Columnists: Brook Riley, Rockwool International

Published at: 15 Mar 2014

Commission 'fixes' data to rubbish 2030 efficiency scenarios

National governments look set to agree to the European Commission's proposal for a 40% emissions reduction target by 2030. Few countries are even considering higher cuts. Clear evidence that 40% spells disaster for the climate counts for little against concerns for GDP.

But what if the 40% emissions-only approach is not the best economic option? What if the Commission’s background analysis on the 2030 dossier had been manipulated to discourage higher targets for renewables and energy efficiency? It turns out this is exactly what happened.

Look at this extract from page 76 (Table 14) of the Commission’s impact assessment for the 2030 dossier. The key information is in the bottom row ‘Total System Costs as % of GDP increase compared to Reference [the business as usual projections]’.

You’ll notice that the 40% emissions-only scenario – ‘GHG40’ or ‘carbon values’ in Commission jargon – appears much closer to the reference scenario than the most ambitious scenario, ‘GHG45 EE RES35’ (45% emissions cuts, 35% renewables and binding legislation for energy efficiency). Total energy system costs increase by just 0.01% in 2030 in ‘GHG40’ compared to a whopping 0.24% in ‘GHG45 EE RES 35’. That’s far more expensive. But it is all spin designed to make the emissions-only approach look most attractive.

It turns out the Commission assumed, for its modeling purposes, that the carbon price in the Emissions Trading System (ETS) influences decisions taken across the whole economy . In other words, the carbon price is assumed to be just as influential in the power and industry sectors (which are in the ETS) as in the farming and household sectors (which aren’t).

This has ludicrous implications in a real-world situation. For example, it’s hardly likely that, solely on the basis of the ETS price, a farmer will replace his herd of bullocks with more efficient meat producers such as pigs and chickens. Nor will you and I get up in the morning, look at the ETS price, and decide to retrofit our apartments with thicker insulation. That’s plain barmy.

But that’s exactly what the emissions-only advocates in the Commission assume a higher ETS price will do. By contrast, the Commission’s more ambitious ‘GHG45 EE RES 35’ scenario relies on specific policies being needed across the economy to deliver results. That makes it a lot more realistic. But because it uses multiple policies, it shows up on the modeling as being much more expensive than the ETS driven ‘GHG40’. This modeling guaranteed high-level backing for the supposedly cheaper emissions-only approach from Barroso and other commissioners.

A second trick was to assume very high costs for energy efficiency and savings. This was done through the ‘discount rates’. A high rate reflects high risk and high costs (and a requirement on the part of the investor to make high profits). It therefore scores badly in the Commission’s ‘cost-is-everything’ method of selecting the optimal 2030 scenario.

Here are the discount rates used by the Commission:

  • Power sector: 9%
  • Industry: 12%
  • Public sector: 8%
  • Tertiary: about 11%
  • Private buildings (most of the EU’s energy savings potential is in buildings): 17.5%

17.5% is outrageously high. Households expect a much lower return on investment than power companies or industries. What’s more, the decision to renovate a house is often made for comfort, taste or other personal reasons; not pure financial considerations. Yet the discount rate used by the Commission assumes precisely the opposite.

Look again at table 14. The Commission compounded the problem by working out the energy system costs – and therefore the attractiveness of each scenario – by assuming the same discount rate over the whole 2011-2030 period. This means the gap between efficiency (17.5%) and power sector (9%), which was already very significant in 2011, becomes colossal in 2030. The result: scenarios with high amounts of energy efficiency had no chance of competing with the emissions-only ‘GHG40’ scenario.

What’s most scandalous is that the Commission itself had carried out analysis showing that 17.5% was too high. Ambitious targets for energy efficiency would mean greater involvement of Energy Service Companies (ESCOs help households by raising awareness of the benefits, providing up-front financing, helping resolve bureaucratic issues, etc). This, according to the Commission, would bring the discount rate from 17.5% down to below 10%.

The two following extracts are from pages 74 and 165 of the 2030 impact assessment.

But emissions-only advocates in the Commission fought hard to block a revision of the discount value when working out the energy system costs. And they won. Look at this other extract from page 74:

This is hugely important information. It demolishes the case for the emissions-only approach – and proves ambitious targets for energy efficiency and renewables are not the budget killers they're made out to be. On the contrary, they're the most effective and realistic way to deliver high emissions cuts, reduce energy import dependency, and cut costs.

The March 20-21 EU Summit will include a discussion on 2030. For heads of state, costs are the most important factor. That’s why they’re currently leaning towards the 40% emissions-only approach. But we now know ETS advocates in the Commission used biased assumptions to ‘justify’ low ambition and side-line energy efficiency and renewables. It's definitely time to rethink the options and base decisions about Europe’s energy future on reality, not twisted facts.

Other columns by Brook Riley