Reducing the use of fossil energy for heating and cooling remains one of the biggest challenges of the energy transition. Heating and cooling needs – including those for space heating and cooling in buildings, domestic hot water, cooking, industrial
process heat, and agriculture – account for the largest share of global final energy consumption (Figure 1.1) and more than 40% of global energy-related carbon dioxide (CO2) emissions (IEA, 2019a). Transforming the energy uses for heating and cooling is
a crucial step toward meeting global goals for decarbonisation, among other key environmental and development objectives. Improvements in energy efficiency are one important strategy for slowing demand growth and mitigating the sector’s negative effects on health, the economy and the environment. Energy efficiency measures such as building codes and appliance standards often are cost-effective options for decreasing the thermal demand of buildings and industrial processes. Lowering energy demand addresses only part of the problem, however, and is not enough by itself to reduce greenhouse gas (GHG) emissions and meet the goals for sustainable development and access to energy. Alongside efficiency, renewable energy will play a fundamental role in decarbonising the energy used for heating and cooling. Renewables have grown rapidly in recent years, having repeatedly broken annual records for newly installed power capacity and continually increasing their share in electricity generation (IRENA, n.d.). In the early stages of the Covid-19 crisis, generation of renewable electricity continued its growth, reaching record penetration in some countries despite an overall drop in electricity demand. However, modern renewable
energy1 still supplies only a small share of final demand, mainly in the power sector.
Despite its potential for advancing the energy transition, the use of energy for heating and cooling has received relatively little attention from policy makers. The objective of this report is to identify and assess policy instruments capable of addressing key barriers to the expanded use of renewable energy to meet heating and cooling needs around the world.

Most of the energy used for heating and cooling continues to be produced from fossil fuels (Figure 1.2). In 2019, fossil fuels and non-renewable electricity met more than 77% of heating and cooling demand, with the traditional use of biomass meeting 11.9% (IEA, 2020a, 2020b). In recent years, the use of modern renewables to meet heating and cooling needs has remained limited to some 10% of global demand. The direct use of modern renewables – including sustainable bioenergy, solar thermal and geothermal heat – met 8% of demand for heat and cooling, with renewable electricity accounting for an additional 2% (IEA, 2019c).4 Electricity supplied most of the cooling needs through residential air conditioning appliances and district cooling systems. The weight of heating and cooling needs in final energy demand means that the rapid decarbonisation of the energy used to meet those needs is critical for the achievement of climate, environmental and sustainable development goals. Despite this reality, energy use for heating and cooling has continued to rise and remains largely based on fossil fuels. As a result of the Covid-19 crisis, renewable heat consumption for 2020
is expected to show a drop of 0.4% from its 2019 level, as industrial and commercial activity has been dramatically reduced (IEA, 2020d). The need is urgent, then, to reduce and even reverse growth in energy demand for heating and cooling, while rapidly scaling up the deployment of renewables. Although the climate crisis is the most commonly cited argument for deploying renewable energy for heating and cooling, there are many other complementary reasons to do so.

THE BENEFITS OF RENEWABLES IN HEATING AND COOLING
A number of objectives are driving the transformation of heating and cooling. These include efforts to reduce air pollution and its health impacts, decrease GHG emissions to meet climate goals, improve energy access and address energy poverty, and increase energy security (Figure 1.3). Renewables also help maximise socio-economic benefits, which leads to local economic development and jobs (REN21, 2019). While the relative
importance of the drivers is the convergence and mutual benefit of such diverse objectives underlines the far-reaching potential of renewables in heating and cooling.

This can be coupled with the engagement of research institutes to lower technology risks. The Indian state of Gujarat, for instance, is using public funds to develop the country’s first district cooling system in its International Finance Tec City, a business district on the outskirts of Ahmedabad. The purpose of the project is to show both public and private actors the high potential and technical viability of district cooling in India and is expected to markedly increase investor confidence in district cooling nationwide. Table 8.1 summarises barriers and policies related to the deployment of district heating and cooling networks.