EU Energy Efficiency: Overlooked And Undervalued

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Business Monitor view energy efficiency measures will play a more important role in European energy policy as the continent moves to reduce its reliance on imported hydrocarbons from Russia.

Energy efficiency measures will play a more important role in European energy policy as the continent moves to reduce its reliance on imported hydrocarbons from Russia. Although Business Monitor believe energy efficiency has thus far been relatively overlooked as a component of European energy policy, and proposed 2030 efficiency targets could be more ambitious, there are indications that the European Commission (EC) is taking efficiency more seriously- galvanised by the crisis in Ukraine.

Business Monitor emphasise that energy efficiency is an element of Europe's 20'20'20 climate package that warrants closer attention. Although Europe will hit its 2020 emissions and renewable energy consumption targets, efficiency savings will likely only reduce energy demand by 18-19% by 2020 (missing the 20% target). In this context, Business Monitor believe the EC's decision to launch legal proceedings against member states that have not enforced energy efficiency directives is an acknowledgement of a missed opportunity. The fact that 24 of the 28 EU member states are now subject to legal action shows how little emphasis there has been on efficiency savings.

Business Monitor believe one outcome of the decision to launch legal action is that EU members may now focus more heavily on 2030 efficiency targets , which were announced at the end of July, and propose reducing energy use in Europe by 30% by 2030 (based on projections made in 2007 ). While this target is in many regards a compromise between member states, it does send a positive signal to investors in efficiency technology and is a longer-term statement of the EU's intentions. The target could certainly have been more stringent. It is below the 40% level initially mooted by the EC itself - a target that EC data indicates would have offered more significant economic and environmental benefits. However, Business Monitor emphasise that opposition to more stringent targets because of concerns about cost of implementation will remain a characteristic of broader energy policy in Europe.

As such, the watering down of targets and policy slippage are likely to continue as concerns about the impact of costly green energy measures on electricity prices and European competiveness grow. The proposed 2030 renewable and climate package was a case in point. In this politic al environment, Business Monitor do not believe the 40% target would have been accepted by all EU member states when they meet to agree a deal in October 2014. More important will be whether or not the targets are binding at a country-specific level - something that was not the c as e for the 2020 efficiency targets, or the 2030 renewables targets, and one of the reasons for policy slippage.

Business Monitor also highlight that too great a focus on energy efficiency might have undermined the European Emissions Trading Scheme (ETS) - a concern that will continue to cap more ambitious energy efficiency targets. A reduction in energy demand would reduce emissions; however, it would also exacerbate the current glut of carbon permits. This would make it harder for the EC to boost carbon prices and throw into question the relevance of the ETS - even though this flagship emissions reduction mechanism has thus far failed to function effectively anyway.

Business Monitor view, the factor that is most likely to galvanise support for energy efficiency will remain concern about Russian gas supplies. Business Monitor have already highlighted that the tone and language used by the EU when it unveiled its Energy Security strategy (in May 2014) was more assertive - and Business Monitor believe this could feed into a greater emphasis on energy efficiency in the future

In practice, progress will be slow, but the desire to reduce reliance on Russian fuel will remain a considerable incentive and could help cut the potential for future policy stalemate. The Energy Security strategy commits to investment in new electricity transmission networks, storage infrastructure, and renewable energy - all areas that have close links with energy efficiency measures. Business Monitor note, for example, that the installation of electricity interconnectors is one way to boost efficiency and manage cross-border supply and demand more effectively.

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Sarah Sutcliffe
Business Monitor International
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