How to deliver energy efficiency in the EU

The Commission is due to publish a new Energy Efficiency Action Plan before the end of 2010.  This should focus on regulations and funds to deliver improved energy efficiency.

In 2009, the EU adopted three targets to guide its climate change policy. Two of them are legally binding, namely a 20% reduction in greenhouse gas emissions and the increase in the share of renewables in total energy production to 20%, both by 2020. The third target, energy savings of 20% by 2020, is so far only for guidance.

The Commission has estimated that reducing EU energy consumption by 20% by 2020 would reduce the cost of energy imports by €100 to 150 billion annually and could create a million new jobs. The means to achieve this 20% reduction are already known and the technologies are available. Yet, at current rates of progress, the EU will only get half way to this target.

Oettinger has said that he will decide whether to make this target binding only after evaluating progress made towards the voluntary target in 2012. Targets have some value – they lead to greater political and business attention and help secure agreement on specific policies.  However, too much of the debate centres on targets. It would be a waste of political and negotiating capital to spend too much time or effort making the target binding. It would be more sensible for governments, businesses and non-governmental organisations to focus on regulations and funding.

The regulations should include strengthening the Energy Performance of Buildings Directive, the Energy Services Directive and the CHP Directive. The Energy Performance of Buildings Directive mandates that all buildings undergoing major renovation will have to meet minimum energy performance requirements, but these are to be set by member-states. Germany already requires that any building undergoing substantial renovation should meet high energy efficiency standards. Sweden has gone further – every time a building is sold or rented out it must meet high efficiency standards. All member states should follow the Swedish example and the new Action Plan should require that strong building regulations be met whenever a building is renovated, sold or rented.

The Energy Services Directive is an attempt to get energy companies to act as energy services companies, delivering not just power and heat, but also advice to help their consumers use energy more efficiently and so reduce costs. The directive requires energy suppliers to promote energy efficiency to their customers and to expand energy metering. However, it is vaguely worded and has no significant regulatory teeth. It should be strengthened to require energy companies to give money to organisations that carry out energy efficiency work at no up-front cost to customers.  

The third directive to strengthen is the CHP Directive. The EU needs to focus on generating energy more efficiently and not only on consumption. When a fuel is burnt to generate electricity, heat is also produced. Most of the heat from most power stations is simply wasted up chimneys. Additional fuel is then burnt to provide heat for homes and industry. It is quite possible to use the heat from electricity generation for industrial or domestic heating. CHP (also known as cogeneration) is a well-established technology that makes obvious economic, energy security and climate sense. Yet, in 2007, only 11% of EU electricity and 13% of heat used came from cogeneration plants.

The CHP Directive requires member-states to remove barriers to cogeneration. It allows, but does not require, them to support cogeneration. Some governments have done so, but the leading countries were doing this well before the directive was adopted in 2004 and the directive has not delivered a significant increase in cogeneration Europe-wide. Therefore, CHP should be made mandatory. Whenever anything is burnt to generate electricity, the heat must be captured and used.

As well as regulation, the EU must focus on funding. Much of the funding for energy efficiency of buildings should come from low-interest loans, as has been done successfully in Germany through the publicly-owned KfW bank, resulting in the improvement of more than 1.5 million homes.  However, grants will be necessary to expand cogeneration and district heating networks.  In 2008, the Commission allocated €4.8 billion of cohesion policy funds to renewables, decentralised energy production (which makes cogeneration much easier) and district heating. It has recently proposed that €115 million of unspent money from the European Economic Recovery Fund to be allocated to energy efficiency. The Commission should go much further. It should propose a substantial increase in energy efficiency funding using revenue derived from auctioning Emissions Trading Scheme permits.

However, most of the finance will have to be mobilised nationally. The Energy Services Directive allows member states to establish energy efficiency funds, but does not require them to do so. The requirement in the EPBD is merely to list existing and proposed financing schemes. These provisions are too weak. Member states must be required to set up energy efficiency financing schemes.

President Herman Van Rompuy has called a summit on energy in February 2011.  This will be a good opportunity to make progress on the Energy Efficiency Action Plan.

From January 2011, Hungary has the EU presidency. Over the last decade, Hungary has improved the efficiency of industrial energy use, but not the efficiency of domestic properties. Every winter, between 2,000 and 2,500, people die from hypothermia in Hungary. There is also a strong energy security reason for Hungary to act on energy efficiency - improving the existing building stock would enable Hungary to reduce its annual gas imports by 40%. After Hungary comes Poland, which has improved residential energy consumption by almost 20% over the last five years by retrofitting existing buildings.

So, there are reasons for optimism that 2011 will, at last, see more EU focus on energy efficiency. This would help protect the climate, protect consumers, strengthen the European economy and create many thousands of jobs.

By Stephen Tindale

This article first appeared on the Centre for European Reform website.