SPEECH
Greener and cheaper: could the transition away
from fossil fuels generate a divine coincidence?
Speech by Fabio Panetta, Member of the Executive Board of the ECB,
at the Italian Banking Association
Rome, 16 November 2022
1 ] 2
The EU economy[ is highly dependent on fossil fuels[ ], which represent close to three-quarters of its
total energy consumption. Most of this fossil fuel energy is imported: while the EU accounts for 8 per cent
of global fossil fuel demand, it accounts for only 0.5 per cent of global oil production and 1 per cent of
global gas production.
A major cost of this dependence - which we are reminded of daily - is that energy-producing countries
can use their fossil fuel exports to pressure or even threaten energy importers, creating geopolitical
tension in the process. Historically, the price of crude oil has often spiked in the context of war, as is the
case today. This underlines the need to reduce our dependence on fossil fuels.
Another huge cost of our reliance on fossil fuels is climate change. The earth is warming rapidly, with
massive risks to ecosystems and humans, and urgent action is needed to reduce our consumption of
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fossil fuels and shift to green sources of energy.[
At the global level, energy generated from oil, coal and natural gas makes up more than 80 per cent of
primary energy consumption. According to the Network for Greening the Financial System (NGFS), this
share will have to be reduced to around 30 per cent to reach net-zero emissions by 2050. For the EU, the
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reduction will have to be even greater.[ This will require wide-ranging structural changes in energy
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production, but we still have a long way to go (Chart 1).[
Chart 1
The energy mix needs to change drastically to reach carbon neutrality by 2050
(exajoules per year)
Sources: Network for Greening the Financial System (NGFS).
Notes: Net zero by 2050 is an ambitious scenario that limits global warming to 1.5 °C, reaching net-zero emissions by
2050. The average of the three main models used by the NGFS is displayed. The definitions for the EU differ across
these three models.
These changes will have profound implications for our daily lives and economic system.
The price of energy affects the cost of virtually everything we consume and produce. As a result, the
costpush shock from an increase in energy prices is felt throughout the economy. Given that the ECB's
primary mandate is to preserve price stability, understanding the relationship between the transition to a
greener economy and the price of energy is crucial.
To start with, let me be clear: we cannot blame today's high oil and gas prices on the green transition. The
6
culprit is clearly Russia's manipulation of the energy supply[ ], which has resulted in higher and more
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volatile energy prices in an already tight market.[ Reduced supply has exacerbated the effects of the
strong post-pandemic recovery in fossil fuel demand, resulting in the high energy prices we are seeing
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today.[
But the massive shift required by the green transition may matter for energy prices in the future. In this
respect, the argument is often made that the green transition will cause a persistent rise in energy
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commodity prices and inflation.[
However, the price effects of the green transition are not straightforward. In fact, the green transition will
influence several dimensions which will in turn affect energy prices. For example, it will modify both the
demand and supply of fossil fuels through multiple channels, with ambiguous effects on market prices
along the transition path. It will also affect the cost and availability of renewable energies, which also
influence the substitution away from fossil fuels and therefore their cost.
Today I will examine the possible implications of the green transition for energy prices. I will argue that the
pathway to a greener economy does not necessarily imply persistently higher inflation. Much will depend
on the policies we adopt to transit away from the most polluting sources of energy. I would even argue that
we can reach a "divine coincidence" between price stability and decarbonisation.
The effects of changes in the supply and demand for fossil fuels and
renewables
The green transition will affect the price of fossil fuels and other sources of energy, particularly
renewables. Together, these dynamics will determine how overall energy prices evolve in the future.
Taxation will play an important role. Lower taxation (or subsidisation) of green energy and higher taxation
(or penalisation) of fossil fuels will have an impact on relative prices and demand. The net effect on
consumer energy prices will depend on the balance between the two and how the proceeds from carbon
taxation are used (whether, for instance, they are used to subsidise green energy and invest in green
technologies).
Ultimately, the impact on energy inflation will depend on how energy supply and demand react to these
price signals.
The effects of the green transition on fossil fuel prices
Let me start by outlining the channels through which the green transition might affect energy commodities.
A wide range of interacting channels will determine how the transition risks will affect energy commodity
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markets (Chart 2).[
Chart 2
Transmission channels: impact of the green transition on fossil fuel prices
Sources: ECB staff illustrations. The price effect of the relative cost channel is unclear a priori as the price before tax
might decline due to lower relative demand for fossil fuels, but the after-tax price might be higher.
On the supply side, a transmission channel that is often referred to is the "policy uncertainty channel":
expected demand makes future payoffs highly uncertain and compresses investment in fossil fuels.
[lower 11 ]
As investment declines, fossil fuel prices rise.
Yet there are other supply forces at work that might lower prices. Supply may increase if fossil fuel
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producers extract their reserves now due to the "frontloading channel".[ Also, innovations in fossil fuel
technologies, such as carbon capture and storage solutions, might support investment through the "brown
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innovation channel".[ This would cause fossil fuel prices to fall.
Demand channels also matter.
First, preferences can shift towards greener forms of energy via the "preference channel". For example,
sales of electric cars in Europe now account for 14 per cent of the market, after an increase of 160 per
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cent in only two years.[
Second, policy measures can further discourage demand for fossil fuels by making these costlier than
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their green counterparts through the "relative cost channel". Carbon pricing is a case in point.[ By
increasing the after-tax cost of fossil fuel and electricity produced by burning fossil fuel, carbon taxation (or
equivalent measures, such as the Emissions Trading System) reduces fossil fuel demand and increases
the recourse to renewables. The price effect is unclear a priori: the price before tax of fossil energy might
decline, but the after-tax price might be higher.
Third, innovation in green technologies could make cleaner sources of energy more available and
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affordable, thereby lowering demand for more polluting sources via the "green innovation channel".[ The
massive increase in the installation of heat pumps in Europe in the last two years to replace gas boilers is
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a clear example of how new technologies can rapidly decrease fossil fuel demand.[
The bottom line is that the effect of the green transition on fossil fuel prices is ambiguous. It will depend on
which channels prevail, which is largely determined by technological developments and the policies
implemented by governments globally. Different channels might have opposite effects and dominate at
different points in time.
Renewables and the effects of the green transition on overall energy prices
The effect of the green transition on overall energy prices will also crucially depend on the availability and
price of renewable energy.
The costs associated with renewables have been decreasing. They are now lower than those of fossil
fuels. In 2020, new utility scale photovoltaic and onshore wind power plants were cheaper than new fossil
fuel plants. In 2021, onshore wind costs fell by 15 per cent compared with 2020, while offshore wind and
solar photovoltaic costs fell by 13 per cent. As of 2022, the marginal cost of new solar energy production
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was estimated to be a quarter of the marginal cost of existing gas plants in Europe.[ And in the current
energy crisis, wholesale electricity prices have been lower when EU power generation relied more on
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renewable energy than on gas.[
Not only, therefore, is a reallocation of production and consumption from fossil fuel energy to renewable
energy necessary to reach the net-zero emission target. But the lower cost of renewable energy can also
put downward pressure on overall energy prices. In fact, the EU has decided to cushion the impact of the
electricity price spike on households and businesses by imposing a temporary revenue cap on producers
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with lower marginal costs[ ], which mainly comprise renewable and nuclear energy producers.
Expanding renewable energy production would increase the European economy's resilience to fossil fuel
price spikes and supply disruptions. While renewable energies also have some drawbacks, such as the
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intermittence of their supply and the commodity inputs required during the plant construction phase[ ],
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they do not use any more commodities during the lifetime of an installation.[
What should we expect amid all the uncertainty?
To assess the effects of the green transition on energy prices in the future, international bodies such as
the NGFS and the International Energy Agency (IEA) have turned to scenario analysis. I will refer to two
contrasting scenarios.
The first is an orderly scenario which assumes ambitious climate policies are introduced immediately. This
scenario limits global warming to 1.5 °C through stringent climate policies and innovation, reaching global
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net-zero emissions by 2050 in line with the Paris Agreement.[ It nevertheless requires ambitious policy
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action and technological change across all sectors of the economy.[ The NGFS does not provide
detailed and granular information on the overall cost of energy production (including from renewable
energy sources), which would give a more complete picture. But it does provide estimates for the price of
oil, gas and coal, which would only increase moderately over the next decade under the net-zero scenario
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(Chart 3).[ In particular, oil prices are predicted to increase by around 6 per cent cumulatively from 2020
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to 2030, reflecting increasing costs of extraction.[ Gas prices, in turn, are expected to increase faster as
gas demand is expected to remain relatively strong, although in annual terms the magnitudes are also
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contained.[ In a similar scenario constructed by the IEA, prices for fossil fuel (except gas) would even
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decline, as channels that reduce demand dominate price dynamics.[
Chart 3
Projected fossil fuel pre-tax price changes by 2030 under different scenarios
(percentages)
Sources: Network for Greening the Financial System (NGFS), International Energy Agency (IEA).
Notes: Projected changes from 2020 to 2030 of fossil fuel prices before tax. The net-zero scenario is an ambitious one
which limits global warming to 1.5 °C, reaching net-zero emissions by 2050. The nationally determined contributions
(NDC) is a less ambitious scenario used by NGFS which includes all pledged climate policies leading to about 2.5 °C
of global warming. The stated policies scenario (STEPS) is used as the IEA scenario which is closest to the NDC
scenario. For the NGFS scenarios, the average of the three main models is displayed.
By contrast, the second NGFS scenario, referred to as "nationally determined contributions" (NDCs),
assumes that only currently pledged climate change policies are implemented. This means that global
efforts would be insufficient to halt significant global warming. Emissions would decline but lead
nonetheless to at least 2.6 °C of warming associated with severe physical risks, setting the world on a
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"hothouse" path and failing to meet the climate goals of the Paris Agreement.[ In this case, the NGFS
foresees moderate increases in fossil fuel prices, while the IEA projects energy prices to increase more
strongly in a similar scenario. This is because the demand for gas and oil is set to rise over the short run,
and investment in renewables will fall short.
These results should be taken with a pinch of salt. In fact, the NGFS scenarios do not yet fully incorporate
the current gas market turbulence. Consequently, the actual change in prices may differ from the projected
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paths, at least in the short term.[ Moreover, the range of possible outcomes is extremely wide, reflecting
different assumptions regarding policies, consumer preferences, technological innovation, market
developments and other aspects.
The International Monetary Fund (IMF) emphasises that the inflationary effects of the green transition
depend crucially on the policies adopted during the transition. Although there are scenarios in which the
transition can generate mild inflationary pressures, the IMF foresees that a transition aimed at cutting
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emissions by 25 per cent between now and 2030[ and where one-third of the revenue generated from
higher carbon prices would go towards green subsidies would not lead to any material increase in inflation
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in the euro area compared with the baseline.[ Its analysis concludes that the transition to clean energy
need not be inflationary and that delaying the transition would only cause costs to rise.
Overall, these analyses confirm that the effects of the green transition on energy prices are not one-sided.
The transition should not necessarily lead to skyrocketing energy costs in the future - it may well have the
opposite effect. The consequences crucially depend on the interaction between the different channels
driving the green transition and on policy action.
For instance, significant investment in research and innovation is required in the short term to develop
technological solutions and ensure that decarbonisation objectives can actually be met. If the transition
happens at the required pace and is supported by the right policies, upward price pressures are likely to
be contained. And when comparing the present value of the benefits from lower emissions with the
present value of the costs of reducing our reliance on fossil fuels and replacing them with renewable
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energy, there are actually considerable net benefits.[
Limited role for green factors in the current energy price shock
Let me now turn to the current energy shock.
After months of continual increases, the price of oil and gas reached multi-year highs in the summer. This
raised the question of whether the green transition had played a role in these increases. To answer it, I will
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rely on empirical studies[ ], building on the vast range of literature available on the drivers of oil prices.[
Recent analyses suggest that the green transition has affected fossil fuel investment to a limited extent.
Expectations about the transition may have led to lower investment in the oil sector over the last few
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years, probably because it has made it more expensive to attract capital.[ The estimated impact of a
shock similar in size to the Paris Agreement on oil investment is nevertheless negligible - between one
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and two per cent - and increases only moderately over a longer period (Chart 4, panel A).[
Transition risk has not left a noticeable mark on oil prices so far (Chart 4, panel B). This is consistent with
what I said earlier. Different transmission channels are at play: fossil fuel investment may have been
reduced due to policy uncertainty and lower demand for these types of fuels, but these supply and
demand channels have opposite effects on prices. The net impact on prices may therefore have been
contained or even cancelled out.
Chart 4
Effect of green transition on oil prices
Sources: ECB staff calculations.
Notes: Panel A: effects of a change in the ratio of green transition news articles to overall published articles in leading
newspapers using a local projection framework checking for identified oil supply and demand shocks. The shock is
scaled to the coverage in newspaper articles as observed during the twenty-first session of the Conference of the
Parties (COP21) meeting in Paris in December 2015, and the number of international oil drilling facilities is used as a
proxy for oil investment. Panels B and C: impulse responses and forecast error variance decomposition are obtained
from a monthly oil BVAR model in which a transition risk shock is identified in addition to oil demand, oil specific
demand and oil supply shocks using sign and narrative restrictions. In panel B, the impulse responses are scaled to a
shock similar in size to the one observed during the COP21 meeting in Paris. The sample period runs from October
2013 to January 2022.
The results suggest that more "conventional" shocks to oil demand and supply have probably been the
dominant drivers of oil prices up until now (Chart 4, panel C). This is also true for the high oil prices we see
today: these are a result of the post-pandemic recovery in oil demand and shortages on the supply side
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driven by reasons other than climate change, such as managed oil production.[
For gas prices in Europe, supply disruptions are even greater. There are signs that even before invading
Ukraine, Russia manipulated the gas supply to the European market, cutting gas flows and creating
scarcity and uncertainty about future supplies. There was already less Russian gas flowing to Europe in
2021 despite higher gas prices and robust demand (Chart 5). The reduction in supply depleted European
storage facilities even though there was the potential to export more. After the invasion of Ukraine,
Russian gas flows through major pipelines such as Nord Stream 1 were further reduced and eventually
halted altogether, causing European gas prices to surge even higher.
Chart 5
Cuts in Russian gas supplies to the EU
(in millions of cubic metres per day)
Sources: Bloomberg and ECB staff calculations.
Notes: LNG includes deliveries from Russia.
The latest observation is for 24 October 2022.
The economic, inflationary and political tensions caused by this supply strategy probably had twin aims:
break Europe's unity and weaken its support for sanctions in view of Russia's (planned) invasion of
Ukraine, which began in February 2022. These aims were not achieved.
Instead, large shocks like this one should reinforce the EU's determination to speed up the green
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transition - rather than slow it down - and to rapidly eliminate its dependence on Russian fossil fuels.[
The considerable progress made on energy intensity after the oil shocks in the early 1970s gives us cause
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to be optimistic that similar progress can be achieved in response to the current shock.[
Policy implications: seeking a divine coincidence
To achieve a "divine coincidence" whereby reducing the dependence on fossil fuels does not come at the
expense of higher energy prices, public policies will need to succeed in reducing energy intensity,
protecting energy security and financing the transition.
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First, policies will need to provide incentives to lower fossil fuel demand for a given after-tax price.[ This
would limit upward pressures on energy prices during the green transition, and - importantly - would help
reduce greenhouse gas emissions. In the EU, the Fit for 55 package and the REPowerEU plan have
raised targets for energy efficiency and include concrete measures to achieve them. In the short term, EU
ministers have agreed on voluntary and mandatory reductions in electricity demand in response to the
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current crisis. Initial results are encouraging.[
Second, policies need to protect energy security to contain the likelihood of significant shocks to inflation
linked to spikes in the price of fossil fuels. This is best coordinated or delivered at European level as
national measures to secure energy supplies and shelter businesses from the impact of price increases
could turn into beggar-thy-neighbour policies.
Recent EU initiatives are moving in the right direction. For example, the EU Council has agreed to collect
solidarity payments from fossil fuel companies to support households and businesses. The European
Commission has proposed joint gas purchases to strengthen the EU's bargaining power when securing
supplies for all Member States. It has also proposed solidarity rules in the event of gas shortages and is
working on a revision of its State aid framework. Lastly, ministers have agreed that fiscal support to
cushion the impact of higher energy prices should be targeted at the most vulnerable households and
firms while preserving price signals and incentives to reduce fossil fuel consumption.
Third, policies need to support the necessary investments in the green transition. According to the IEA,
investment in renewable energy needs to triple by the end of the decade to effectively tackle climate
43 ]
change and contain energy prices.[ For the EU, reducing dependence on Russian fossil fuels and
climate targets will require investing an estimated €500 billion per year between 2021 and 2030.
[achieving 44 ]
Bridging the gap in green investment will require the contribution of the private sector. Incentives can be
offered through regulatory efforts. For example, streamlining administrative approval processes can help
accelerate renewable energy projects. In the area of sustainable finance, progress in adopting climate
45 ],[ 46 ]
disclosures can significantly contribute towards lowering the cost of capital for green investments.[
The private sector will nevertheless need time to adjust. It may also not invest enough in green projects
that have the characteristic of public goods. We thus need to accelerate, sustain and provide a backstop
for the green transition through public investments. As I have previously argued, these investments would
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be financed more effectively and efficiently at European level than by individual Member States.[ They
could, for example, take the form of an EU climate and energy security fund aimed at supporting the green
transition in future years.
Conclusion
The green transition is often presented as a threat to fundamental aspects of our daily lives, including
growth opportunities or purchasing power.
This negative narrative is unjustified. The divine coincidence is not a pipe dream: greener can mean
cheaper. This depends crucially on the policies we adopt.
If properly managed, the global response to the climate crisis can increase productivity and growth
through several channels: by improving the allocation of resources, enhancing health conditions and
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stimulating technological progress.[ Under these conditions, we can place "...climate action at the heart
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of a new growth story, powered by investment, technology, policy and finance".[
Similarly, the green transition need not lead to higher inflation. In fact, appropriate public policies that
compress the demand for fossil fuels and stimulate the production of cheaper renewable energy sources
can help to contain inflationary pressures and may even help to reduce inflation compared with a
counterfactual situation that does not contain these policies. In reality, we are already using the lower cost
of renewable energy to cushion the impact of the fossil fuel shock on electricity prices.
The high levels of energy inflation currently being observed cannot be blamed on the green transition.
They are mainly the result of fossil fuel supply manipulation by Russia. If the green transition had
happened earlier, it would have been easier to progress towards our climate goals and we would have
reduced our exposure to the current energy shock and its inflationary consequences. The European
economy would have been more resilient to the ongoing energy crisis.
In order to act on climate change, policymakers need to take swift, bold and ambitious measures that
garner the support of citizens. This result can only be obtained by establishing a realistic and positive
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narrative on the green transition.[ In particular, we need to reassure citizens that, under well-designed
policies, the green transition would increase - not decrease - their job opportunities, the quality of their
lives and their purchasing power. The counterfactual situation would be worse, with the likely repetition of
the kind of crisis we are currently living through.
In shaping this narrative and taking policy action, a European approach is in our collective interest.
Common policies are more likely to deliver the necessary reduction in energy intensity, protect our energy
security and finance the investments required. Unity makes us stronger when facing shocks and gives us
greater influence in determining our climate and energy future.
1.
I would like to thank Ine Van Robays, Fabio Tamburrini and Jean-Francois Jamet for their help in preparing
this speech and Jakob Adolfsen, Juliette Desloires, Donata Faccia, Francesco Drudi, Alessandro
Giovannini, Miles Parker, Laura Parisi and Lucas ter Braak for their input and comments.
2.
Fossil fuels are coal, oil and natural gas. The United Nations Framework Convention on Climate Change
(UNFCCC) defines them as "buried combustible geologic deposits of organic materials, formed from
decayed plants and animals that have been converted to crude oil, coal, natural gas, or heavy oils by
exposure to heat and pressure in the earth's crust over hundreds of millions of years".
3.
The burning of coal, oil (including petrol) and natural gas to generate energy releases carbon which
oxidises into carbon dioxide in the atmosphere. By increasing the concentration of heat-trapping
greenhouse gases in the atmosphere, fossil fuels contribute to climate change.
4.
This number is based on an average of the three NGFS models used for the scenario analysis, with the
models indicating a required reduction in the share of fossil fuels to between 24 per cent and 39 per cent
for global primary energy consumption. For the EU, the average energy mix across the three NGFS
models is based on different definitions of the EU: EU28 for the REMIND-MAgPIE model, EU15 for the
Global Change Assessment Model and Western Europe for the MESSAGEix-GLOBIOM model. According
to the International Energy Agency (IEA), the share of global final energy consumption needs to decline to
just below 20 per cent by 2050. In net-zero scenarios, fossil fuel use does not fall to zero in 2050. Fossil
fuels are still projected to be used for producing non-energy goods, in plants with carbon capture, and in
sectors where emissions are especially difficult to reduce. All remaining emissions in 2050 are assumed to
be offset by negative emissions elsewhere.
5.
Current policies fall significantly short of reaching the Paris Agreement targets. Projections provided by the
Climate Action Tracker indicate that current policies are projected to result in about 2.7 °C warming above
pre-industrial levels. Nationally determined contributions (NDCs) as pledged by countries under the Paris
Agreement would limit warming to 2.4 °C. According to the NGFS, the current policies scenario leads to a
temperature increase exceeding 3 °C and severe and irreversible impacts.
6.
As Fatih Birol, Executive Director of the International Energy Agency (IEA), recently argued: "When people
misleadingly blame clean energy and climate policies for today's energy crisis they are [...] moving the
spotlight away from the real culprits - the gas supply crunch and Russia". Birol, F. (2022), " Three myths
about the global energy crisis ", Financial Times, September.
7.
Other factors played a role in ensuring the market remained tight (e.g. the significant reduction in France's
nuclear output, the lack of wind at the start of 2022 and the reduced hydroelectricity output due to the
drought over the summer), which magnified the effect on prices of the reduction in the supply of energy
from Russia.
8.
The decision by OPEC+ members to cut oil production in response to the pandemic and repeated
shortfalls in several oil producing countries played a significant role in pushing oil prices higher.
Maintenance works contributed to gas supply shortages before Russia's invasion of Ukraine. See Kuik, F.,
Adolfsen, J.F., Lis, E.M. and Meyler, A. (2022), " Energy price developments in and out of the COVID-19
pandemic - from commodity prices to consumer prices " and Adolfsen, J.F., Kuik, F., Lis, E.M. and Schuler,
T. (2022), " The impact of the war in Ukraine on euro area energy markets ", Economic Bulletin, Issue 4,
ECB.
9.
Sharma, R. (2021), "' Greenflation' threatens to derail climate change action ", Financial Times, August.
10.
While I focus here on risks related to the transition towards a greener economy (so-called transition risks),
physical risks that follow from climate events such as droughts, storms and floods can also shape price
dynamics. See Drudi, F. et al. (2021), " Climate change and monetary policy in the euro area ", Report of
the Eurosystem work stream on climate change and monetary policy, ECB Occasional Paper Series, No
271, September.
11.
This channel is also described in Schnabel, I. (2022), " A new age of energy inflation: climateflation,
fossilflation and greenflation ", speech at The ECB and its Watchers XXII Conference, March.
12.
If fossil fuel producers expect demand for fossil fuels to decline in the future due to the green transition,
they might extract as much fossil fuel reserves as they can in the near term when demand for their
commodity is still high. Higher production will in turn put downward pressure on fossil fuel prices.
13.
Carbon capture, utilisation and storage (CCUS) technologies remove carbon by capturing carbon dioxide
(CO2) from power generation or industrial facilities, or directly from the atmosphere, and compressing and
transporting it to be used or stored. CCUS deployment has been gaining momentum in recent years, but
according to the IEA, considerable progress is still needed to reach net-zero emissions by 2050.
14.
Own calculations based on Bernstein Research and S&P Global Mobility.
15.
The EU has a carbon pricing system known as the EU Emissions Trading System (ETS). It is a cap and
trade system launched in 2005, capping emissions from around 10,000 installations in electricity and heat
generation, a few manufacturing sectors and airlines operating between participating countries (EU
Member States plus Iceland, Liechtenstein and Norway). As of 2021 it covered around 40 per cent of
greenhouse gas emissions in the EU. A revision of the EU ETS is currently being negotiated. The aim is to
align it with the new EU climate target of reducing net greenhouse gas emissions by 55 per cent compared
with 1990 levels by 2030. The proposed revision would increase the pace of emissions reduction, end the
free allocation of allowances, extend the scope of the existing ETS to include shipping and set up a new
separate ETS for emissions in road transport and buildings. In addition to the EU ETS, some EU countries
(e.g. Finland and Germany) have explicit carbon taxes for the sectors covered by the EU ETS.
16.
Important progress in clean energy innovation has been made in recent years globally, such as research
and development in low-emission hydrogen-based steelmaking and lithium-free batteries. However, we
need to significantly increase innovation in green technologies to reach net-zero emissions by 2050.
International Energy Agency (2022), " Clean Energy Innovation ", September.
17.
According to the European Heat Pump Association (EHPA), the heat pump market grew by more than 34
per cent in 2021, surpassing 2 million units sold per year for the first time. Preliminary data from Germany
and Poland suggest that this growth has further accelerated in 2022. Heat pumps have the potential to
deliver large-scale reductions in carbon emissions from building heat. They use electricity to move heat
from outside air, water or ground to a building's interior and to heat water. This process is up to four times
more efficient than gas boilers. Furthermore, if the electricity used to drive the compressor is produced
from low-carbon sources, nearly all the useful heat becomes low-carbon.
18.
Source: International Renewable Energy Agency.
19.
Source: IEA's World Energy Out