The evidence behind a 40% energy efficiency target

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Compact fluorescent lamps being tested at the Lighting and Appliance Testing Laboratory, Philippines. [Asian Development Bank/Flickr]

The myth about the negative impact of high-efficiency ambition on the competitiveness of EU member states is dismantled by the European Commission’s modelling results, writes Yamina Saheb.

Yamina Saheb is senior energy policy analyst at OpenExp, a Paris-based global network of independent experts working on solutions for sustainable development.

The Commission’s November 2016 clean energy package is going through a gruelling approval process where practically every comma is being challenged. Yet, this approval process is ignoring (or unaware of) some important evidence.

The Commission’s “impact assessment” related to the proposed changes to the Energy Efficiency Directive (EED) includes five scenarios with efficiency ambition going from 27% (EUCO27) to 40% (EUCO+40) energy savings. The impact of the Commission’s scenarios on EU competitiveness has been estimated in terms of their impact on 1) EU industry, especially the energy intensive ones, 2) international fuel prices and, iii) balance of trade.

Contrary to common belief, ambitious energy savings scenarios are not expected to adversely impact the competitiveness of EU industry. In fact, energy-intensive industries are not targeted by efficiency measures as they are already regulated under the EU emissions trading scheme (EU-ETS).

There are, therefore, no direct energy efficiency investments to be made by these industries to meet the efficiency target as a result of the EED. At the same time, these industries will benefit from the impact of efficiency scenarios in the following ways:

  • ETS prices which should be lower when the energy savings target is higher, will lead to lower auction payments by energy-intensive industries;
  • Electricity prices, which decrease slightly when the energy savings target is higher, will lead to lower energy purchases costs for end-use sectors.
  • International fuel prices, which decrease slightly when the energy savings target is higher, will contribute to lower energy purchases costs.

As shown in OpenExp’s report, the only expected increase in expenditures for energy intensive industries relates to capital costs. These costs may include the replacement of energy using products by efficient ones but without being driven by efficiency improvements. Furthermore, the expected increase of capital costs would be largely offset by the decrease of auction payments and energy purchases costs as shown by the Commission’s modelling results (see table). As compared to EUCO27 (which is the scenario with the agreed 27% energy efficiency target back in 2014), total energy costs decrease in all other scenarios and energy intensity of industry improves (see table).

Similarly, the impact of the Commission’s scenarios on international fossil fuel prices is expected to be positive for energy importing countries. The more stringent the energy savings target, the more significant would be the reduced international fuel prices. For what regard international coal prices, they are projected to decrease only in the scenario aiming at 40% energy savings target.

The combined effect of the reduction of energy consumption and international fuel prices will have a positive impact on the EU trade balance. On one hand, total EU imports will increase as the expected reduction of fossil fuels imports should be largely offset by the increased imports of energy efficient equipment, products and other goods. On the other hand, total EU exports will also increase as the expected low energy costs should improve the competitiveness of sectors supplying the market with energy efficient products e.g. engineering). All of this importantly leads to an increase of the competitiveness of the EU industry and this is so needed in our globalised economy.

Will industry leaders raise their voice and seize the efficiency opportunity to improve the EU competitiveness?

Wait and see!

Table: Impacts of the Commission’s scenarios on competitiveness of EU industry

Source: 2016 impact assessment related to the Energy Efficiency Directive. [Source: 2016 impact assessment related to the Energy Efficiency Directive]