunity: efficiency technology manufacturing
Investment surge: 150% growth since 2015
The global market for energy efficiency technologies is expanding rapidly, driven by volatile energy prices, rising energy security concerns, stricter regulations, and international commitments such as COP28, which aims to double the global rate of efficiency improvements by 2030. Public and private investment in energy efficiency has followed this trend. In 2023 alone, over USD 600 billion was invested in efficiency technologies, marking an increase of almost 150% since 2015. Energy efficiency products are in growing demand, and firms are responding with both capacity expansion and innovation.
Capacity expansion across the technology spectrum
Manufacturers are rapidly scaling up production capacity for heat pumps and other efficiency technologies to meet rising global demand. These developments reflect a broader industrial shift toward energy-efficient, low-carbon technologies, while traditional sectors such as steel, glass, and basic chemicals continue to maintain a relatively stable share of global investment.
Innovation race: RD&D spending and patent filings
Innovation is accelerating alongside market growth. Public RD&D spending on energy efficiency now exceeds investment in any other energy technology. In IEA countries, spending rose from approximately USD 4 billion in 2015 to USD 7 billion in 2024, a nearly 70% increase. The United States accounted for 44% of total IEA spending in 2023, focusing mainly on efficient transportation, industry, and buildings.
Private actors are also increasing RD&D investments. An IEA survey of 1,000 industrial firms found that 63% had recently increased spending on energy efficiency innovation, and another 18% planned to do so within three years, primarily to launch new product lines. Notable examples include Salzgitter AG, which is investing USD 2.6 billion in electric arc furnace steel production, and Daikin, which more than doubled RD&D spending from USD 350 million in 2015 to USD 800 million in 2024.
Patent activity reflects this innovation surge. Between 2015 and 2023, the number of energy efficiency–related patents filed rose from approximately 150,000 to nearly 270,000, a 75% increase, signaling strong global competition and ambition in the efficiency sector.
Geographically, China now leads the market, accounting for more than 50% of the global total (around USD 400 billion), ahead of Europe and the United States. Europe remains a major player, with manufacturers announcing over USD 4 billion in heat pump investments, supported by policy measures such as the EU Competitiveness Compass, which highlights the strategic importance of efficiency technology manufacturing for regional economic competitiveness.
What industry leaders are saying: survey insights
Recognition and commitment: 80% see efficiency as competitive key
A 2025 IEA survey of 1,000 industrial firms across 14 countries highlights strong recognition of energy efficiency as a competitiveness driver. Around 80% of respondents indicated that efficiency is critical for maintaining their competitive edge. Firms reported a range of operational benefits, including lower maintenance and operational costs, as well as reduced unplanned downtime.
The barriers: cost, information, skills
Despite the clear benefits, several barriers continue to limit widespread adoption. Upfront costs remain the most cited obstacle: a 2024 survey of over 1,200 firms committed to efficiency found that more than half identified initial investment costs as the main challenge. Addressing this requires targeted financing solutions such as energy performance contracts or green loans with lower risk premiums, along with accessible guidance on available supports. Examples of effective policy programs include SME-focused initiatives in Japan and the Netherlands, combining technical assistance with simplified funding access.
Information gaps also hinder action. Companies often lack sufficient data to build a clear business case or fully understand available efficiency options. Benchmarking frameworks and standards, such as the Top Runner Programme and Best Available Techniques (BATs), can help bridge this gap.
Skills shortages pose an additional challenge. Qualified personnel are required to install, operate, and maintain energy-efficient equipment and systems, particularly in key occupations like electricians and HVAC or heat pump installers. The 2024 survey found that 30% of firms identified insufficient digital skills in the workforce, while 25% reported resistance to new technology as a barrier.
ROI reality check: 70% report double-digit returns
Despite these barriers, efficiency investments continue to deliver strong financial returns. About 70% of respondents reported a return on investment above 10% for measures implemented in the last five years. Nearly 80% anticipate that energy efficiency will provide a competitive advantage in the next five years. Many firms have integrated efficiency into their strategic plans, with initiatives such as EP100 encouraging companies to publicly commit to doubling energy productivity. These results highlight that energy efficiency is not only a cost-saving tool but a core element of industrial competitiveness.
Policy framework: enabling competitiveness through efficiency
The three-pillar approach: regulation, information, incentives
Effective industrial energy efficiency relies on integrated policy packages combining regulation, information, and incentives.
Regulation ensures that the least efficient equipment and practices are excluded from the market, driving efficiency at both firm and national levels. Beyond technology standards, regulation can support research and development, energy auditing, mandatory consumption reporting, energy management systems, and workforce upskilling. Incorporating lifecycle impacts encourages material-efficient design choices. Best results are achieved when standards are ambitious, regularly updated, and adapted to local contexts, while enabling demand-side response for grid flexibility.
Information strengthens awareness and knowledge of efficiency options. Benchmarking, indicators, and detailed data help track progress and enable peer comparisons. Digital technologies allow real-time energy monitoring and optimization of flexible demand. Sharing best practices through targeted information and industrial networks supports learning and adoption.
Incentives make efficient choices more attractive, encouraging upgrades, new technologies, and faster adoption of energy-saving measures. Instruments include preferential financing, carbon-linked measures, tax incentives, free or subsidized energy audits (especially for SMEs), and support for Energy Service Companies (ESCOs). Incentives can also promote material reuse and recycling to reduce energy-intensive primary material production.
Implementation requires prioritizing measures with quick impact, ensuring sufficient resources, and addressing capacity building, enforcement, and monitoring. A key challenge remains robust data collection, particularly on benefits beyond energy and emissions. While 88% of surveyed firms can estimate monetary benefits, more granular, industry-coordinated data is needed to improve policy design and targeting.
Five key mechanisms from top-performing countries
Top-performing IEA countries demonstrate five mechanisms that effectively support industrial energy efficiency:
- Comprehensive energy management policies: Encourage audits, management systems, and energy manager appointments, yielding sustained efficiency gains across sectors and firm sizes.
- Industrial networks: Peer-to-peer collaboration builds trust, promotes best practices, and supports adoption of government efficiency programs.
- Targeted fiscal and financing tools: Aid investment in audits or capital projects and incentivize performance-based savings, particularly in strategically important sectors.
- Investment in research and innovation: Stimulates development and commercialization of new efficiency technologies, positioning countries as technology leaders.
- Strong support for MEPS (Minimum Energy Performance Standards): Proven to improve motor and equipment stock performance, with applications for compressors, refrigeration, and air conditioning systems.
Success stories:
- India: The PAT (Perform, Achieve, Trade) scheme combines mandatory energy reduction targets with a market-based trading mechanism. In 2022-23, India achieved 50.75 Mtoe of savings (6.6% of primary energy), with the cement industry exceeding targets by 81.6% and 48.6% in PAT cycles I and II, respectively, while expanding production capacity by 61% from 2012 to 2023.
- Ireland: The Large Industry Energy Network (LIEN) promotes ISO 50001 energy management, peer-to-peer exchanges, and annual reporting. Among 133 companies reporting 2018–2023, Scope 1 emissions fell by 12%, demonstrating progress toward the national 35% industrial reduction target for 2030.
These examples highlight how integrated policy approaches combining regulation, information, and incentives can drive competitiveness while delivering measurable energy and emission reductions.
Forward outlook
Energy efficiency has clearly shifted from an operational measure to a strategic driver of industrial competitiveness. Across IEA countries alone, firms could unlock up to USD 600 billion in energy cost savings, while surveys show that 70% of companies achieve returns above 10% on efficiency investments. Nearly 80% of industry leaders recognize efficiency as a key competitive lever, and proven pathways—from quick wins to deeper system upgrades and energy management culture—demonstrate that substantial, sustainable improvements are achievable.
However, the pace of efficiency progress has slowed dramatically, from 2% annual improvement (2010–2019) to just 0.2% (2019–2023). With the industrial sector driving 80% of global energy demand growth, this stagnation threatens competitiveness, operational resilience, and climate goals alike.
Looking forward, energy efficiency remains a dynamic, evolving differentiator. Investment in efficiency technologies has surged 150% since 2015, policy support is expanding globally, and new technologies such as industrial heat pumps, waste heat recovery, and AI-enabled process optimization are unlocking additional potential. Firms and countries that embed energy efficiency into core strategy, rather than treating it as a compliance measure, will define the next generation of industrial leaders.
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