Developing and implementing EU-level policy usually takes years, but once its direction is established a flow of consistent legislation should follow. The drive for greater liberalisation of the European energy market has so far led to three energy market packages which, although along the right lines in driving change, have been slow. The result is a huge investment shortfall because of fragmentation of the internal market and a lack of intelligent regulation.
If the EU is to move faster on energy efficiency, heads of government need to become more involved and overcome the fatigue often spurred by long decision-making processes, as was the case with the energy market packages. Member states should generally be more engaged in regional regulation instead of introducing counter-productive national legislation.
Nobody nowadays contests the reasons for improving energy efficiency. So the EU should be facilitating a European policy framework for this. No one country can make a serious difference to the EU’s overall energy performance, yet some initiatives are best pursued at a regional level, notably ecodesign and labelling and market initiatives that range from the emissions trading system to the energy savings obligation scheme.
As 2.5% of the EU’s GNP goes on importing energy, greater energy efficiency is vital if Europe’s rising energy demand is to be satisfied. Yet it is very clear that Europe is not going to meet its 2020 target for improving energy efficiency by 20%. The European Commission currently estimates that without further action the energy efficiency improvement will be only 9% by 2020. If the European Council and the European Parliament can agree on a position on the energy efficiency directive, due in the summer of this year, the EU will make some progress, but the member states still need to take additional measures.
EU policymaking often moves at such a slow pace that major reforms need several legislative packages. The case of the energy market liberalisation packages is a prime example; during the negotiations on the second package the most progressive forces, when I was myself the chair of the Competitiveness Council under the 2002 Danish Presidency, wanted more liberalisation than was delivered by the second and third packages combined.
Europe's energy policy is still dominated by major energy companies. This was the case in 2002, when we fought long and hard over the liberalisation measures in the second energy market package. To have come further down this path with the third package shows that industry reacts to policy directions. Now we need to be more ambitious still so as to push industry and create greater certainty for the ETS system.
Financing remains a major obstacle to energy efficiency, together with securing worthwhile returns on investment. We need annual investments of €85bn until 2020 to reach the 20% energy efficiency target. Of that total, €60bn should be invested in buildings, and only 30% of it should be public money.
In a report on energy efficiency published back in 2010, I took the view that the EU should create revolving funds to invest in energy efficiency measures.
The most important leverage of private investment is through the ETS and the proposed energy saving obligation scheme. For the ETS, we need a real scarcity of allowances to push up carbon prices. We need to trust the ETS and let it be the main instrument for moving towards a low-carbon economy. It has already been a success for a number of reasons. Notably that it has encouraged corporations to build climate policy into their decision-making, and also that it has generated good quality data, not least because the companies covered by the ETS account for around 45% of all CO2 emissions in the EU. But the carbon price is still too low to give an adequate incentive to investment. If we cannot rebuild trust in the ETS we will put at risk energy efficiency measures that specifically target industry.
The energy saving obligation scheme needs to be strengthened in future legislation and more national governments will slowly adopt the scheme once they see it working in such countries as the UK, France and Denmark. A light version was already included in the 2006 version of the EU’s Energy Services Directive, and while the Commission’s present proposal is likely to be watered down, it will be further strengthened in the future. The question is whether or not reforms are introduced quickly. In Denmark, the energy savings obligations scheme is more cost-efficient than stricter building codes and the labelling of appliances. In other words, the cost of energy efficiency is lower than the cost of supplying energy.
There is huge market potential for energy saving. The EU market is worth $35bn a year up to 2020. At a global level, the energy savings market is worth $170bn annually, with a yearly 17% rate of return. By creating this market we create jobs and we create more efficient new products. And in Europe we already have many companies that specialise in energy technology.
We have seen this at work in practice. Denmark's biggest retail group, Dansk Supermarked, achieved an annual energy saving of 1,700 MWh, enough to power 425 homes, just by changing the ventilation systems in 100 stores, and its investment was recouped in only three months. These changes were carried out under the Danish energy saving obligation scheme, something we Danes want to introduce in the EU through the Energy Efficiency Directive. When we launched it in Denmark the energy companies were quite negative, but today they want to have the targets raised.
A new focus for policymakers should be the adoption of binding long-term strategies because 2020 is no longer science fiction. We need to look further ahead to develop real visions for our society. Early action would yield many positive effects. First, emissions reductions carried out in Year One lighten the actions needed in subsequent years for reaching our minimum target of a 2 degrees centigrade temperature rise. Second, European companies could enjoy a competitive advantage. In China, workers receive low wages, work long hours, take short vacations and only enjoy a minimum of welfare. In Europe we have high wages, short hours, long vacations and high welfare. As a production worker costs $1.09 an hour in India, $1.98 in China, $23.25 in the UK and $45.01 in Denmark, how are European companies supposed to compete? One way is to limit welfare for those people who can afford it themselves, and another is to invest more in research and in creating better products. Resource efficiency will be a key driver in creating more competitive products, and Europe should be in the forefront of this.
There are several possible obstacles to early action. The most prominent is the reluctance of European governments to do what is necessary. Europe today has more member states and a different economic climate than when the EU-15 adopted the 20-20-20 targets and the ETS was introduced.
There is still a real lack of coherence in national governments’ priorities; energy and environment ministers don’t always listen to what their prime ministers tell them, and officials often won’t listen to what their ministers say.
Poland is frequently singled out as an obstacle to EU coherence, and although Polish governments sometimes lack a sense of diplomacy, they are also greatly misunderstood and at times wrongly attacked by NGOs. The 90% share of coal in their electricity consumption, coupled with their geographical proximity to Russia, limits their scope for action on emissions reduction. The easiest way to decrease emissions would be to accept the unacceptable and convert from coal to gas, and so become more dependent on their Russian neighbour. Fortunately, there are ways to avoid this difficult choice, and the continuing promotion of the internal market is one with energy efficiency also contributing.
Germany’s leadership could be vital. The internal divisions in Chancellor Merkel’s government are well-known, but in recent times she has tended to lean towards the green agenda, so it is unfortunate that she does not participate in the negotiations directly.
Some measures are not as effective as they could be because governments want to carry through national policies, which in one way or another are out of tune with the common good. One of the European Council’s most important co-ordinating tasks should be to protect and enhance the wider European interest.
Bendt Bendtsen MEP was leader of the Danish Conservative People's Party from 1999-2008 and is a former Minister of Trade and Industry. Bendt.Bendtsen@europarl.europa.eu
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