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European Commissioner for Environment
"Think European – Act Regional"
FEDARENE's 20th Anniversary Keynote Speech
Committee of the Regions, Brussels, 13 September 2010
Ladies and Gentlemen
In a year which has seen the birth of the EU2020 strategy, it seems fitting that we are here to celebrate 20 years of the European Federation.
I am honoured to have been invited to speak at such a major event.
I know that you have already heard from my Commissioner colleague, Connie Hedegaard, this morning. I approach the issue of energy Efficiency from a slightly different but not contradictory angle, as you might expect. I believe that it is essential for economic and environmental goals, as well as the achievement of our climate targets.
Studies looking at the causes of environmental damage across the life-cycle of products and services always identify the combustion of fossil fuels as one of the two most important drivers of environmental damage (the other is provision of food and drink). This is not just limited to the climate impacts: think of air quality and all the consequential impacts, for example on acidification of soils and human health.
We also spend a lot of money buying energy from elsewhere. Each year the EU sends an estimated €350 billion euros of our wealth away to the countries that supply us with energy imports.
And it isn't just about saving money by spending less. Energy efficiency action would generate jobs in the EU. It is the largest area of job creation in the transition to a sustainable economy – particularly from renovation of buildings, sustainable construction and the provision of energy services.
We can not reach our goals for decarbonisation of our economies without energy efficiency. We have a target of at least 80% decarbonisation by 2050. Success depends on reductions in energy demand. International Energy Agency pathways point to energy efficiency being the biggest single contributor to carbon reductions – accounting for more than 50% of GHG reductions1
And as your membership knows, action by regional players is an essential part of improving energy efficiency. Actions committed to under the Covenant of Mayors are clearly very important. Regional actors are often in a position to be more knowledgeable and active than national policymakers. You can be more innovative, and your policy actions spread as best practice to other regions. You are often in control of the tools that make a difference, with closer links to bodies responsible for spatial planning and control over procurement.
Many of you also have joint roles for energy and environment. This is also essential. Given the role of energy in the economy and on the environment, policy and actions which do not look at the interlinkages between those sectors are likely to be less successful.
This is why energy efficiency is part of the Commission's policy goals on Resource Efficiency. Resource Efficiency policy is the set of policies that makes the links between areas of different resource use, including energy. It looks at the systems of consumption and production and how innovation can be promoted by shaping the market to meet future needs.
Review of the current European policy on energy efficiency suggests that it will not deliver the full 20% target for energy efficiency that we have set. And in fact, there may well be significant scope for regions, some Member States and the EU as a whole to make significantly greater cost-effective energy savings, beyond the 20%. The signatories of the Covenant of Mayors clearly think so.
There is scope for more effective policy. There are many areas where more is needed. There are 3 which are not sufficiently discussed and are crucial to effective progress:
These are based on a common approach – that an effective policy must tackle all the drivers of the problem at the same time if each of our interventions is to be effective.
An example is the rebound effect. Increasing energy efficiency allows more to be produced for a given amount of energy – so it makes energy more useful. This is clearly a good result. But we know that it also increases the attractiveness of using energy and so offsets some of the technological energy savings. The extent to which this negates energy efficiency is a matter of debate. It differs between types of energy use. For the economy as a whole it is estimated to be between 20% and 80% of the saving.
So if we only look at technical solutions, our energy efficiency policy will be less effective. We must look at the economic system as a whole, both to tackle the rebound effect and make use of the full range of effective instruments that we have for making energy savings. Policy must therefore break out of political silos.
Firstly, changes in price are a key influence on energy demand, perhaps the most significant tool for innovation and long-term energy efficiency. Yet prices and our fiscal system are often not aligned with our policy goals here.
This is the time to make sure that our policy does not conflict with our goals and distort the market signals in the wrong direction. This is recognised. All EU nations agreed in the G-20 meeting in Pittsburgh last year to the medium term phase out of inefficient fossil fuel subsidies. They agreed again in the EU's new economic strategy – the Europe 2020 Strategy – in March this year.
They agreed because energy subsidies are usually very inefficient and costly ways to meet social or economic goals – and often contradict other policies. In this case, they clearly contradict the goals of energy efficiency. Yet they are estimated to stand at US$557billion a year, globally. These are wide ranging – from production subsidies, consumption subsidies, reduced taxation (for example for flights) or subsidies for company cars (which a Commission study has just found, cost a great deal: for Belgium, a country with severe public budgetary constraints, they may cost more than 1% of GDP a year).
In advanced countries like the EU states, it is energy efficiency rather than energy subsidy which is the best tool for reducing energy poverty. In addition, most businesses in the EU support reform of energy subsidies. Reform has great economic benefits – most notably through energy efficiency, but also for reducing inefficient spending. This is essential at this time of public budgetary constraint.
Despite this agreement, reforming subsidies is difficult. All of us must make sure that the practical steps are taken to help policy makers identify and have the incentives for reform in this area. At European level, one of the mechanisms will come through the monitoring of economic policy performance of Member States under the Europe 2020. I will be working with my fellow Commissioners to do all we can to work with Member States. A coalition across society will be needed to make this happen.
These reforms will send the long-term price signals that energy efficiency needs. Member States have also agreed to consider Environmental Tax Reform, and other forms of fiscal incentive. With energy prices lower than their peak, this is an opportunity to be seized.
Secondly, we must tackle consumer choice more effectively. All of those who study the area of consumer choice are clear that neither pricing nor providing information are sufficient by themselves for bringing about large changes in consumer behaviour. This is because people are not computers. In practice, they are influenced by other factors, like habits or social norms.
This gives us an opportunity to design policies that work with the way people choose in real life – so we can achieve our policy goals much more effectively. This is the area of behavioural economics, the science of understanding behaviours in order to be able to 'nudge' citizens in a preferred direction. It is a relatively new science, but is favoured both in Europe and in the US, where the Obama administration has used it to great effect. An example from Germany shows how effective it can be. In two towns2, green electricity was offered as the default option by local authorities – with consumers free to easily move to other energy mixes. Yet 94 and 99% of people stayed with the green tariff, even though most previously they had not taken it up. Even without limiting choice in any way, the policy result was much better achieved.
There are many areas of consumer choice affecting energy demand, including appliance choice, where behavioural economics can help us.
Thirdly, energy savings can come from economy wide reductions in the use of resources and the recycling of waste. Proper implementation of current EU waste policy would deliver 30% of our current 20% Greenhouse Gas target – much of that from energy saved from recycling metals. Similarly, if we process less material in our manufacturing and transport less material around Europe, we will save energy.
There are great savings to be made here – and where wider resource and energy efficiency are intertwined. Regional agencies have a key role in delivery. I am particularly impressed by the work of agencies which offer consultancy services to business to help them reduce their inputs – energy and otherwise. Or schemes which promote industrial symbiosis – turning the waste of some firms into the inputs of others, making a double saving. We estimate that if applied across the EU industrial symbiosis schemes might save €3bn.
This is the very clear link with a wider Resource Efficiency Policy. This is one reason why the Commission will not look at Energy Efficiency and Resource Efficiency policy separately.
The Commission plans to bring out its Energy Efficiency Strategy early next year, in time for the special European Council on Energy that President van Rompuy will host.
By June next year, the Commission will also bring out a wider Road Map for Resource Efficiency, setting out the policy direction for the 2020 objectives.
You are aware of specific initiatives too – like the discussions on the Energy Taxation Directive, which has important implications for energy efficiency.
The role of agencies – those close to implementation – in providing ideas and policy stimulus to European and national policy is essential. It will be very important for the upcoming debate on the scope and depth of energy efficiency policy.
Ladies and Gentlemen
I know that in this full agenda, I must stand down and let someone else pick up the baton.
But I hope that I have been able to convince you about how our plans for resource efficiency sit alongside – and often merge – with the policy developments related to energy efficiency and use, both at EU, Member State and regional level.
We need common objectives and a common purpose. And whatever happens in the future, I know you will be there.
So here's to 20 years of FEDERENE and to another 20 years.
(Source: IEA Technology Perspectives 2010).
One of which was Schonau