Focus on supply-side policies has sidelined energy efficiency discussions
LOST POTENTIAL
The lack of effective policies in recent years means the European Union is playing catch up on energy efficiency measures and the impact it can have on the shift to a decarbonised economy
REVISED DIRECTIVE The EU’s energy efficiency directive (EED) is in the process of being strengthened to ensure efficiency first is more easily adopted
KEY QUOTE
We don’t give this principle enough importance. It’s something that’s often mentioned in speeches but when you look at whether we can reach our targets for energy efficiency today, we are not on track
The saying: “The best energy is the energy we don’t use”—or some variation—often makes an appearance when the EU’s top energy and climate officials give speeches explaining how the bloc intends to slash emissions to a net-zero level by 2050. Energy efficiency measures and making sure that every electron, molecule and drop of combustible fluid is used shrewdly is part of a wider policy jigsaw that also includes decarbonising power systems with renewable energy.
This is why the EU institutions wrote the Energy Efficiency First Principle into law in 2018—as part of the rules governing the energy union—marking the first attempt to give energy savings measures their time in the spotlight. Its ultimate goal is the removal of any market or regulatory barriers that prevent demand-side resources from competing with supply-side equivalents on an equal footing. Building renovations should share the same stage with wind energy, for instance.
However, the all-important Energy Efficiency Directive (EED), which sets energy consumption reduction targets and savings benchmarks for end-use energy, did not include any obligation for governments to take the principle into account. This lack of binding legal pressure has undermined other mentions of the principle in other policy packages such as the EU’s Strategy for Energy System Integration and the Renovation Wave strategy. It has remained aspirational rather than obligational.
Project developers have therefore only taken it into account in a limited way and, although successful examples exist, they are more the exception than the rule.
WASTED OPPORTUNITIES
Energy experts are mostly in agreement that the EU has taken a step forward in prioritising energy efficiency measures but that there is still substantial untapped potential waiting to be unlocked by more ambitious policies. Arianna Vitali, from the Coalition for Energy Savings, says it is positive that energy efficiency is now being acknowledged and considered in lawmaking, compared to not that long ago when it was not even on the agenda.
However, she warns that although the energy efficiency first principle has created a certain buzz and has put it on the map, EU policies are still not on track and much more needs to be done to elevate demand-side measures to the same ranking as supply-side.
According to the latest energy stocktake by the European Commission, the 27 EU member states are well below the existing 32.5% target for 2030. The situation becomes more pressing when you consider that the target will be revised upwards in 2022. “Models tend to be blind to the benefits and value of energy savings, so in that sense, the energy efficiency first principle always comes second. The mindset is still to talk about supply not demand. That has to change,” Vitali says.
Lower heating bills are just the tip of the iceberg, she adds. “Putting the principle first makes your energy system more flexible and clean. You first reduce your wasteful and inflexible demand—leaky buildings, inefficient industries—this makes the overall system smaller, more dynamic and better equipped to integrate renewables,” says Vitali.
Overall costs linked to energy production and distribution fall as a result, which benefits the consumer. “That’s why you have to look at this from a system perspective and why this principle is so important,” she adds.
Vlasios Oikonomou and Jean Sebastien Broc of the Institute for European Energy and Climate Policy both agree that energy efficiency has not been consistently taken into account when proposing solutions to combat energy-related challenges. Those challenges include the current spike in energy prices and fresh attempts to curb dependence on Russian energy imports.
They also warn that lawmakers often “lack an in-depth understanding of the quantified benefits of energy efficiency” and rely too heavily on energy supply measures, only citing energy-saving policies as an afterthought. Instead, Oikonomou and Broc propose that default lawmaking should impose the burden of proof on supply-side measures rather than the other way around. Any scenarios that prioritise extra energy supply over efficiency would have to show the potential benefits to society.
Oikonomou and Broc add that quantitative assessments are needed to make the case for the multiple benefits of energy-saving policies and to back up the credibility of the principle. Tools are being developed that allow local and regional authorities to crunch their own numbers and produce assessments that analyse the costs and benefits. This might not obligate lawmakers to choose efficiency policies but it does provide essential data.
Monica Frassoni, of the European Alliance to Save Energy, insists that the principle has to be reflected in all climate and energy rules, not just the efficiency directive, in order for EU policies to be “coherent”. For its part, the Commission acknowledged that the energy efficiency first principle is underestimated in existing planning and investment programmes. This has prompted a major rethink as part of an ongoing update of the EED.
Brought to the fore Energy efficiency policies are becoming more widely adopted as a weapon against climate change
REGULATORY POLISH
The EED renovation is primarily meant to help the EU hit its target of slashing greenhouse gas emissions by 2030 via a proposed beefed-up overall target of a 36% reduction and annual energy savings of 1.5%.
Incorporated within that update is also an obligation to deploy energy efficiency first in energy system and non-energy sector planning, policy and investment decisions. As part of this new regime, governments will have to develop and apply cost-benefit tests so that the full range of benefits that come with energy savings measures are taken into account.
Those assessments will have to be underpinned by a common methodology so that EU countries make their fair contribution to bloc-wide targets and there is a fair playing-field for green investments. But these standards cannot be completely harmonised because of the differences between countries—building stocks, weather patterns and energy mixes—and the Commission is expected to write guidelines that at least keep everyone on the same page.
To keep tabs on whether governments are sticking to the principle, they will be expected to compile and submit regular reports to the European Commission. They will also have to set up dedicated agencies tasked with monitoring its application and its impact on planning and investments.
The European Parliament still needs to have its say on the EED review and all the indications point towards MEPs strengthening the principle’s legal basis.
“We don’t give this principle enough importance. It’s something that’s often mentioned in speeches but when you look at whether we can reach our targets for energy efficiency today, we are not on track,” says Niels Fuglsang, MEP and leading the European Parliament’s review of the EED.
MAJOR INVESTMENTS
If Fuglsang gets his way in the final agreement due to be published later in 2022, governments will have to make an even bigger effort and work towards a target close to 45%.“We need to give it more teeth and that is something the new proposal intends to do,” Fuglsang says, adding that he intends to tighten up the Commission’s plan by expanding the scope of the principle’s obligations.
“The Commission says that for major investments in new energy production facilities, an analysis has to be done to see if it can actually be achieved using energy savings instead. I propose it be done for every new energy project.”
Under the draft plan, a legal obligation would only be applied to investments of more than €50 million. For transport infrastructure projects in particular, the threshold would be €75 million.
Fuglsang is not alone in seeking to cut “major” from the wording of the legislation. Compatriot Morten Helveg Petersen and Slovakian MEP Martin Hojsík also want to remove it because it would create legal uncertainty as the term is “vague”. They highlight in their amendments that member states could choose to game the system and that it could hurt “harmonisation and predictability”, limiting the scope of energy efficiency measures just to large-scale projects.
Conservative elements of the Parliament are seeking to push back on this alteration and insist that it could create extra administrative and financial burdens for small- and medium-enterprises. Meanwhile, Energy experts Oikonomou and Broc point out that large-scale projects worth €50 million or more are already subject to in-depth scrutiny under the EU’s environmental impact assessment legislation.
Fuglsang’s report states that monitoring how the principle is applied should go into much more detail than the Commission suggests. For instance, reports must look at national, regional and local-level planning and energy systems, as well as list instances of where regulatory and non-regulatory barriers have been removed. The draft report also says that a common methodology for cost-benefit assessments need to be put in place by June 2024.
GUIDING LIGHT
Writing a new EED into law will give the EU legal power to make energy savings a top priority but the nitty-gritty detail of putting efficiency first and helping governments make the most of the opportunity is still an open question.
The Commission already made some headway on that particular issue in September 2021, when the EU executive followed up its “Fit-for-55” package of climate laws—designed to reach the bloc’s target of reducing net greenhouse gas emissions by at least 55% by 2030—with a detailed set of guidelines. Under those non-binding recommendations, governments are urged to consider energy efficiency first “as an overarching principle to be applied in a wider policy context, rather than an ultimate goal to reduce energy consumption.”
The playbook also says that resources should be funnelled towards local-level projects in particular, a system approach should be taken and that assessments must take into account the future impacts of climate change on energy networks.
Although aimed primarily at lawmakers and regulators, the sixty pages of guidelines are also applicable to regional and local-level authorities, market players and investors involved.
German Greens MEP Jutta Paulus insists in her amendments to the EED update that member states should use the guidance note as an energy efficiency playbook. It is hoped that the two can be married together during the legislative process.
RUSSIAN INFLUENCE
Vladimir Putin’s invasion of Ukraine has moved the needle in favour of policies that help reduce Russian oil and gas imports significantly. Accelerated renewable energy rollout and more in-depth energy savings measures are set to be the main beneficiaries.
The EU aims to reduce oil and gas imports by two-thirds by the end of 2022 and phase them out completely by 2027, under revised energy plans that have been sanctioned by the European Council. How to replace the 155 billion cubic metres of gas imported every year falls under the remit of the European Commission.
Its new RePowerEU strategy includes plans to increase supply agreements with other oil and gas exporters, more renewables generation and an additional focus on energy efficiency. The plan stops short of proposing new targets but encourages governments to frontload their policies this decade instead of delaying them.
Energy security Russia’s invasion of Ukraine has increased efforts within the EU to tackle an over-reliance on imports
“The energy efficiency first principle is more relevant than ever and should be applied across all sectors and policies, with demand response measures complementing those on the supply side,” the text states.
While Fuglsang agrees that the geopolitical situation has given energy-saving advocates extra political momentum, he insists that from his perspective the goal is still the same because his report was written prior to the Russian invasion. Greens MEP Ciarán Cuffe is helming the European Parliament’s review of the Energy Performance of Buildings Directive (EPBD) and says that while there has been progress on energy-saving measures, opportunities have still been missed.
“I feel like the REPowerEU communication could have gone into further detail on how energy efficiency can reduce demand and our dependence on Russian imports,” the Irishman says about the strategy, which did not mention renovations in any great detail.
“The Commission is not applying its own principle,” adds Frassoni, who insists that the EU’s plan is focusing too much on LNG shipments, gas diversification and nuclear power.
Vitali, meanwhile, says, “We need to see something that pays more than just lip service to energy efficiency first. If we’re serious about cutting imports and boosting dependence, there needs to be a priority on saving energy.”
She adds that although urging people to turn down their thermostats and wear jumpers is certainly part of modern energy policies, “We need something more structural, clear measures that have long-term effects.”
Oikonomou and Broc of the Institute for European Energy and Climate Policy are hopeful that the Commission and EU leaders can learn from lessons of the past, suggesting that the current crisis would have been mitigated if different policy choices had been made.
“If the priority had really been set on energy efficiency since the early 2000s, EU dependency on Russian gas would likely have been a minor issue by now and the EU would be much more advanced on the path to carbon neutrality,” they say.
Whether the Commission will be able to crunch all the numbers and include them in that mid-May action plan is an open question, given the heavy workload created by energy policies and the far-reaching consequences of Russia’s war.
The conflict has also put governments in a mood to back short-term fixes to issues rather than focus on the long-term structural fixes that energy experts are calling for. To what extent this will affect the efficiency principle’s fortunes remains to be seen.
It is clear that there is a growing political will for energy-saving measures and targets but whether they are given priority over extra energy capacity, in particular, will be decided over the next important few months of backroom deals. •
TEXT Sam Morgan ILLUSTRATION Hvass&Hannibal and Liana Mihailova PHOTO Sasha Plescho