Waking the Sleeping Giant – Instruments for More Energy Efficiency in the EU

"Waking the sleeping giant - Instruments for more energy efficiency in the EU" was the topic of the 19th Climate Talk, hosted by Dr. Camilla Bausch and Benjamin Görlach of Ecologic Institute and Dr. Susanne Dröge of the Stiftung Wissenschaft und Politik in June 2011.

Energy efficiency is crucial for meeting the EU's climate policy targets. The EU Commission has identified energy efficiency as the largest energy resource by far. Experts repeatedly emphasise that energy efficiency is a cost-effective way to achieve more climate protection.

Despite these many advantages, there has been only slow progress towards reaching the EU's efficiency targets. In 2006, there was already agreement about a reduction of primary energy consumption of 20% by 2020. However, the measures taken so far will lead at best to only half of the desired effect. Thus, the EU Commission published an energy efficiency plan in early 2011, but this plan, which aims at reaching the 2020 target, also does not live up to the expectations of the climate community. The overall target was not made binding, nor are any national targets part of the plan. It gives recommendations to the Member States on how to progress in the building, transport and industry sectors. Given the slow progress in these sectors at the national level, there is little hope that the EU's measures will make a significant difference.

Attendees to the 18th Climate Talk debated how the "sleeping giant of energy efficiency" could be awakened. Opening statements were given by Martin Bornholdt (DENEFF Deutsche Unternehmensinitiative Energieeffizienz e.V.) and Tobias Krug (WWF Deutschland).

Martin Bornholdt argued that energy efficiency is not only an ecological but also an economic issue with large business potential, a point often ignored by policymakers. Service industries and producers of energy saving devices are only part of a sector with many small enterprises. The market potential, however, is huge, the subject of a recent WWF report "Model Germany - Climate Protection until 2050". The market growth potential by 2020 could be as high as 13 percent, and turnover could reach 140 billion Euro per year. Savings in energy and heat would generate profits which, if invested in the domestic economy, would add even more economic benefit. Investments in energy savings would pay off anyway, as they are always accompanied by savings in energy costs. Investing 11 billion Euro could generate energy savings of around 19.3 billion Euro and create an additional 260,000 jobs. Enabling this potential requires a higher commitment on the 20 percent target by the EU and its Member States. This would not mean de-industrialisation; rather, a more binding energy productivity target would be needed to strengthen the EU's competitiveness. Financial markets have also discovered energy consumption as one important factor for rating an enterprise's potential performance.

Tobias Krug added a more systemic approach to the debate by looking at energy efficiency in the context of overall energy and climate policy. Is it feasible that GHG emissions in Germany shrink by 95% by 2050 compared to 1990? How much would it cost? What would be the consequences for Germany? The backcasting study by the WWF gave answers to these questions. Energy productivity and renewable energy production would need to increase significantly given this 2050 target, as both could add up to two-thirds of the potential GHG savings. Long-term investment is responsible for around 60 percent of future GHG emission reductions. In all sectors, investments would need to reach new levels. A policy strategy should consist of a mix of push and pull measures: On the one hand, more competition and more actors are needed, and on the other, targeted innovation would need support. Financing and market design would need to be developed, but also some command and control should be part of the policy mix. Energy efficiency could be the cornerstone for efforts across all sectors in order to progress towards more climate protection.

The Climate Talk discussion centered around policy tools, e.g. flexible quota systems or fiscal incentives, and some recalled that the EU energy efficiency directive originated in a directive on energy services and markets. Objections against command policy measures can now be confronted with positive results - many costs and price increases were followed by a decreasing price due to economies of scale. However, more stringent policy measures cannot be expected if there are no binding efficiency targets in place. Due to objections by certain, the latest EU draft for an energy efficiency directive includes only non-binding targets. The overall draft seems insufficient. In particular, the idea of a binding annual 1.5% reduction of energy from energy suppliers was diluted as the Member States are potentially allowed to include alternative measures into this calculation (e.g. building insulation).

The political reluctance to increase obligations for energy efficiency could be due to a specific need for monitoring and supervision of measures and the uncertainty about the right tools to implement an energy saving policy. A change in the incentive structures for energy use would also mean changing particular subsidies and regulations. The potential for job creation does not seem to be high enough to increase the willingness for more binding rules. However, in order to enable energy savings, the rules and regulations must create a market for energy services and long-term investment. A strong lobby for this market is lacking, while energy-intensive industries have considerable political support.

More details were raised on White Certificates in a system of binding efficiency targets. Some EU Member States apply these certificates under their national energy savings programmes. Additional benefits were identified, e.g. in the UK, where energy suppliers who are forced to support low-income households in saving energy, regard the certificate system as an important way to improve their customer relations. Experiences with such programmes in Italy and France were not as positive because there were too many targets to be met, and thus a lack of focus.

The weakness of the drafted energy efficiency directive could also be regarded as a strength if the Member States take it as an opportunity to implement much stronger and smarter solutions at the national level. In any case, a new and dynamic market for energy services should be at the heart of any policy action. Increasing energy prices alone will not suffice to increase demand for such services.

The Climate Talk was concluded in a nearby restaurant, and the discussions of the evening where continued in an informal setting.