Insights & Publications

Report| McKinsey Global Institute

Capturing the European energy productivity opportunity

September 2008 | byAnja Hartmann, Diana Farrell, Michael Graubner, Jaana Remes

Download

With current policies, European energy demand will grow at 1.2 percent a year to 2020. However, with companies fully engaged in boosting energy productivity—the output achieved from the energy we consume—Europe could hold energy demand at today’s levels. If Europe captured the full potential to increase energy productivity, the continent could abate energy demand equivalent to 8 million barrels of oil per day, or double the final electricity consumption of all EU-25 countries today. Solely using available technologies offering positive returns, Europe could at the same time reduce greenhouse gas emissions by almost 1 billion tons in 2020—more than the combined CO2 emissions of the United Kingdom and France.

Europe represents 17 percent of global energy consumption, less than the 22 percent of the United States, the world’s largest energy consumer, but more than China, which is at 14 percent. Yet energy intensity (the energy used to generate GDP) varies significantly across the region. Northwestern Europe’s economy runs at a relatively low level of energy intensity of 7,200 BTUs per dollar of GDP. The energy intensity of Northeastern Europe is almost twice as high, slightly above the global average of 12,600 BTUs per dollar of GDP. Meanwhile, Southern Europe falls between the two with an energy intensity of 8,300 BTUs per dollar of GDP, similar to that of the United States. The CO2 intensity of the three European regions follows a very similar pattern to energy intensity.

With growth in the size of homes and most industrial sectors and increased car penetration across Southern and Northeastern Europe, MGI projects that European energy demand under current policies will grow by on average 1.2 percent a year to 2020. Energy demand will grow at 0.9 percent a year in Northwestern Europe, 1.6 percent in Southern Europe, and 1.7 percent in Northeastern Europe. However, Europe could halt overall growth in energy demand through a concerted effort to boost energy productivity.

European companies now recognize the energy savings that higher efficiency delivers at today’s sky-high energy prices, yet they are achieving only a fraction of the sizable commercial opportunities promised by innovation on this front. MGI identifies seven major categories of business opportunities: building-technology products, electrical devices, transportation, transparency-creating products, customized solutions, energy services, and financing of investments.

Europe is in a strong position to play the role of catalyst in promoting higher energy productivity around the world. As European companies bid to become market leaders in energy-efficiency, it is useful that public policy is setting incentives that should act as a springboard to their efforts. The European Commission estimates that Europe wastes at least 20 percent of its energy and has responded by implementing energy efficiency standards that are often much higher than in other regions such as North America or Asia’s emerging markets.

McKinsey Global Institute

McKinsey Global Institute

Our business and economics research arm, informing management and policy decisions since 1990.more

About this research

This report draws on applied research carried out by McKinsey consultants. To learn more about our expertise please visit Mckinsey Global Institute, Electric Power & Natural Gas Practice, Oil & Gas Practice. Mckinsey Global Institute,