How can energy union governance help put efficiency first?
Brussels January, 9th 2017
Energy efficiency markets are driven by legislation. This is why a strong energy efficiency directive supported by a robust governance mechanism are key to delivering the multiple benefits of energy efficiency, argue Monica Frassoni and Harry Verhaar.
Monica Frassoni is president of the European Alliance to Save Energy (EU-ASE) and Harry Verhaar is head of global public and government affairs at Philips Lighting.
The Paris Agreement, championed by the European Union, sets the long-term direction we have to take: keeping global warming well below two degrees or in other words moving towards a carbon-neutral society in the early to mid-21st century. This will require the transformation of our economy thanks to low-carbon technologies. In this transition, business will be key. We are committed to a low-carbon economy. It makes economic sense and we deeply believe businesses should play a positive role in shaping a better world for future generations.
As businesses, we need a clear long-term framework at European level to catalyse investments. This is why the governance of the Energy Union matters. We need predictability and confidence. It is not rocket science: we need know that the EU is serious about its climate commitments and that, as a result, the market for energy efficient technologies will steadily grow in Europe. Consequently, we should also be clear about how to ensure that all member states comply. After all, the overall ‘spirit’ that the Clean Energy for All Europeans package radiates is that moving forward with the required ambition level will bring a wide range of benefits for all EU member states.
There is no time for ambiguity. In the Clean Energy package, the Commission indicates that Europe’s energy sector needs to attract €379 billion of investment each year between 2020 and 2030 to reach the 2030 targets. This means almost tripling the current investment level of €130bn per year. To help bridge this gap, the Energy Union governance framework needs to:
- Ensure that national targets add up to EU targets;
- Clear any doubt about the delivery of these targets;
- Provide clarity about national policies post-2020;
- Deliver efficiency first.
The lack of national targets creates uncertainties about the potential of national markets. Energy Union governance usefuly provides some – if limited – clarity by setting out what happens if member states’ pledges do not add up to the EU target. National binding targets are the ideal solution, but in their absence the Commission made the right move in proposing a binding energy efficiency target. It is the prerequisite for the targets to have any credibility at all, as the governance to support their delivery depends on it.
Moreover, the Commission needs to have a clear mandate to ask the least ambitious member states to raise their contributions. Other mechanisms can be imagined but there should be no doubt about the Commission’s willingness to make it work.
Similarly, there should be no doubt about the member states delivering their national plans. The climate and energy plans need to be monitored and any deviation from the national trajectories corrected as soon as possible by the member states if the plans are to be more than words on paper.
A timely delivery on the policy objectives will have an immediate positive impact on investment decisions and encourage ambitious long-term strategies.
With regard to current policies and measures, we take a cautiously optimistic approach: they proved to work but badly need to be strengthened. Despite the economic growth that happened over the past almost thirty years, we consume as much energy as we did in 1990. We succeeded to a large extent in decoupling growth from energy consumption. So we are doing well – but we could be doing better. Closing the existing loopholes will boost Europe’s competitiveness and make us more resilient to energy price fluctuations.
We want to see these policies continued, reinforced and, critically, steadily implemented over time as more energy efficiency can be achieved by accelerating the renovation of infrastructure, in particular buildings, and this will create between 1 and 1.5 million local jobs. Regulatory changes and backtracking on agreed objectives can have disastrous market consequences, as the renewable industry has experienced in some cases in the recent past.
Finally, the Commission needs to deliver on its promise to put efficiency first. Demand-side management and energy efficiency should compete on an equal footing with supply-side alternatives. It makes sense to compare all options and chose the best one, yet this is currently not always the case. Energy efficiency and demand-side management are suffering from policy-makers’ bias towards building new pipelines or additional capacity, while this might not always be the most cost-effective choice.
It starts by treating energy efficiency as an infrastructure, comparing it with alternatives (e.g. adding more power capacity) and taking the best investment decisions to avoid ending up with stranded assets. It continues with empowering local actors by lifting accounting, legal and financial barriers that hinder the delivery of the ambitious Sustainable Energy and Climate Action Plans. It ends with holding member states accountable for how they integrate efficiency in their plans and requiring the Commission to map out what efficiency first means at EU level.