how can energy union governance help put efficiency first?


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:

  1. Ensure that national targets add up to EU targets;
  2. Clear any doubt about the delivery of these targets;
  3. Provide clarity about national policies post-2020;
  4. 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.


eu social fund brings progress despite low expectations


The European Social Fund has reached half of all EU workers and helped 10 million citizens find jobs. Contrary to the popular wisdom, the social situation in Europe is improving.

The EU is known for imposing budgetary constraints and pushing liberalisation in Europe’s economies. It is rarely associated with social progress. Now, the European Commission has begun to address this image problem.

It intends to do this mainly by highlighting the positive impact of the European Social Fund (ESF), the oldest of the EU’s redistribution programmes. The ESF was followed by the European Regional Development Fund (ERDF) and the Cohesion Fund.

According to statistics published on Thursday (5 January), the FSE helped some 10 million Europeans find jobs between 2007 and 2014, at a cost of €115 billion. 21.1 million EU citizens are currently unemployed.

This detailed and highly complex investigation was carried out by the European Commission, using information from the people concerned, coupled with macroeconomic models.

Of the 232 million EU citizens in employment in 2015, almost 100 million directly benefitted from the FSE. The biggest beneficiaries of the fund were women (52%) and young people (32%).

The ESF also appears to have had a positive effect on the most vulnerable populations, like migrants, disabled people and members of marginalised communities, such as the Roma.

Certain countries also gained more than others from the scheme. In Bulgaria, the EU’s poorest member state, the ESF’s programme to keep young people in education has had a noticably positive impact.

Variable results from one country to another

But the results of the European Social Fund have not all been positive. It is put to good use in some countries, but not always those that need it most.

Romania, Slovakia and Hungary, for example, have only used a very small part of the fund available to them to promote jobs.

What is more, the diversity of projects and objectives supported by the ESF makes the real effect of EU-funded programmes on jobs difficult to evaluate.

And the programmes assessed as part of the ESF include those co-financed by the EU, those that received EU funding for a determined period of time, mobility, childcare and education support. The FSE delivered the best results in countries with less developed social systems.

Finally, the study highlighted the issue of harmonisation: the EU adds much less value to the countries with the most advanced social systems, like France, than it does to some others. In the long term, harmonisation will bring all the social systems towards an average level that is likely to be lower than that of the most advanced countries.

An improving situation

Along with other recent social statistics, like the report on  Employment and Social Development in Europe 2016, this study paints a positive picture of the progress made by European countries in recent years.

The economic recovery and the stabilisation of unemployment have also led to greater stability among other indicators, such as poverty and inequality.

Since 2013, the risk of poverty has also fallen everywhere in Europe. With the notable exception of Greece and Italy, the share of the population suffering from extreme deprivation has also declined sharply.


Marianne Thyssen, Commissioner for Employment, Social Affairs, Skills and Labour Mobility, said, "Today's evaluation proves that the European Social Fund makes a real difference in the lives of Europeans. It is our main instrument to invest in human capital. Thanks to European support, millions of people have found a job, improved their skills or found their way out of poverty and social exclusion. It is solidarity at its best."


European Commission



eu countries stall over carbon market reform


After more than a year of negotiations, EU member states have come up short in their efforts to find common ground on a carbon market reform seen as necessary if the ambitions of the Paris Agreement on climate change are to be met.

 Meeting at the final ministerial council chaired by the outgoing Slovak presidency yesterday (19 December), environment ministers appeared at odds over the planned reform of the Emissions Trading Scheme, the EU’s main tool to fight climate change and reward clean energy.

Negotiations kicked off more than a year ago but despite a big push by the presidency, there has been a “lack of political will” around the European Commission’s initial proposal, said László Sólymos, the Slovak Environment Minister who chaired the meeting.

Polish opposition

“Everyone agrees that carbon prices must go up,” Climate Commissioner Miguel Arias Cañete said at the beginning of the meeting in an attempt to find a consensus.

That turned out to be somewhat of an optimistic comment though, when Poland’s environment minister retorted that the price of CO2 “should not be influenced by the stability reserve”, the EU Commission’s proposed tool to manage the amount of carbon permits on the market and keep prices high.

“We still need to discuss this,” said Jan Szyszko, Poland’s environment minister.

Warsaw warned that EU member states “have not understood the spirit of the Paris Agreement”, saying each country should be allowed to go their own way with their own national legislation on climate change.

The other member states were less vehement in their criticism but rallied against the Commission’s plan nonetheless.

Call for simplicity

EU countries seem to converge on their rejection of the Commission’s proposed “cross-sectoral correction factor (CSCF)”, a mechanism that would distribute free allocations to the top 10% of industry performers in terms of CO2 reductions.

The Commission’s proposal was generally seen as too complicated, with a majority of member states arguing for more straightforward market regulation instruments.

“We must avoid using this system and strengthen the carbon market with simple tools,” said Dutch minister Sharon Dijksma. “If we fall behind with a market that does not work, we are going to harm our children and our grandchildren,” she said.

Other market reform proposals, including the total number of allowances that should be auctioned off, as well as the method for calculating the total number of allowances, are still being debated.

French environment minister Ségolène Royale, who unlike her German counterpart Barbara Hendricks rarely attends these meetings, sent representative Alexis Duterte in her stead, who said that “it is not normal to persevere with a system that distributes too many and too generous free allowances”. 

“It is a triangle,” Cañete replied. “We must take measures to strengthen the carbon market,” he argued, but also protect against the risk of industry delocalisation associated with CO2 constraints and put in place a modernisation fund that will assist with the decarbonisation of the economy.

The Climate and Energy Commissioner challenged EU countries to reach a consensus, and pointed to a vote in the European Parliament’s environment committee last week. “If an agreement can be reached in the European Parliament, then the member states can find one too,” the Spaniard argued.

Theoretical ambition

If member states broadly agree to strengthen the stability reserve, by putting aside more allowances, they remain divided over the pace at which it should be done.

Germany, France, the Netherlands and Sweden back the Parliament’s current position of a 2.4% reduction per year, with 57% of allowances auctioned. But other member states, particularly in Eastern Europe, want a slower reduction rate and lower number of allowances to be auctioned – a proposal heartily backed by the steel lobby Eurofer.

Given the persisting differences between member states despite long negotiations, it seems unlikely that the more ambitious countries will be able to convince the proposal’s detractors without making further concessions.

Those could include an increase in carbon market funds that would ultimately benefit countries that are less advanced in the energy transition.


The EU's Emissions Trading System is the world’s biggest scheme for trading emissions allowances. Regulated businesses measure and report their carbon emissions, handing in one allowance for each tonne they release. Companies can trade allowances as an incentive for them to reduce their emissions. Countries can also sell permits to the market.

The European Commission has proposed a series of reforms to the ETS.

Pollution credits were grossly over allocated by several countries during the 2005 initial implementation phase of the ETS, forcing down carbon prices and undermining the scheme's credibility, which prompted the EU to toughen up the system. Carbon prices have since remained stubbornly low at under €8 a tonne.

The proposed reform proposes tightening the screw on heavy polluters by restricting the amount of pollution credits available in the period 2021-2030.

Under the Commission proposal, 57% of allocations will be auctioned by member states, the same as in the current trading period (2013-2020). They are estimated to be worth €225 billion. 43% (6.3 billion allowances) will go to industry in free allocations, worth an estimated €160 billion. Those will be divided out, with the most efficient companies being prioritised. So the best performing companies will still get the benefit of free allowances.

177 sectors currently qualify for free permits. About 100 will drop off the list for 2021-2030. They are likely to be those that qualified because of their trade intensity rather than their emissions intensity.

The list will stay the same for ten years, rather than the five years of the previous trading period. This will make it more stable and give greater investor certainty. The new system will take into account production increases and decreases more effectively, and adjust the amount of free allowances accordingly. A number will be set aside for new and growing installations.





The European Commission fears that capacity mechanisms would just translate into subsidies for coal power plants. Therefore, installations exceeding emission limits should not take part in support schemes, according to a proposal under the Energy Union’s Winter Package.

A new electricity market design proposed by the European Commission aims to ensure that stronger price signals will motivate power companies and the industry to invest in their generation units or capabilities for demand response.

“National market rules like price caps and state interventions currently hinder prices from reflecting when electricity is scarce,” the Commission said in the draft regulation on the internal power market, a part of the Winter Package.

That means member states will have to accept that price caps are removed from the EU electricity market and prices may become significantly high at certain moments.

Markets of individual member states or regions should also be better integrated, as current price zones do not always reflect actual scarcity and follow political borders instead, the Commission explained.

“If there is a strong demand in some area, for sure the price should be high to attract trade into this region,” Oliver Koch from the Commission’s DG Energy said at the SET Plan – Central European EnergyConference(CEEC) in Bratislava, held in the first week of December.

“You can organise a market in a national manner if you wish, but one thing is clear – it will be tremendously more costly. It is difficult to cooperate, but there is no other alternative,” he warned.

Capacity mechanism

However, several member states are losing their trust in price signals created by the market and have started to arrange so-called capacity mechanisms instead.

Under such schemes, electricity generators or demand response operators are remunerated for keeping their capacities on standby. That should guarantee enough energy will be available when, for example, solar or wind power plants are not able to produce enough electricity.

The Commission’s competition directorate found 35 former, existing or planned capacity mechanisms in eleven member states during a special inquiry launched 18 months ago.

These countries believe that under the current market conditions with low wholesale prices, energy companies need such subsidies otherwise they would not invest in their generation capacities.

According to critics, the schemes may fragment the EU single market, distort competition by favouring certain producers or types of technology, and create barriers to trade across national borders.

Adequacy assessment

The Commission’s proposal wants to address this problem with EU-wide harmonisation of so-called adequacy assessment. That should help to evaluate whether remunerations are needed to ensure sufficient capacity is available or whether there is enough power that may be imported from another state, for example.

Such an assessment should be carried-out by the European Network of Transmission System Operators for Electricity (ENTSO-E) and approved by the EU’s energy regulating agency, ACER.

“The EU-wide analysis is a highly important basis that must not be ignored when a capacity mechanism is being assessed but we feel it would be an overkill to base the decision only on the EU assessment,” ENTSO-E Secretary-General Konstantin Staschussaid at the conference.

He stressed that increasing amount of electricity is being produced by small-scale installations controlled at local level and the role of demand side response is also rising. Therefore, member states should also be allowed to consider their own smart-grid driven analyses.

Subsidies for coal

Controversies were caused by another proposal included in the fresh regulation. In line with the European Investment Bank’s emissions performance standard, capacity mechanism should not be accessible to newly-built power plants exceeding a benchmark of 550 grams of CO2 per produced KWh.

That would mean coal-fired generation capacities could not take part in the support schemes.

For existing power plants, a transitional period of five years after the regulation’s entry into force should be established.

For coal-reliant countries like Poland, this would mean that significant parts of their energy portfolio would not be profitable to operate. According to Maciej Burny from Poland’s largest power producing company, PGE, the country would face a significant lack of power generation capacities after 2025.

“Principally, we are against any capacity mechanism if they are not fully justified. But from a broader perspective, there are different conditions and energy mixes in individual member states and according to current EU state aid rules, technologically neutral approach should be always followed,” said Márius Hričovský from Slovak energy company Stredoslovenská energetika.

“The emission performance standard could hinder technological neutrality in this instance,” he added.

“The feeling behind this proposal was that the capacity mechanism could materialise as subsidies securing the survival of plants that should otherwise leave the market,” DG Energy’s Koch explained, adding that this was a political choice by the Commission which entered the proposal at the last minute.

“This is a package for decarbonisation path until 2030, 2040 or 2050. Coal will play a very limited role at that time. This is an assumption which is not shared by everyone, but it is one of the basic ideas of the package,” Koch also said.


looking at environmental performance across the supply chain


The environmental impact of business activity is often mistakenly limited to the direct operations of companies. In reality, it is the environmental performance of the supply chain as a whole that needs to be looked into, writes Christian Ewert.

Christian Ewert is director general of the Foreign Trade Association (FTA).

The latest round of global climate change talks — COP22 — should have been a celebratory affair. The historic Paris agreement on climate change had been ratified well ahead of schedule.

However, the US election results cast a cloud over the summit in Marrakesh last month. While it remains to be seen whether President-elect Donald Trump will actually proceed with his vow to take the US out of the agreement, his recent move to appoint Scott Pruitt, a known fossil fuel defender, to head the Environmental Protection Agency is cause for concern.

No country alone can solve all the problems related to climate change, but losing a key player could have seriously negative effects.

Climate change poses an unparalleled, complex and urgent challenge to us all. Global businesses and their sustainable practices have a huge role to play in tackling this challenge. It is therefore encouraging that at the COP22, parties reaffirmed their commitment to implement the Paris Agreement.

Even prior to COP22, several significant climate change deals were achieved. Early in October the much-awaited  aviation climate deal was agreed in Montreal, adopting an offsetting approach to constraining aviation emissions. Starting from 2021, airlines that have opted into the measure will have to purchase offsets to balance their emissions growth above 2020 levels.

Only a few weeks later, the  Montreal Protocol on Substances that Deplete the Ozone Layer was amended, aimed at reducing the emissions of hydrofluocarbons (HFCs). HFCs are used as substitutes for ozone-depleting substances (CFCs and HCFCs) in mainly refrigeration and air conditioning. Since it has become clear that they are not only some of the most powerful, but also the fastest growing greenhouse gases. Reducing emissions of HFCs could prevent up to 0.5°C of global warming.

With the Paris Agreement in place as a policy basis, more and more companies are setting science-based emission reduction targets that will impact many areas of their business operations. One area with significant carbon emissions is supply chains. Some 25 percent of total global emissions are ‘embodied emissions’ in exported products, which are emissions from the sourcing of raw materials, manufacturing of products and pre-export transportation.

For this reason, while discussions focus on the need for legislative frameworks and more public-private partnerships, these messages must cascade down the supply chain to reach local producers. All businesses — from SMEs to multinationals — have a vital role to play in this process. Their environmental impact is often mistakenly limited to that of their direct operations.

However, the indirect effect of a company’s global sourcing activities — which generates the largest impact on the environment — tends to be overlooked. Taking into consideration the environmental performance of the supply chain as a whole requires collaboration and transparency. Initiatives such as the  Business Environmental Performance Initiative (BEPI) are supporting companies in this undertaking, by offering a unique system applicable to all sectors and countries as well as tailored recommendations to improve their producers’ environmental performance.

The BEPI System covers a comprehensive set of 11 environmental performance areas, including Energy Use/GHG and Emissions to Air. BEPI supports its members on driving reductions in emissions directly into their supply chains through awareness raising, capacity building and practical improvement activities. Every reduction in greenhouse gas emissions will contribute to the collective effort of keeping global warming well below 2°C.

Important though the environment is, we cannot envisage a truly sustainable future without considering the protection of human rights, many of which depend on the fulfilment of other rights such as that of safe and healthy working conditions.

The Foreign Trade Association’s sustainable supply chain management services, which bring together BEPI and the Business Social Compliance Initiative (BSCI) — supporting members with programmes to reduce social impacts in their supply chains for nearly 15 years — provide an effective framework to address these intertwined and pressing challenges.

Yet, understandably, one may think that the challenge can be to convince businesses in these financially challenging times that sustainability is a must rather than a nice-to-have. However, nothing is further from the truth.

Numbers speak for themselves: FTA’s 1,900+ members and over 41,000 factories and farms worldwide working together to promote more sustainable business practices show the strong commitment of the business sector, from multinationals to SMEs, to tackle these challenges.

We’re looking to the future – for the planet and people living on it, and also for businesses. The value that sustainability adds to a company’s bottom line may not be immediately apparent, but we strongly believe that it is essential for their long-term success and the overall growth, development and economic prosperity.

As elections take place across Europe and a Trump administration begins its work, we will fight to make sure these values continue to be a top priority.


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