On thin ice: the political economy of cooling in a warming world

This methodology provides an ability to process information in a transparent and consistent manner, creating comparability between countries and allowing judgements to be made. The framing for each subcomponent is determined by an E3G judgement, based upon information collected in both internal and external testing. This aims to reflect the dominant trends and actors within a subcomponent. 

While climate risk is increasingly a driver of climate action, for the cooling sector, climate risk has been less significant in supporting increased efficiency and sustainability. Heat waves, though becoming more frequent and widespread globally, are dubbed a ‘silent killer’, receiving less attention than other climate impacts such as intensifying droughts, storms, and wildfire seasons. However, this is changing with calls for heatwaves to be assigned names to raise the profile of the increasing risk excess heat poses and cities appointing Heat Officers to manage these risks. Climate risk – with a growing heat threat to human health and productivity – is the most supportive condition though has not yet been leveraged to its full potential to drive action on access to sustainable cooling.  

Unmanaged, increasing cooling demand – both for thermal comfort and refrigeration – will increase the cost of energy transition and risks keeping fossil power online for longer than can be accommodated for limiting global warming to 1.5°C. Efficient cooling expedites and reduces the cost of the energy transition to net zero, particularly in those countries mapped below as cooling’s share of power demand increases. Even with years of evidence supporting the importance of energy efficiency to the energy transition, energy plans prioritize energy supply with less consideration of how cooling – as one example of demand side management – can reduce the cost and time to transition to net zero.

Cooling’s share of peak power demand is rising quickly. In China, by 2050, cooling is expected to contribute up to 50% and in Indonesia, the country that will drive more than half of air conditioning sales in Southeast Asia, total peak demand is expected to reach 260 GW up from 45 GW in 2020. An estimated 40% of this peak demand will come from space cooling. In Brazil, the rising  number of cooling degree days drives space cooling use, with estimates that AC will make up more than 20% of demand and over 35% of power  demand growth up to 2050. As governments and power companies try to meet the rising demand for peak electricity – including by increasing investment in coal and gas power generation – consumers will face rising electricity costs. Efficient cooling and passive, zero energy solutions can lower overall electricity demand and flatten the peaks, reducing the need for further investment at the cost of consumers and make energy more affordable for all. Without action to manage this pressure, cooling presents a challenge to the resilience and affordability of the energy system, made even more acute by heatwaves.

In 2018, the global market value of cooling equipment was larger than the market for solar PV panels and triple the value of wind turbines. This market, alongside renewables, is set to grow considerably. However, the nature of cooling means that this equipment is dispersed across numerous sectors and therefore has less prominence and geopolitical and trade attention than other technologies required for achieving decarbonization. Exports of air  conditioners are dominated by Asia. China alone accounts for 35% of global exports and Thailand accounts for 12%. Exports of refrigeration equipment are balanced between Asia and Europe. This concentration of manufacturing means that a handful of countries and corporations can dictate the trajectory and adoption of energy efficient cooling equipment. Across most major cooling markets, the average efficiency of AC sold today is less than half of what is typically available – and one third that of the best available technology. However, as Minimum Energy Performance Standards (MEPS) in importing countries that have and can enforce them ratchet upwards, innovations in super-efficient appliances and ultra-low global warming potential refrigerants will drive export competitiveness. Innovation must also extend beyond the mechanical equipment used for cooling. Passive building design, which deploys non-mechanical infrastructure to cool a building, will be essential for reducing the need for power hungry AC units – and require innovation in governance, regulatory and business models to be deliverable at scale. While the technologies needed for the sustainable cooling transition exist, mobilizing technology and innovation is a particularly challenging barrier for the cooling transition given the critical roles of multiple technologies and the range and fragmentation of actors involved in their supply, distribution, and take-up.

Finance – both public and private – is a large opportunity space that needs to play an essential role in achieving net-zero cooling for all. Development finance institutions (DFIs) are key providers of catalytic finance, technical assistance, and as standard setters can help deliver at the scale and speed necessary for achieving sustainable cooling for all whilst contributing to their alignment commitments to the Paris Agreement and the SDGs. Private sector investors, with assets under management representing several trillions of dollars globally, have a critical role in delivering net zero cooling for all. Aside from the market opportunities created by sustainable cooling, for institutional investors, it would also contribute to their regulatory requirements to stress test and report on climate change risk. Despite these opportunities, the finance sector is only beginning to recognize the significance of cooling. Leveraging this recognition to build momentum through the green recovery wave and mainstream sustainable cooling within policies and portfolios is a rare opportunity to accelerate action on cooling and support that action with private and public finance. 

Developing economies will be hit hard by increased exposure to heat including in terms of economic losses in heat–exposed sectors such as agriculture, fisheries, and construction. For example, in 2030, India is projected to lose up to USD 250 billion in labour hours due to heat exposure, putting at risk 4.5% of GDP. Across all regions, countries including Cambodia, Ghana, Panama, Qatar, and Spain, are expected to be significantly impacted by heat stress, both due to rising temperatures and the number of people employed in heat–exposed sectors. With the political importance often afforded to rural and coastal communities in the countries mapped below and growing focus on cold chain to build resilient and sustainable food systems, agriculture, fisheries, and land use considerations are an opportunity space. For example, to align with domestic policy in Brazil, cooling action can be framed as to the benefit of and to enhance the competitiveness of the Brazilian agribusiness industry while minimizing food loss and reducing pressure on land use change.

Cooling, in much of the world, is considered a luxury despite its critical role in economic development, productivity, and public wellbeing. While cooling is not yet widely considered a public good, health and air quality are core concerns of public interest and are also intimately connected with the cooling challenge. On health, vaccine delivery has taken centre-stage with effective vaccine rollout now a critical issue of public safety, government legitimacy and public support. Experts have identified significant barriers to a global vaccine  roll out – citing existing major challenges, particularly in low-income countries – including insufficient cold chain capacity, outdated and inefficient cold chain equipment, inadequate maintenance, lack of investment in skills and training, limited energy access, and a lack of financing and sustainable business models. On air quality, pollution is a core threat to the legitimacy and effectiveness of city governments in providing safe environments for their residents. Reduced energy demand for cooling will reduce the need for carbon  and air pollutant intensive energy generation. In addition, in cities in Brazil and China with comparatively low space cooling needs, AC is considered necessary because of poor air quality – often precluding the ability to cool spaces naturally. This was also the case in the US during the 2020 wildfire season with AC sales jumping as people sought out air purification solutions. 

As our food systems and living and working environments are challenged by Covid-19 and climate change, these too are becoming core public concerns. Cooling – both cold chains and comfort cooling – are critical to building and maintaining resilient food systems and creating safe environments. As governments are pressed to provide a safe climate for people, cooling can deliver both in terms of raising the bar on mitigation of and laying the groundwork for adaption to climate change. With an impending rise in temperatures and a lack of access to cooling, developing countries – especially those in the tropics – will be hit hardest in terms of health, productivity, and development goals. 

National cooling action plans, first published by China, India, Rwanda, and others, have gained prominence as a tool to organize government policy and resources – Minimum Energy Performance Standards, labels, building codes, innovation funding – around the cooling challenge. However, even in China and Thailand – the two largest producers of cooling equipment globally – cooling is not viewed with proportionate strategic importance, despite the growing political recognition of mitigating and adapting to climate change and risks including heat. Within energy ministries, sustainable cooling as a demand side management tool is often side-lined and not integrated into long-term energy planning. To gain traction outside of National Ozone Units and energy efficiency agencies, cooling and its benefits must be framed as strategic   to political priorities – competitiveness, energy security, food security, job creation, productivity, foreign direct investment – as well as a concrete and vital element of climate mitigation and adaptation. This framing – taken forward by tools such as national or city level cooling action plans – will enable more cohesive and effective action on cooling and can overcome tensions between supporting innovators and protecting laggards in the private sector. 

Cooling manufacturers have made significant contributions to cooling transition however, in some contexts, lag the ambition of government and civil society. This reluctance to lead on the cooling transition is rooted in the lack of strategic relevance cooling carries within the technology and innovation sphere. However, this dynamic could be shifted if sustainable cooling is positioned to complement the bottom line of business, the development priorities of governments, and a push for export and trade opportunities. Expanding the view of cooling beyond appliances and minimum energy performance standards is crucial to consider the wider ecosystem of private sector actors that impact cooling, for example, architects, the construction industry, and building developers. For the race to zero in the cooling sector to be realized, passive solutions and businesses engaged in passive design will need to be brought to the table.

Public discourse and consumer choice are largely positive on climate action but often do not carry as much weight as government and business in national discourse with shrinking space for civil society. Sustainable cooling as a necessity for health, productivity, and economic stability has not yet emerged as a key point in climate and net-zero public debate. Civil society actors could be more fully activated on the sustainable cooling transition by aligning it with their specific priorities and the role of cooling in achieving them. While cooling is largely seen as an appliance and consumer goods issue, reframing cooling as a public service – delivered through urban environments, buildings, mobility, and rural infrastructure – and as a strategic food and health sector component can elevate its contribution to core public good discussions. In addition, ‘cooling as individual appliance’ can be repositioned as ‘cooling as infrastructure’: given the lifespan of most cooling equipment exceeds 10 years, individual investments in millions of low-efficiency appliances now will on aggregate amount to a stranded infrastructure asset that will need to be replaced, incurring avoidable costs and complex distributional impacts.

Though an opportunity space and important piece of the climate transition, cooling – as both a climate and economic issue – has not yet been integrated as a foreign policy priority. Given cooling’s significance for trade – in terms of appliances, components and with cold chain an enabler of food and pharmaceutical exports and imports – there is an opportunity to position cooling as strategically significant to the ‘big’ trade issues, for example, competitiveness of manufacturing, productivity, food security and export dominance. Global AC exports (by value) in 2018 were concentrated in Asia, a region that has also seen the biggest rise in exports since 2008. China alone accounts for 35% of global AC exports and Thailand accounts for 12%. While AC exports volumes are largest in Asia, AC imports are concentrated in Europe, Asia, and North America with the latter two seeing a large increase in imports since 2008. Tariffs also impact trade and high tariffs could inhibit the uptake of more efficient AC because of higher upfront costs, even if life–cycle costs are lower. Wider trade dynamics have significant impacts for the evolution of the cooling industry globally. For example, the production of semiconductors – computer chips – which are a core component of cooling appliances, has been a key issue in trade tensions between China and the USA as technology giants. China is prioritizing self-reliance, ramping up production to localize supply with Gree Electric Appliances and Midea Group stepping up R&D on semi-conductors.

While more than 115 countries have ratified the Kigali Amendment to the Montreal Protocol and over 45 countries have included cooling in their enhanced Nationally Determined Contribution, many of the largest players – in terms of cooling growth and manufacturing – have been noticeably absent. Of the five countries mapped, only Mexico has ratified the Kigali Amendment [as of May 2021]. Signalling a recent shift in the significance of cooling in setting and meeting ambitious climate mitigation targets and adaptation goals, both the USA and China – two of the largest producers and users of cooling equipment globally – have committed to implementing the Kigali Amendment to the Montreal Protocol. Bridging climate diplomacy and foreign policy, ensuring convergence towards high energy efficiency standards in free trade agreements can be complementary to domestic and international efforts on Minimum Energy Performance Standards. However, joining up trade negotiations with forums that establish energy efficiency standards is challenging and requires international collaboration. Initiatives like the BRI Green Cooling Initiative, CLASP and Efficiency For All can help bridge this gap, by supporting the formulation of markets for energy efficient appliances. Beyond the necessary improvements in mechanical cooling, harnessing foreign policy and diplomatic forces to drive the diffusion of passive solutions is more challenging given the complexity of building standards and urban planning mechanisms. Philanthropy as well as bilateral and multilateral development support have a key role to play in supporting the adoption of passive cooling solutions at scale to capture climate, health, social, and economic benefits. The UN Environment Programme coordinated Cool Coalition – through topical working groups – offers a multilateral, cross-sectoral approaches to supporting passive cooling solutions as a first principle, encouraging whole of system approaches to sustainable cooling.