Why is the EU not going to achieve the energy saving target?

The EU 20-20-20 target has been the topic of many discussions. Since 2009 Member States have been working on the 20% increase in energy efficiency (EE), 20% reduction of CO2 emissions and 20% increase in the use of renewable energy resources, being the latter two binding targets at the Member State level, meanwhile the EE only became binding at the EU level in 2012. Nevertheless, the first one is giving everybody a hard time since it was only an indicative target with less political support.

Energy efficiency means using less energy input to produce the same work or activity, which is different from reduction in consumption, where both input and work decrease. In the context of the Energy Efficiency Directive (EED), EE can be achieved by saving energy because it is set in terms of energy use. Cost-effective measures are the key to have savings in the energy bills.

The EU set a first goal of 14% increase in EE in 2006 with the Energy Efficiency Action Plan (EEAP), before the 20-20-20 package in 2009, when it was acknowledged the need of further measures and a new Energy Efficiency Plan (EEP). To support the preparation of the new plan the European Commission did an Impact Assessment (IA) in 2011. The document states that in a business as usual scenario (BAS), the EU will achieve only 9% of energy efficiency. So, why are the efforts not enough? The IA has identified 3 main reasons:

1. Market failures

Energy prices do not consider the cost of negative externalities like pollution, GHG emissions and depletion of natural resources. Split incentives are another cause, which means that e.g. the person paying for energy renovation costs will not be the one benefiting from it. There are some cost-effective measures that have not mainstreamed due to the limited knowledge on the benefits and costs. We also need to consider missing and incomplete markets related to the lack of experts in the field and the infrastructure that do not allow the market to reach a maturity phase. Initial costs are a barrier as well, people want short-term payback and usually the profitability of the investment can be perceived in the long-term. This is reflected in the lack of knowledge of the financial institutions to support energy efficiency projects. Last but not least, we have harmful subsidies for fossil fuels, regulated prices for gas and electricity in some Member States that can provide distorted market signals, and negative incentives like the increase in taxes for buildings with higher values as a result of energy efficiency improvements.

2. Regulatory failures

The technical aspect of energy efficiency doesn’t affect consumers, but also policy makers at the moment of developing regulations, this is translated into lack of political visibility. With little understanding of politicians on this topic, comes the lack of a comprehensive policy framework including regulatory and support instruments, and a poor enforcement, specially at a country level where some of them lack the administrative capacity to work on their policies. Also the constant changes represent a risk for investment.

3. Other barriers

The rebound effect occurs when the savings target is not met. When you develop and sell energy efficiency appliances, the new technology can increase the use of these appliances, not allowing a decrease in the total energy consumption, or even worst, the consumption could be higher.

In the same IA document, the EU identifies the main sectors and the savings potential, and then evaluates for each sector different options to cover the gap. The result is the new policy mix as explained in the following graphic:

Source: Impact Assessment for the Energy Efficiency Plan 2011

According to the distribution of the final energy consumption in the EU, there are some savings potential in all sectors. Taking a look at the pie graph we can see that the third sector (residential and services) and the transport sector are the main consumers, but these two have the potential of achieving 21% of energy savings by 2020 with cost-effective measures. In the case of the industry sector, they have already done most of their savings due to their energy intensive nature; the remaining savings potential is 3%. It is important to consider the energy sector and the possibilities to improve the efficiency in energy transformation and the increased utilization of recoverable energy.

Source: Impact Assessment for the Energy Efficiency Plan 2011. Own elaboration.

Some of the potential savings can be addressed with existing policies like:

• The Energy Efficiency Action Plan (EEAP) of 2006
• Energy Performance of Buildings Directive (EPBD)
• Energy Services Directive (ESD)
• Combined Heat and Power Directive (CHP)

To cover the difference the IA goes through different policy alternatives:

“As a conclusion, it is proposed that the third policy alternative, a policy framework for Member States with EU support, is followed. This would recognize the importance of Member States in the implementation of energy savings policies, give the EU an important supporting role, and provide for clear objectives and indicators to follow the progress in the realization of the energy savings potential.”

To end with the exercise, the analysis goes further into the various types of policy instruments for each sector, considering voluntary, regulatory, financing, awareness and training schemes. This reveals the need of EU intervention for the sectors to comply with the savings target.

Eventually, in 2012 the Energy Efficiency Directive was jointly adopted by the EU Council and Parliament, which includes mandatory measures for energy efficiency. Some of the changes introduced are:

• Binding 20% target EU-wide
• Governments have to renovate the 3% of public buildings each year
• Big companies have to carry energy audits at least every 4 years
• Energy companies have to achieve energy savings equivalent to 1.5% of the annual energy sales to final customers.

The EED forces Member States to come up with indicative national energy efficiency targets, but will that be enough? Marta Toporek believes that:

“One of the most important measures in the EED package is the 1.5% annual savings target for energy companies, which has the potential to create significant savings and encourage energy efficiency financing. However, its impact could be weakened by too-flexible targets and measures. Other provisions – such as overhauling Europe’s public buildings to make them more energy efficient – also lack teeth. With no binding national energy saving targets and weak energy efficiency measures, the EU will struggle to cut the cost of energy imports, which stood at €488 billion in 2011, or 3.9% of GDP.”

In mid-2014 the EED will be reviewed, giving the European Commission the opportunity to push for an amendment and set binding targets at Member States level. The results of this review will also be a key element to the 2030 Climate and Energy Framework that is proposing not to set national binding targets for renewable energies anymore because it has not been cost-effective. This framework includes a new goal for greenhouse gas reduction as well, but in terms of EE it is still on hold until June before considering the next steps.

Hopefully Member States will not underestimate the importance of energy services and the key role of the utility companies to bridge the gap.

Comments Off on Why is the EU not going to achieve the energy saving target? / 25 Apr 2014 por yvonneroca
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