Questions and answers on the Energy Efficiency Communication
European Commission - MEMO/14/494 23/07/2014
Brussels, 23 July 2014
Questions and answers on the Energy Efficiency Communication
What is the Energy Efficiency Communication?
The Communication on “Energy Efficiency and its contribution to energy security and the 2030 Framework for climate and energy policy” (onwards, the Energy Efficiency Communication) does two things:
Why is it being presented now?
The European Council is scheduled to take a final decision on the new climate and energy policy framework at its meeting on 23/24 October 2014. Therefore, it is crucial that the Commission puts forward its vision on energy efficiency now. By proposing an energy saving target of 30% for 2030, and assessing whether the EU is likely to reach its 2020 target, the Communication provides the Heads of State or Government with all the relevant information to discuss and set a comprehensive EU energy and climate policy framework for 2030.
Moreover, a clear policy framework providing predictability and reduced regulatory risk beyond 2020 is essential for investors. It will stimulate research and development in the area of energy efficiency and low-carbon technologies.
What progress has been made towards achieving the 20% target for 2020?
The Energy Efficiency Communication indicates that, between 1995 and 2013, the EU's energy consumption was maintained at roughly the same level while its GDP grew by 34%. This shows that the EU has managed to decouple economic growth from energy consumption through increased energy efficiency.
Based on the analysis of Member States' actions and additional forecasts, the EU will achieve energy savings of around 18-19% in 2020.
If all Member States fully implement existing legislation, the EU will meet the 20% energy saving target by 20% without additional measures.
What is the EU doing to ensure that the 2020 target is met?
The EU has put in place a broad legislative framework to achieve the indicative 20% energy saving target.
The centrepiece is the Energy Efficiency Directive. When an assessment showed that only half of the target would be reached by 2020, the Commission proposed in 2011 the Energy Efficiency Directive, which provides for the establishment of indicative national energy efficiency targets for 2020. The Directive incentivises changes in the business model of energy service companies by addressing some of the different market barriers that inhibit uptake of the most cost-effective tools. Furthermore, it requires Member States to promote financing facilities for energy efficiency, it foresees energy audits for large companies and it sets minimum targets for the renovation of buildings occupied by the central governments (for further information see MEMO/11/440).
This is complemented by several other pieces of legislation to make up the current energy efficiency framework:
Partly thanks to these policies, the target of 20% is now expected to be met if the relevant legislation is properly implemented. The European Commission will act decisively to ensure that this is the case.
And what are Member States doing?
As for the Energy Efficiency Directive, various actions to implement it are underway in Member States. For example, in Germany, the publicly-owned bank KfW provides preferential loans for energy efficiency retrofits of existing buildings and for the construction of new energy efficient buildings. In France, the new draft national law provides for numerous concrete actions, in particular for buildings. Among the measures is a fiscal reduction of up to 30% of the cost of energy efficiency renovations, from September 2014 onwards. The number of Member States applying energy efficiency obligation schemes for utilities is expected to rise from five to sixteen. In Poland, the relevant provisions of the EED will be entirely implemented through such a system.
The EED promotes programmes to raise awareness among households about the benefits of energy audits through appropriate advice services. In the UK a specialised department helps in designing policies on the basis of research on how consumer decisions about energy efficiency can be stimulated ("behavioural economics").
As regards the Energy Performance of Buildings Directive, in Ireland, the Sustainable Energy Authority has upgraded over 100.000 homes since 2009 through its Home Energy Saving Scheme. This has resulted in a net benefit for society of between 106 and 518 million Euro, has supported 3000 full-time jobs and has saved households an average of 450 Euro per year. In France, the reallocation of 4% European Regional Development Fund (ERDF) funding to social housing will lead to EUR 320 million ERDF finance triggering investment of up to EUR 2.2 billion, creating 31.000 jobs and resulting in a 40% average decrease of heating costs of affected households.
Where do the Member States stand with the implementation of the energy efficiency legislation?
Despite some good progress, currently only Cyprus, Denmark, Italy, Malta, and Sweden have so far declared full transposition of the Energy Efficiency Directive in their respective national legislation. Other Member States are expected to declare this shortly, however, as the 5 June 2014 deadline has just passed. The Commission has just launched infringement proceedings against those Member States which have not yet fully transposed the Directive.
Since the adoption of the Energy Efficiency Directive in 2012, the Commission has been working very closely with the Member States to ensure that it is properly implemented. If all EU Countries actively contribute, the 2020 target will be reached; if they do not, it is expected to be missed by 1 to 2 percentage points.
Moreover, two years after the legal deadline, nine Member States (Austria, Belgium, Czech Republic, Finland, Italy, Netherlands, Poland, Slovenia and Croatia) have still not fully transposed the related Energy Performance of Buildings Directive.
Only a handful of Member States are carrying out proper market surveillance over products covered by energy efficiency requirements.
How does the Commission ensure that Member States transpose the Energy Efficiency Directive and the Energy Performance of Buildings Directive?
On 22 July 2014 (http://ec.europa.eu/eu_law/infringements/infringements_decisions_en.htm), the Commission launched infringement proceedings and sent letters of formal notice to the 24 Member States which had not yet notified sufficient measures for fully transposing the Energy Efficiency Directive into their national laws at that moment.
Moreover, the Commission has already referred Austria, Belgium, Finland and Poland to the Court for failure to fully transpose the Energy Performance of Buildings Directive and issued reasoned opinions against four Member States.
What are the benefits of energy efficiency today?
The Energy Efficiency Communication assesses the benefits of the implementation of energy efficiency on the economy. The highlighted benefits include:
Why is a target being proposed for 2030, and why is it 30%??
Improving the energy efficiency of the economy brings many benefits: it contributes to security of supply, spurs investments in new technologies and therefore contributes to economic growth and the creation of new jobs. Moreover, efforts to increase energy efficiency help to keep the energy bills in check: EU households spend on average 6.4% of their disposal income on energy, about two-thirds for heating and one-third for other purposes.
Of course, it requires upfront investments and there are some costs associated to it. For example, with 25% energy savings, the 2030 framework is estimated to increase the annual average cost of the energy system in the EU by approximately €2 billion per annum in comparison to the business as usual scenario (i.e. with no additional energy efficiency measures, taking into account that some provisions of the EED will be phased out in 2020 unless explicitly prolonged). A target of 30% raises the cost by €22 billion compared to the business as usual scenario.
By setting a target of 30% energy savings by 2030 compared to projections, the EU would commit to not exceeding 1307 Mtoe energy consumption in that year. The proposed range reflects the expected costs and benefits and aims to strike the optimal balance.
Why is there an EU target?
The current framework, which is based on an indicative EU-level target and a mix of binding EU measures and national action including indicative targets set by Member States, has proved to be effective in driving strong progress by the Member States.
Energy efficiency should become an integral part of the governance framework proposed in the “2030” communication (http://ec.europa.eu/energy/2030_en.htm).
The 2030 energy saving target is therefore completing the EU climate and energy objective to reduce its greenhouse gas (GHG) emissions by 80-95% below 1990 levels by 2050. The new framework constitutes the next step towards reaching the 2050 goal, and will be the EU's contribution to facilitate a global climate agreement at the end of 2015.
So what's in it for me? What will the benefits of increased energy efficiency be in 2030?
First of all, it will lower energy bills by €53 billion annually by 2030.
In addition, reaching the proposed energy saving target will produce numerous other benefits:
Shouldn't we be more ambitious given the benefits?
We are ambitious. But we need to be clear that targets have consequences and that their achievement involves costs.
In comparison to the business as usual scenario (i.e. with no additional energy efficiency measures taken and taking into account that some provisions of the Energy Efficiency Directive will be phased out in 2020 unless explicitly prolonged), a 25% energy savings target would increase costs of the energy system by approximately €2 billion per annum by 2030. A target of 30% raises the additional cost by €22 billion compared to the business as usual scenario.
What investment will be necessary to reach the target?
It is estimated that reaching the 30% target by 2030 will require additional investments in energy efficiency of € 89 billion annually.
These will have to be primarily funded by private investments.
Public money, including the European Structural and Investment funds will have to be used to leverage these private investments.
Crucially, the right regulatory framework will be needed to underpin them. To ensure the necessary level of investment, the business case for energy efficiency has to be made clear for investors by creating an adequate framework. This will entail a number of actions such as:
The Commission will strengthen cooperation with Member States, investors and financial institutions including the European Investment Bank to increase the level of knowledge about existing financing mechanisms for energy efficiency beyond grant funding. This will involve measuring their performance and impact, including on issues related to risk-assessment, valuation, and standardisation.
The Commission will also continue its co-operation with financial institutions and Member States on the further development or roll-out of appropriate financial instruments and initiatives which reinforce the availability of liquidity for energy efficiency measures.
What are the next steps?
As regards the proposed 30% energy saving target for 2030, the European Council in October is expected to decide on it, together with the CO2 reduction and renewables targets in the context of the 2030 Framework for climate and energy policies.
Energy efficiency should become an integral part of the governance framework proposed in the “2030” communication which would streamline current monitoring and reporting requirements. Energy efficiency would, therefore, be a key component of Member States' national plans for competitive, secure, and sustainable energy that would bring greater coherence to national and regional climate and energy policies and measures.
On the basis of the national plans it receives and using its own analyses, the Commission will monitor the national plans and assess the prospects for attainment of national/EU climate and energy targets (including that for energy efficiency), the outlook for the EU's energy dependence and the effective functioning of the internal energy market, on the basis of appropriate indicators.
In this context, the Commission will explore the use of additional indicators, to express and monitor progress towards the energy efficiency target, such as energy intensity, which better take account of underlying changes in and projections for GDP and population growth. Furthermore, the Commission will review progress on energy efficiency in 2017 taking these elements into account. Ultimately, the governance process will provide the framework within which to evaluate the effectiveness of national and EU policies linked to the 2030 climate and energy objectives.
The Commission will continue to support Member States in their national efforts on energy savings through policy measures at European level. Several important pieces of legislation will provide an opportunity to do so, notably:
What are the financial instruments available to bridge to 2030?
Substantial EU funds are available to implement energy efficiency measures in the period before 2020. The use of these funds is already a key discussion point with the Member States in the context of reaching an overall agreement on the 2030 Framework and achieving a fair and equitable effort distribution.
In the EU budget for the 2014-2020 Multiannual Financial Framework, funding for energy efficiency has significantly increased. A minimum of €38 billion will be available for low-carbon economy investments under the European Structural and Investment (ESI) Funds from 2014 to 2020 – this sum will be multiplied by national and regional co-funding and by attracting private capital.
In addition, Horizon 2020 (H2020) and the European Structural and Investment (ESI) Funds can be tapped in order to spur innovation that benefits energy efficiency. In the period 2014-2020 some two billion Euro are foreseen, particularly through the Energy Efficiency focus of the H2020 Societal Challenge on 'Secure, Clean and Efficient Energy'. Moreover, Public-private partnerships on "Energy Efficient Buildings", on "Factories of the Future" and for a "Sustainable Process Industry through Resource and Energy Efficiency (SPIRE)" will bring in further investments.
In recent years, the EU has been developing pilot schemes of innovative financing instruments, such as the European Energy Efficiency Fund ("EEE F"), the Global Energy Efficiency and Renewable Energy Fund (“GEEREF”), and Private Finance for Energy Efficiency ("PF4EE") under the Life Programme. These schemes can be used directly or replicated at the Member State level.
Building on the success of previous projects such as the Joint European Support for Sustainable Investment in City Areas (JESSICA), the use of financial instruments in the ESI Funds for 2014-2020 is strongly encouraged. "Renovation loans" for instance will provide better opportunities for Member States to ensure high leverage of ESI funds.
For further information
See also IP/14/856 of 23 July 2014