Global air conditioning market ripe for cool wind of change

18 July 2023 6 min. read
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In the coming decades, the growing use of air conditioners in homes and offices around the world will be one of the top drivers of new electricity demand. Meeting climate change goals will however require the air cooling industry to disrupt its core and value chain.

Today, air conditioning systems account for around a fifth of the total electricity used in buildings around the world – or 10% of all global electricity consumption.

Yet as incomes and living standards improve in many developing countries, the growth in air conditioning demand in hotter regions is set to soar (with China and India at the forefront). The impact of climate change is another driver of air conditioning demand. According to estimates from the IEA, a 1-degree Celsius increase in the global average temperature by 2050 will lead to an average increase in cooling degree days of 25%.

Global air conditioning market ripe for cool wind of change

All in all, the IEA estimates that by 2050, the global stock of air conditioners in buildings will have grown to 5.6 billion (up from 1.8 billion today), in its slipstream leading to a tripling of global energy demand from air conditioners. More concretely, during this time frame, 10 air conditioners will be sold every second.

The impact on climate change

The rise of air conditioning demand is a major risk to climate change pathways. Current provision of air cooling is locked in a controversial cause-effect loop, where demand for cooling energy drives further increase in greenhouse gas (GHG) emissions and results in even more global warming – requiring further cooling.

Despite its large slice of energy consumption, air conditioning remains an undervalued part of the energy debate. “Growing electricity demand for air conditioning is one of the most critical blind spots in today’s energy debate,” said Fatih Birol, the Executive Director of the IEA.

So how can the environmental footprint of cooling systems be improved? One key measure is improving the energy efficiency of systems. For example, air conditioners sold in Japan and the European Union are typically 25% more efficient than those sold in the United States and China.

Global air conditioning market ripe for cool wind of change

The IEA advocates using mandatory energy performance standards, which according to the energy agency could cut the energy growth from air conditioning demand in half.

“Setting higher efficiency standards for cooling is one of the easiest steps governments can take to reduce the need for new power plants, and allow them at the same time to cut emissions and reduce costs,” said Birol.

Innovation is another factor. The pace of evolution of the air conditioning industry is alarmingly slow considering available technologies – industry products currently only reach 14% of their maximum theoretical efficiency limit. Making cooling systems more durable and sustainable meanwhile could also yield major efficiency benefits.

The concepts of circular economy and servitisation are other much cited contributors to the air conditioning challenge. “As some global best practices showcase, circular economy and servitisation are becoming key stepping stones for sustainable cooling allowing up to 40% energy savings on consumer side and up to 20% cost reduction on the production side,” said Gayane Grigoryan, a UAE-based independent strategy and innovation consultant.

According to market forces analysis by Grigoryan, the industry is set for a much-needed overhaul, with a plethora of trends, development and challenges converging to shake up the sector. She is not alone – a few years ago, billionaire entrepreneur Richard Branson described the $100+ billion air conditioning “particularly ripe for disruption” and slammed industry players for prioritising profits and fancy marketing above technological advancement.

The air conditioning’s disruption model

At the core of the disruption path are industry drivers, enablers, and barriers.

Global air conditioning market ripe for cool wind of change

“It is projected the world will become 1.5C warmer by 2030, and this will require an increase in cooling capacity by 22,2%,” explained Grigoryan. Closer to home, in places such as the UAE, economic growth and population growth will be major drivers of air conditioning demand.

“Concurrent with the drivers is the increasing recognition of cooling as a social imperative and mitigation of its negative impact on the environment,” she added. This reality is tied up with the mounting geopolitical pressure by international multilateral agreements, such as UN Sustainable Development Goals (SDGs), Paris Agreement, and in the UAE, the government’s Net-Zero Pathway.

In terms of enablers, Grigoryan points at advanced that can be reaped through digitisation in production and delivery, and smarter technology.

“Digitalisation will affect every part of the industry value chain with the end goal of making all involved stakeholders ‘borderless’. Digitalisation enables game changers such as supply automation, predictive analytics, consumption monitoring, infrastructure hyper-connectivity, and consumer data tracking.”

Global air conditioning market ripe for cool wind of change

From a technology perspective, one of the most prominent trends in the air cooling industry is the uptake of smart HVAC systems, which offer better controls, building automation capabilities, advanced monitoring systems, internet of things enabled temperature controls, and smart thermostats. “These technological trends will have a massive impact on the environmental footprint of the sector, as well as its economic fundamentals.”

“Smart technology and digitalisation will continue shaking the industry by becoming key enablers to overcome inertia of the barriers and create new value.”

Grigoryan continued, “the collective power of these forces brings in the wind of changes into the industry’s value creation, configuration and capture processes emphasising the need for sustainable, affordable cooling as a social imperative and synonym for comfortable living. At the same time, it puts a pressure on the industry providers to explore pathways for a more sustainable future.”