Columnists: Peter Bach, eceee President

Published on: 15 Dec 2014

Why not share more of the big European opportunity?

Increasingly we are realising that we need to reduce energy consumption through massive energy efficiency improvements. There are still big energy efficiency potentials in all sectors and end-uses. Realisation of this potential is necessary to reduce the emissions of greenhouse gases (GHG) and to improve energy security. But energy efficiency also has many other benefits. This is clearly shown in IEA’s recent study “Capturing the Multiple Benefits of Energy Efficiency” and in the Commission’s July Impact Assessment on Energy Efficiency and its contribution to energy security and the 2030 Framework for climate and energy policy.

For all of us who are involved in promoting energy efficiency in the EU, the Council decision in October therefore was very disappointing. The European Council agreed to a non-binding EU-target for an energy efficiency increase of at least 27% compared to a baseline, to be reviewed by 2020, having in mind an EU level of 30% for 2030.

However, nothing prevents Member States for going beyond the weak 27% ambition. And, more importantly, there are large benefits to be reaped by doing this.

One thing is clear to me and to all of us who have analysed this summer’s Commission impact analysis on the proposed EU energy efficiency targets: Energy efficiency is an opportunity for the EU . Energy efficiency has many positive benefits, and there is very god reason going for a higher energy efficiency target than the 27% set by the Council.

eceee today published an analysis of the impact assessment . See also press release . Many energy efficiency advocates criticised the impact assessment, mainly on the grounds that it used far too high discount rates, thus making the energy efficiency potentials appear smaller and less profitable than they are. It is clear that the Commission chose a conservative approach here, but even if we accept the discount rates and other conservative assumptions, the impact assessment in my view shows some very impressive and promising impacts of energy efficiency improvements.

The Commission’s impact assessment checked the scenarios against a number of parameters such as total primary energy savings, GHG reductions, jobs, GDP and energy security. Let’s look at a few of them here:

Reducing final and primary energy consumption is in my view one of the most important objectives since that will make it easier to meet other goals. It is clear that the more ambitious our energy efficiency ambitions are, the more we will manage to reduce primary energy consumption, and this goes hand in hand with greenhouse gas (GHG) reductions .

Europe’s energy security is also closely linked to our primary energy consumption. There are of course many ways to define energy security. In the actual situation reduction of natural gas imports is most important. Each of the energy efficiency scenarios would drastically reduce gas imports, and the most ambitious one of the scenarios – EE40 – is the scenario that provides the largest reduction. With a 40% efficiency target we will cut gas imports by 40 percent compared to 2010! This is equal to the share of EU’s gas import from Russia.

This brings us to the question of costs. Can we afford to improve energy efficiency by 35% or 40%, and by this secure improved energy security and a robust, long-term reduction of GHG emissions?

The total system cost differs marginally between the scenarios and with the very high discount rate used, the cost is still only a few percent higher in the most ambitious one (EE40) compared to the least ambitious scenario. Average electricity prices would decrease up to EE35 and will only be marginally higher in EE40. I believe these slightly increased costs – and we are really talking of marginal changes here – can be seen as investments that bring us a lot of additional benefits.

Take job creation and GDP growth . Two macro-economic models show different impacts of the EE40 and the other energy efficiency scenarios. By applying a macro-econometric model based on a post-Keynesian framework (E3ME), GDP would grow by almost 4.5% by 2030 in addition to the reference scenario. With the other model – a general equilibrium model that draws on neoclassical economic theory assuming perfect information and rational actors (GEM-E3) – GDP would be approximately 1.2% lower in 2030.

The difference is about 5.5% by 2030 or 0.4%/year. Is this much? Assuming the equilibrium model is correct, the reduction in GDP would be small: less than 0.1% a year.  Assuming the post-Keynesian model is correct, the benefits are almost four times larger. I believe it is fair to argue that the risks are small but the chances we get higher GDP growth are big.

Encouragingly enough, both models show that we create more jobs in Europe, the more ambitious we get on energy efficiency. There will be some losers, most likely employees in the energy supply business. But many more jobs, and many more local jobs, will be created in the businesses that benefit from energy efficiency policies.

We must ask ourselves where we go now. The Council decision should be treated as the floor, not the ceiling. It says that the ambitions should be at least 27%. There is now a risk that Member States see this as a burden and thus choose just to do minimum efforts to reach the 27% target.

But we must remember that this is a great opportunity and we risk missing much of it. We need to find ways to catch more of the benefits of going beyond the 27% target – for the benefits of climate protection, energy security, job creation and economic prosperity.

I would encourage the Commission to stand up for its impact assessment, perhaps even revisit it with more realistic assumptions. They should then come up with analysis and recommendations to member states that are determined to seize this opportunity of great energy efficiency investments. I also encourage Member States to pick up this challenge.

The decision of the European Council on energy efficiency was disappointing, but we shall not give up. There is a need for a strong focus on ambitious implementation of existing legislation and there is a need for new common EU initiatives including updating the existing energy efficiency directives. We shall also continue to push for ambitious binding targets for energy efficiency. It has to be a part of the review in 2020. Energy efficiency simply has too many positive benefits!

See press release: New eceee analysis: More ambitious energy efficiency targets good for climate, jobs, energy security and the economy .

See eceee's 2030 policy framework pages

New ecee analysis: More ambitious energy efficiency targets good for climate, jobs, energy security and the economy. Download report ( pdf )

The views expressed in this column are those of the columnist and do not necessarily reflect the views of eceee or any of its members.

Other columns by Peter Bach