The EU’s climate establishment rigged the debate on 2030 targets with stacked projections for energy efficiency savings discounts, and wildly optimistic assumptions about the carbon market, according to buildings efficiency industry and NGO sources.
EURACTIV understands that officials from the European Commission's energy directorate are attempting to upend some of the most contested efficiency assumptions in the 2030 models, but are facing fierce resistance from the climate directorate, which is heavily invested in a sole 40% greenhouse gas target.
“There is an internal struggle to get the truth and an attempt to adjust the models but DG Clima (the climate directorate) doesn’t want to destroy the false premises on which the greenhouse gas-only target is based,” one source with knowledge of the 2030 dossier told EURACTIV.
At issue is the EU’s modelling for cost-effective carbon reductions by 2030, which was framed by "discount rates". These are annualised simulations of market failures, barriers and costs that can be applied to various pathways, some of which were included in an impact assessment accompanying the EUs proposal for a sole greenhouse gas target in 2030.
Higher discount rates carry higher risks for investors (albeit with higher potential returns) and, in line with the 2050 Roadmap, buildings efficiency was given a 17.5% discount rate, compared to 12% for industry measures, 8% for public transport, 9% for power generation, and 12% for tertiary sectors.
This was because of an assumption that consumers would not be helped to make efficiency improvements by Energy Company Obligations (ECOs) or other government programmes.
EURACTIV understands that experts from the Commission’s energy directorate provided information to their superiors showing that if such measures had been factored in, the discount rate would have been lowered to between 9% and 10%, in line with Buildings Performance Institute Europe (BPIE) figures. This would have made energy efficiency a highly cost-effective option.
“This assessment was a set-up to guarantee that energy efficiency would not get a fair hearing in the current debate about a balanced and coherent policy framework for 2030,” one senior industry source told EURACTIV. “It beggars belief that policy-makers could have allowed themselves to be misled in this way.”
Oliver Rapf, the BPIE's director, said that the Commission’s choice of discount rate was hard to fathom. “An unrealistically high discount rate can make any investment look unreasonable,” he told EURACTIV.
“The risk associated with buildings efficiency is rather low compared to any other energy investment, therefore the discount rate should be lower as well,” he added. “This choice of discount rates does not seem to reflect reality at all.”
EURACTIV has seen ‘technical input’ to Brussels from one EU state on the 2030 modelling, noting a “mismatch” between current discount figures and previous Commission advice to use social discount rates of between 3.5%-5.5% for assessing energy efficiency in public investment projects.
High energy efficiency scenarios
“Using the high discount rates in a policy scenario does not inform policy makers on what a least cost energy system may look like if the right instruments are put in place,” it says. The input paper called for new models that included references to social discount rates or ‘high energy efficiency’ scenarios. These are now underway.
Observers and commentators alike were surprised when the EU executive recommended a sole binding 40% greenhouse gas cut for 2030, even though its own impact assessment found that a mild climate package including energy efficiency and a 30% renewable energy target would create 327,000 more jobs than a sole 40% emissions cut alone.
This would be “mainly due to high investments in energy efficiency,” said the document which was intended to inform policy-making decisions.
The International Energy Agency has described energy efficiency as the world’s first fuel – the one that is not used – and, along with renewable energies, a consensus holds that it provides cost-effective and easily verified greenhouse gas reductions.
Emissions Trading System: Devils in the detail
However, the Commission instead chose to propose using its Emissions Trading System (ETS) to indirectly lower emissions in the most ‘technologically-neutral’ way by incentivising nominally low carbon investments, whether in nuclear energy, shale gas or carbon capture and storage technologies.
The current carbon price of around €7 a tonne is too low to do this – or discourage coal use – and the strategy was appealing to several EU states because it did not require any significant governmental expenditure in the short term.
A proposed market reserve facility and slightly increased cap on allowances are unlikely to change the picture substantively.
But, according to a little-read table in the EU’s 2030 impact assessment, the main driver for a 40% CO2 emissions cut will be a €40 a tonne carbon price by 2030, which will rise to €264 a tonne by 2050. It is unclear how these prices will be achieved.
The Commission’s working assumption is that the carbon price will influence decisions taken across all sectors of the economy – including those that the ETS does not cover, such as transport, farming and households – and that businesses will largely pay the long-term price for decarbonisation.
In practice though, the same industries and governments that supported an ETS-driven policy before 2030 would likely abandon it in short measure, according to Brook Riley, a spokesman for Friends of the Earth Europe.
“This is a kind of con trick,” he told EURACTIV. “They pretend to support an ETS-driven target for 2030 knowing full well that they will get loopholes in it for ‘carbon leakage’ which dilute it to little more than business as usual.”
In his speech announcing the 2030 package, the EU's president José Manuel Barroso, said that the final compromise would offer exemptions for industry considered vulnerable to carbon leakage, or the threat of relocation abroad by energy intensive firms.