IEA: Building Retrofits Crucial to Energy Efficiency Drive

An International Energy Agency (IEA) report has indicated that, while global progress on energy efficiency is improving, it is not advancing at the speed required to meet key climate targets.

The Energy Efficiency 2025 report shows an expected improvement of 1.8% in 2025, which is an increase from approximately 1% in 2024.

This rate of progress has, however, fallen to an average of 1.3% per year since 2019 – way short of the 4% annual improvement target set at COP28, which is to be met by 2030. For the construction sector, this presents both a challenge and a major commercial opportunity.

“The acceleration in global progress on energy efficiency that we’re seeing in 2025 is encouraging, including positive signs in some major emerging economies,” says Fatih Birol, Executive Director of the IEA. “But our analysis shows that governments need to work even harder to ensure efficiency’s full range of benefits are enjoyed by as many people as possible. 

“Energy efficiency has the power to enhance people’s lives and livelihoods through greater energy security, more affordable bills, improved economic competitiveness and lower emissions.”

Retrofit spending and ROI

The narrative that sustainable technology commands a premium is being challenged, according to the IEA’s report, which shows it is increasingly becoming the more affordable option.

While more efficient technologies can have a higher initial price tag, the whole-life cost benefits of using less energy often outweigh those of less efficient models.

This is particularly relevant for building retrofits and new-build projects. According to a 2025 IEA survey on industrial competitiveness, a majority of firms cited energy efficiency as their primary defence against energy price volatility.

Investment in making buildings more efficient is growing. Since 2019, combined spending on building retrofits and envelopes in China, the US, and the European Union has increased by over 20% reaching around $120bn in 2024.

The return on such an investment can be substantial. For instance, a typical dwelling in the Netherlands could save US$300-500 per square metre in energy costs over a 20-year period from an upfront investment of around $40,000 for insulation and high-performance heat pumps.

Rising energy demand from cooling

A critical area for the construction industry is the management of energy for space cooling. The report found this has been the fastest-growing end-use in buildings since 2000, expanding at more than 4% per year, caused by increased access to air conditioners and higher living standards.

The IEA states, however, that this demand has largely been met with equipment that is not highly efficient. This highlights a crucial intervention point for constructors and developers to install higher-specification systems.

The scale of the missed opportunity is substantial. The IEA calculates that if every air conditioner purchased since 2019 had been the most efficient model available, the world could have avoided electricity demand growth equivalent to that from data centres over the same period.

This is especially pertinent as data centre electricity demand, fuelled by the artificial intelligence boom, is expected to almost double between 2025 and 2030 to around 945TWh.

Skills shortages

A major barrier to implementing energy efficiency measures is access to a skilled workforce. The IEA reports that nearly 18 million people were employed in energy efficiency-related roles globally in 2024 and, among employers in this space, 72% report a shortage of workers.

This is not a distant problem; around three in five of these employers expect shortages to have a moderate to large impact in the next five to 10 years and half are already struggling to replace retiring workers.

This issue is part of a wider trend. According to LinkedIn's 2025 Green Skills Report, the demand for sustainability experts is growing almost twice as fast as the development of green skills among workers.

For construction firms, this skills gap could represent a major hurdle to delivering the high-efficiency buildings and retrofits the market increasingly demands.

While technologies like AI could help optimise energy use in buildings by detecting inefficiencies, its deployment is also hampered by a need for digital infrastructure and a skilled workforce, particularly for small and medium-sized enterprises.