The Ukrainian crisis shows that Europe should be encouraging its energy saving innovators, not forcing them abroad, argues Ingrid Holmes
Ingrid Holmes is the Associate Director of E3G
The financial crisis graphically demonstrate how economic shocks in one part of the EU affect prosperity and stability across the continent. Similarly, the crisis in Ukraine graphically illustrates the economic vulnerability of the EU, due to its vast energy imports – estimated at 55% of total energy supplies in 2012. It would be tragic if heads of state did not seize the opportunity in Brussels this week to develop a serious plan on reducing Europe’s energy dependency and securing its economic future.
Among the progressive business lobby and civil society communities, eyes are now on the European Council to see where the role of energy efficiency in achieving these outcomes will land in the debate. Will the empty consensus continue to drift, or will a serious debate on how to unlock this wasted potential begin?
A little heard from, but important group of progressive European business are paying particular attention to how these politics around 2030 and energy efficiency play out. These businesses are already making a significant contribution to European GDP as industrial entities in their own right. But they are also strategically significant companies that design and sell technologies that enable other European companies and households to manage the impact of rising energy costs. However, in too many cases, business growth is happening outside Europe, as weak policies on cutting carbon emissions depress investment and sales in Europe. For example:
- The success of exports by France’s Schneider Electrics to China means that country’s cement sector is overtaking EU companies in terms of industrial competitiveness.
- German insulation company Knauf is looking to investment in new capacity outside EU markets due to a lack of certainty over future EU demand. Turkey, the United States and Malaysia are key targets for expansion.
- UK software company 1E, whose product Nightwatchman switches off unused PCs has saved client companies $800m with a product that costs $15 per license. Yet 80% of 1E’s sales are outside the EU.
- Energy efficient LED lighting has dropped to just 2% of its 2001 price level and makes up 34% of lighting specialist Philips' total sales. Yet market penetration of the total lighting market in Europe is trailing Asia, by 15% to 17% respectively.
- Danish heating solutions company Danfoss makes technologies that can increase the operating efficiency of power plants by 30% - yet much of the business’s growth is coming from China, not Europe.
Over the coming days, the role of energy efficiency in managing industrial competitiveness, helping the EU bloc meet its 2030 climate targets, and addressing rising concerns about energy security, should be central to the debate. Politician and policy-makers have struggled with how to unlock this market. The current voluntary approaches have not achieved the scale of investment needed, because market failures are multiple and systemic.
Under the current voluntary approach, the EU is expected to miss its 20% target 2020 energy efficiency target of 1483 million tonnes of oil equivalent (Mtoe) for 2020 by a 68Mtoe, or twice the size of the annual energy consumption of Austria. This should not be allowed to continue.
Failure to invest in the EU’s energy efficiency potential to 2020 will cost the EU over $50bn per year every year by 2020 and leaves it vulnerable to oil price shocks that will significantly impact demand in the EU economy. Unlocking this potential will require a shift in thinking about energy efficiency in purely energy policy terms. We must view it through the lens of the structural reforms needed in the EU, in order to achieve the macroeconomic goal of reducing energy costs and vulnerabilities.
There is an opportunity to use the upcoming Review of the Energy Efficiency Directive, as a springboard for a review of ambition in the 2030 package, and allow space for the European Commission to propose an ambitious package of economic reforms that will unlock the potential for energy efficiency. The European Council should instruct the Commission to do just this.
The time between now and June 2014 can then be used to start to develop structural reforms that could be brought forward if the Review finds that Members States are failing to deliver the additional demand reductions needed to meet 2020 efficiency targets. In the mix should be institutional reforms to create to public sector capacity, to effectively facilitate private sector investment: Market reforms to reduce barriers to entry, lower investment costs and drive efficient investment across the EU through achieving economies of scale; financial reforms to address barriers to scaling investment across diffuse supply chains and fragmented markets; economic reforms to create the enabling environment.
With 21 of 28 EU Member States dependent on Russian gas imports, the events unfolding in Ukraine crisis shows yet again how vital it is that the EU does not pin its energy supply future on Russia. Unlocking energy efficiency should be a macroeconomic priority for the whole of the EU. As such, it needs a unified EU response. Agreement on moving forward to achieve must be central to the Heads of State discussion this week. It would make a nonsense of the process, otherwise.