An exploration of possible design options for a binding energy savings target in Europe

Abstract

As Europe is not on track in meeting its 2020 energy savings target, there has been quite some debate to make the energy savings target binding instead of indicative. Although the final draft text of the Energy Efficiency Directive left the option of a binding target explicitly open for the period beyond 2014, this statement has watered down in the adopted Directive: If still not on track mid-2014, the European Commission will propose “further measures.” In this paper, we argue that a binding energy savings target could be the first EU legal initiative to look beyond 2020 serving as a beacon for other policies such as for renewables and greenhouse gases that need redefinition after 2020. We therefore explore four possible design options of a binding savings target and assess their feasibility. We conclude that a binding target at Member State level (opposed to an EU-wide target like for the EU Emission Trading System (ETS)) is the most feasible. A binding target at Member State level would ensure political accountability and commitment to deliver results while providing flexibility to choose and apply the most suitable tools to achieve the target. It could provide a framework to guide ambitious and coherent implementation of EU energy efficiency policies, as well as the strengthening of national policies. Furthermore, binding targets at Member State level will make Member States take an ambitious position in Brussels when new energy or CO₂ performance standards for appliances and transport modes are to be set. A Member State binding target applied to end-users (excluding ETS companies) is a design option that covers the vast majority of the cost-effective energy savings potential, maintains the flexibility for ETS companies, and supports the most cost-effective achievement of a greater share of renewables.

Introduction

Today, Europe has a binding target for renewable energy (20 % renewable energy in gross final energy consumption in 2020) and a binding target for greenhouse gas (GHG) emission reduction (−20 % in 2020 compared to 1990). For energy savings, there is only an indicative target of 20 % in 2020. This 20 % target, estimated against the 2007 EU Baseline Scenario (Capros et al. 2008), represents an absolute primary energy use of 1,474 Mtoe in 2020.¹ With a projected primary energy use (excluding non-energy use) for 2020 of 1,842 Mtoe (Capros et al. 2008), 368 Mtoe needs to be saved.

Europe is not on track in meeting its 2020 energy savings target. In a study for the European Climate Foundation, it has been reported that without intensified policies a gap of around 208 Mtoe will remain to meet the target (Ecofys and Fraunhofer ISI 2010, p. 5). Also in the 2011 Energy Efficiency Plan of the European Commission, it is recognized that with current policies the target will not be met: “[…] recent Commission estimates suggest that the EU is on course to achieve only half of the 20 % objective.” (European Commission 2011a, p. 2).

In Fig. 1, the energy savings gap is visualized. In the 2009 EU Reference Scenario (Capros et al. 2010), the projected primary energy use (excluding non-energy use) is 1,650 Mtoe, meaning an energy savings gap of 176 Mtoe (1,650–1,474 Mtoe).² From the graph we learn that the projected reduction in energy consumption is delivered by (1) the remaining impact of the recent economic recession, starting in autumn 2008 (around 70 Mtoe³), and (2) savings due to energy efficiency and renewable policies implemented since the 2007 baseline (around 122 Mtoe).

Fig. 1

Europe’s energy savings gap (based on Capros et al. 2008, 2010)

As current energy efficiency policies fail to close the energy savings gap, the need for binding energy savings targets has been topic of debate in the past 5 years. So far, however, the European Commission refrains from setting a binding target. As stated in the 2011 Energy Efficiency Plan (European Commission 2011a, p. 4): “The leading principle of this plan is to propose stringent binding measures without binding national targets.” In the introductory text of the proposed Energy Efficiency Directive, the following argument is given (European Commission 2011b, p. 3): “It indicates that such [energy savings] targets do not need to be binding at present and that binding measures can achieve the same or better results.” Although in the proposed Energy Efficiency Directive the European Commission included a provision to set legally binding national targets for 2020 in case the proposed measures would not get Europe back on track in meeting the 20 % target (European Commission 2011b, recital 13), in the adopted Energy Efficiency Directive (European Parliament and Council 2012) any reference to a binding target has been removed. The ambitions of the European Commission, which got support from the European Parliament, severely watered down in discussions with the European Council (2011).

Until now, most new or improved EU policies have focused on the year 2020. In the 2011 communication “A roadmap for moving towards a competitive low carbon economy in 2050,” the European Commission sets a first step in defining policies and targets beyond 2020 (European Commission 2011c). A binding energy savings target, e.g., for 2030, could be the first EU legal initiative to look beyond this date. Extending the time horizon of a new energy savings policy may free the EU from the “chains” of existing climate and energy policies. Other policies such as for renewable energy and GHGs that need redefinition after 2020 could then build on firm and cost-efficient energy savings policies.

The objective of this paper is to explore design options for such binding energy savings target beyond 2020. The report “Energy Savings 2020: how to triple the impact of energy saving policies in Europe” for the European Climate Foundation (Ecofys and Fraunhofer ISI 2010) serves as background document for this exercise. All three authors of this paper are lead authors of the Energy Savings 2020 report.

Justification of a binding energy savings target

Before discussing the design of a binding energy savings target, we start asking ourselves whether such binding target is needed at all. This question can be answered taking a short-term (2020) or a long-term (2050) perspective. Given the current state-of-play in Europe, the introduction of a binding energy savings target for 2020 has become rather hypothetical and impacts up to 2020 would be limited in any case. Still it is useful to consider the need of such short-term target, e.g., if the current energy efficiency policies fail to deliver the indicative target. As a means to achieve the 20 % renewable energy target and the −20 % GHG reduction target in 2020 (i.e., short-term perspective), the answer may be “no” as in the EU Reference Scenario (Capros et al. 2010), both the renewable energy target and the GHG reduction target are met. Not meeting the indicative 2020 energy savings target apparently does not hamper achievement of the other targets. However, when considering energy savings as a goal in itself, there seem to be legitimate reasons for the short term to strengthen energy efficiency policy, e.g., by setting a binding energy savings target (Ecofys and Fraunhofer ISI 2010):

• A significant share of the energy savings potential is cost-effective: Closing the energy savings gap (see Fig. 1) could lower EU energy bills by almost €60 billion annually in 2020.⁴

• Saving energy is labor-intensive and would create many new jobs, contributing to Europe’s long-term competitiveness.

• Saving energy would improve energy security by reducing Europe’s fossil fuel import dependency.

• Closing the energy savings gap identified in Fig. 1 would make a major and cost-effective contribution to the achievement of the 2020 renewable energy target.⁵

Taking the long-term perspective, a variety of studies show that for achieving −80 % or even more GHG emission reduction by 2050 (compared to 1990), deep energy savings are crucial (e.g., ECF 2010; IEA 2012.

An argument against a binding energy savings target is that binding elements in the current energy efficiency policies will do the job. Among these are as follows:

• The minimum energy performance standards for different product groups (electricity and fuel) set in the Implementation Measures under the Eco-design Directive (European Parliament and Council 2009a)

• Regulation setting limits on CO₂ emissions from new passenger cars and light duty vehicles (European Parliament and Council 2009b)

• The recast of the Energy Performance of Buildings Directive (EPBD) (European Parliament and Council 2010), with “nearly zero energy standards” for new buildings, energy performance standards for “major renovations,” and the obliged issuing of energy performance certificates for existing buildings

• Binding elements in the Energy Efficiency Directive, in particular:

  • A binding annual 3 % renovation rate of central government buildings⁶

  • The obligation of each Member State to set up an energy efficiency obligation scheme or implement an alternative policy package that between 2014 and 2020 annually lead to energy savings equivalent to 1.5 % of the annual energy sales (by volume) to final customers of all energy distributors or all retail energy sales companies⁷

Regarding the minimum performance standards for product groups, it must be noted that for a large number of product groups, Implementation Measures have not been adopted, yet. So far, 15 Implementation Measures have been adopted (status as of February 2013).⁸ These cover around 40 % of final electricity consumption in Europe. In 2013, another nine Implementation Measures could be adopted including one on boilers, one on water heaters and one on electric and fossil-fueled heating equipment. Twenty-one more product groups are scheduled for after 2013.

Missing in the above list of energy efficiency policies are minimum energy performance (or CO₂) standards for heavy duty trucks, ships, and airplanes.⁹ Moreover, the binding character of the EPBD for existing buildings seems rather weak as (1) “major renovations” should meet the minimum performance requirements in so far this is technically, functionally, and economically feasible and (2) it is unclear at the moment whether the energy performance of a whole building or only of the renovated part needs to be improved.

Given the present state of play of energy efficiency policies, one could argue that a binding energy savings would, as an umbrella policy, add value to the existing policy package. It would help to:

• Speed up the implementation process of the remaining Eco-design Implementation Measures and make sure that ambitious minimum energy performance standards are being set¹⁰

• Stimulate Member States toward a fast and ambitious implementation of the EPBD, especially for existing buildings

• Speed up adoption of CO₂ regulation for heavy duty trucks, ships, and airplanes

• Stimulate Member States toward fast and ambitious implementation of the obligations in the Energy Efficiency Directive regarding the renovation of central government buildings and the setup of an energy efficiency obligation scheme (or alternative policies)

There is another important argument in favor of binding energy savings targets. All current policies aim at increasing energy efficiency but lack the means to limit volume growth (e.g., in car transport) and structural change (e.g., increased use of electric appliances in households). An absolute reduction of energy demand is, especially on the longer term, key for GHG reduction and energy security policies (European Climate Foundation 2010; IEA 2012). A binding energy savings target may stimulate governments to yield, e.g., the energy savings potential of modal shifts in transport and to discourage ever growing electricity consumption in households.¹¹

Approach

Policy design is one of the early steps in the policy cycle. After problem recognition (e.g., “Europe being not on track in realizing its energy savings ambitions”), solutions are identified (e.g., “a huge cost-effective energy savings potential is out there”) and policy proposals are identified (a binding energy savings target being one of them). The European Commission uses the following general criteria for evaluating a new policy (European Commission 2009):

• Effectiveness—the extent to which a new policy achieves the policy objectives

• Efficiency—the extent to which objectives can be achieved for a given level of resources/at least cost for society (cost-effectiveness)

• Coherence—the extent to which a new policy is coherent with the overarching objectives of EU policy and the extent to which it is likely to limit trade-offs across the economic, social, and environmental domain

In this paper, we do not focus on the efficiency criterion in relation to the binding savings target. As stated in the previous section, a binding energy savings target can be considered an umbrella policy that stimulates the accelerated implementation and/or intensification of energy efficiency instruments. It is merely the setup of those policy instruments rather than the binding target which determines the cost-effectiveness of individual instruments and the full package.

Our focus in this paper concerns the effectiveness and coherence criteria. Regarding the evaluation of effectiveness, data measurement and data transparency are key factors. As part of the evaluation of coherency, we look at two issues: (1) the flexibility that the options provide to Member States and (2) the interaction with standing policies. In Huitema et al. (2011), a similar criterion (labeled as “coordination criterion”) is used to assess a policy in coherence with other policies. Ideally, a new policy (such as a binding energy savings target) should strengthen current policies. This is the “coherency” argument that is introduced in the White Paper on Governance (European Commission 2001) and is an important element of the EU Impact Assessment Guidelines (European Commission 2009). Maximizing coherence means maximizing the mutual reinforcement of policies actions across government departments and agencies, creating a synergy that promotes the achievement of EU objectives. Note that if a policy design for a binding energy savings target is not coherent with standing policies, this does not necessarily mean that the option should be discarded. Alternatively, suggestions for change of current policies, in order to optimally fit a new policy set, could be provided.

In order to explore the most feasible design option for an energy savings target in Europe, we follow a four-step approach. In step 1, we first define four main design options. In step 2, we discuss design features with respect to the definition of an energy savings target. In step 3, we explore the interaction of the four design options with standing policies. In step 4, we evaluate the flexibility of the design options provided to Member States to shape their own national policies under binding EU provisions. Finally, we discuss our main findings and conclude on the most feasible design of a binding energy savings target for Europe.

Step 1: defining the aggregate at which the target is set

In our analysis, we distinguish between four main design options for a binding energy savings target¹²:

• 1. One economy-wide energy savings target at the EU level

• 2. A target set at the EU level for end-use sectors (or part thereof) only

• 3. One economy-wide energy savings target for each Member State

• 4. A target set at the Member State level for end-use sectors (or part thereof) only

Each of the four design options will be shortly described below.

One economy-wide energy savings target at the EU level

Today’s 20 % energy savings target is an economy-wide target set at the EU level. However, this target is non-binding. A single EU economy-wide binding energy savings target needs to be incorporated in a new legal EU act. Such an act could be stand-alone as, e.g., the Energy and Climate Package (European Parliament and Council 2009c, d, e, f). One could potentially also envisage a “master frame” for a new set of energy policies under the new energy chapter of the Lisbon Treaty (European Commission 2005). This requires innovative policy making and has—to our knowledge—so far not been realized in other EU policy areas.

A target set at the EU level for end-use sectors only

An alternative design option is to introduce a binding target at the EU level that covers part of the EU economy, e.g., the end-use sectors. A comparable example for such a design is the EU-Emission Trading System (ETS) Phase III (European Parliament and Council 2009c). One of the arguments in favor of setting a target for end-use sectors only is that most of the cost-effective energy savings potential can be found there (see Table 1). Other arguments are discussed in “Step 2: scanning of design features” section.

Table 1 Identified energy savings potential in 2020 additional to the 2007 EU Baseline Scenario (Ecofys and Fraunhofer ISI 2010, p. 94)

One economy-wide energy savings target for each Member State

A single economy-wide target, set for each EU Member State, would imply that the effort to meet the overall EU target effort is shared¹³ over the 27 Member States. Similar to the approach with burden sharing for the reduction of GHG emissions, one could use equal marginal costs (or benefits) across the Member States as criteria to divide the target. Other criteria are, however, also possible, for example by taking per capita income into account, which may enhance political feasibility of national targets.

A target set at the Member State level for end-use sectors only

An alternative for design option 3 is to introduce a binding national target that covers part of the economy, e.g., the end-use sectors. Comparable examples are Europe’s renewable energy target and the GHG reduction target under the Effort Sharing Decision which covers all sectors not subject to the EU-ETS. Related examples from other policy areas than energy and climate are for example the emissions ceilings for air pollutants under the National Emission Ceilings Directive, the EU milk quota, and the Total Allowable Catches in EU fisheries policies.

Options 2 and 4 are more easy to evaluate as they offer an adequate starting point for evaluation, opposed to options 1 and 3 where the evaluator has first to disentangle the interaction between demand and supply side. For example, in case of higher energy use at the supply side, the question arises whether this be explained by higher growth (than projected) at the demand side or whether the supply side itself has become less efficient.

Step 2: scanning of design features

How to express and monitor a target?

An energy savings target can be set by means of:

• 1. A cap on energy use in the target year. It would set a target value in Mtoe energy consumption for the EU27 in the target year. Such an approach would be comparable with the emissions cap set on the EU-ETS scheme. Monitoring at the national or sector level would be straightforwardly based on currently available energy statistics. Setting such a cap would need a justification. This can either be provided by a problem-oriented approach (e.g., the amounts spent on energy consumption are not to exceed certain amounts in order to limit impacts on the economy) or more commonly the level could be derived from the approaches described in option 2 or option 3 converted to an absolute target. An example can be found in the Energy Efficiency Directive which in article 3.1 translates the 20 % savings target in an EU energy consumption cap of maximum 1,474-Mtoe primary energy or 1,078-Mtoe final energy in 2020.

• 2. A target for energy use in the target year relative to a base year. This approach would be comparable to the current greenhouse gas emissions target of the EU for 2020 (−20 % compared to 1990). The energy use target would only change over time if the monitoring data of energy use in the base year are redefined. Similar to option 1, monitoring would be straightforwardly based on currently available energy statistics.

• 3. An energy savings target relative to a projected baseline energy use in the target year. This is how the current EU energy savings objective has been expressed before publication of the Energy Efficiency Directive (20 % savings in 2020 relative to the projected energy use in 2020). Because the target is set as a relative target, its implications for the absolute energy use in the target year can be unclear.¹⁴ In addition, this type of target setting does mostly not make explicit how the introduction of a new baseline projection affects the target. The baseline could be reevaluated in a dynamic manner by taking into account changes in the baseline (not linked to the policy measures undertaken to reach the target). This, however, makes the target and its monitoring rather complex. For that reason a reference development could be fixed once for all.¹⁵ This makes option 3 in fact equivalent to option 1. If the economy develops substantially different from the supposed reference development, it may be much easier (or more difficult) to reach the target.

• 4. A certain volume of energy savings to be realized in a target year. This is comparable to the way Member States’ targets under the Energy Services Directive¹⁶ were defined, as well as the 1.5 % annual savings target from energy efficiency obligation schemes in the Energy Efficiency Directive. Typically, monitoring of a savings volume requires bottom-up data from sub-sectors or projects. This requires harmonized and data-intensive monitoring and calculation procedures. Note that this target option does not necessarily lead to absolute energy use reduction. There could be variants of this option, for example by introduction correction factors, e.g., for climatic variations, for structural changes, etc. (see also item 6).

• 5. A certain improvement of the energy intensity of the economy (relative target). Here intensity points to the ratio of energy use over GDP. For example, China has expressed its energy savings target as an energy intensity improvement. A target based on energy intensity allows for absolute growth of energy use, as long as the energy intensity improves. A key sensitivity of expressing a target as energy intensity is that it masks whether intensity improvement indeed occurs from implementation of more energy efficient technologies or from changes in the economic structure. For example, high growth of sectors with a high value added like the services sector or the tourism sector also improves a country’s energy intensity.

• 6. In general, option 5 may be refined by specifying more or less explicitly correction or normalization factors to be taken into account in the formulation of a relative target, e.g., corrections for changes in structure, for autonomous progress, or normalization for annual variations in climate. Such refinements have been developed under the Odyssee-MURE project (Odyssee-MURE 2012), up to the so-called ODEX which is a composite index for energy efficiency similar to the Dow Jones for shares at the stock exchange. The advantage of such an approach is that the factors influencing the result are as far as possible separated from the intended policies. This guarantees that the policy effort is maintained. Other factors of impact, however, may substantially counteract (or support) the policy impacts. In addition, the correction methods could be rather complex and subject to dispute at the policy and science levels.

The EU 2020 strategy (European Commission 2010) postulates that “These targets […] must be measurable […..] and based on sufficiently reliable data for purposes of comparison.” In other words, a target should be transparent and easy to monitor and evaluate. In our view, these criteria are a starting point for any design of a binding energy savings target. By far the most straightforward way to comply with these criteria is to define a target as an absolute energy use in a target year and monitor the absolute development of energy use over time (option 1).¹⁷ This means that the energy use which remains is measured, rather than estimating the savings (option 4). In this approach, the volume of energy savings, as compared to a baseline development, is only estimated once, and upfront, when setting the target. Subsequently, existing energy statistics, already implemented in all EU Member States through statistical offices, provide a straightforward way to monitor progress toward target achievement. This approach implies that other changes in energy use than those stipulated by energy efficiency improvement (e.g., structural change and volume effects due to higher or lower GDP growth) need not be corrected for when monitoring target progress. Also other variations in energy use such as variable weather conditions and business cycles (a target year can be extremely cold or hot and industry can have extremely low or high output) should in principle not be corrected for. This is similar to, e.g., the EU GHG reduction target which is also defined without allowing corrections for such variables. Of course, in refining the design of a binding energy savings target, one could include the possibility to make ex post corrections on the statistics if a Member State can prove that the target year was significantly deviating from the long-term average in certain aspects (weather, business cycles).

Transparent monitoring data serve as a starting point for adequate evaluation. If monitoring data show that one is not on track in achieving the binding energy savings target, data transparency allows the evaluator to trace which sectors fail to contribute to target achievement¹⁸ and try to explain this failure: Are policy instruments not effective, is the economic growth higher than projected, etc.? Insight in the potential contributions to the target of different energy carriers (fuels, electricity, district heat) and/or sectors (transport, residential, services, industry) would steer the evaluation of the energy efficiency policies (that are intended) to support target achievement and allow (if needed) for effective strengthening of existing policy instruments or adding new ones to the package. Although the fundaments of target evaluation are sound, any in-depth analysis trying to explain the development will experience practical problems, one of them being the (approximately 2 years) delay in the publication of energy statistics.

Expressing a target in primary or final energy

The choice of expressing a target in primary or final energy is directly related to the scope of the target. An economy-wide target, like the Europe’s current 20 % energy savings target, will by definition be expressed in primary energy terms. This is to avoid double counting of secondary energy savings from electricity and district heat which are already reflected in the primary energy savings of the supply sector. On the other hand, in case a target is set for end-use sectors, it can be expressed in final energy terms or in primary terms. A final energy target relates to the sum of the fuel, electricity, and heat demand of end-users. In case of a primary energy target, not the secondary electricity and heat use are counted, but rather the primary energy needed to produce these.

From an evaluation point of view, the advantage of an end-use target based on final energy is that no conversion efficiencies for electricity and district heating are needed. The disadvantage is that fuel savings are weighted stronger than electricity savings, meaning, e.g., that switching from fuels to electricity will be counted as energy savings, which is not always true. The advantage and disadvantage of an end-use target based on primary energy is vice versa: The weight of electricity savings and district heat savings compared to fuel savings is better accounted for in a primary energy target, but one needs precise conversion efficiencies (which are often subject of debate) for electricity and district heating. The choice between a target expressed in final or primary energy strongly depends on the design of the binding energy savings target (see Table 2).

Table 2 Relation between target design option and choice for expression in primary or final energy

Rather than applying a precise conversion factor on final electricity and district heat (end-use targets expressed in primary energy under design options 2 and 4), one could alternatively use a “weighting factor” in what we call “adjusted final energy” approach. The aim of such factor is to weigh electricity savings (and district heat savings) in a similar way as fuel savings, rather than to apply the exact (often Member State specific) conversion factor to primary fuels. We recommend applying a weighting factor that is constant across Member States and over time. A constant factor over time (at least for the target period) would provide a most transparent view on end-use energy savings achieved. A constant factor across Member States would assure that fuel, district heat, and electricity savings are weighted the same way across Member States, which would provide an EU-wide level playing field for end-use energy savings. Such weighing factor could be 2.5 for electricity conversion and around 1.2 for district heat conversion.¹⁹ One has to realize that the so calculated “primary energy” for a country can deviate substantially from the primary energy of its energy balance.

From the viewpoint of an evaluator, the choice how to express a target is very important to allow for adequate evaluation. A binding energy savings target for end-use sectors that is expressed in primary energy obscures transparency of the savings achieved as a direct link with the statistics is missing.²⁰ When an end-user target is expressed in final energy, any failure in progress toward target achievement can be directly linked to end-use energy statistics. Applying the “adjusted final energy” approach takes on board the benefits for evaluation and at the same time recognizes the weight of electricity and district heating compared to fuel, which is not only relevant for electricity (and district heating) savings but also considering the increased use of electric heat pumps and electric vehicles.

Step 3: interaction with GHG and renewable energy policies

Earlier in this paper we argued that a binding energy savings target would, as an umbrella policy, add value to the existing policy package by speeding up ambitious implementation of Eco-design standards; stimulating Member States toward a fast and ambitious implementation of the EPBD; speeding up adoption of CO₂ regulation for heavy duty trucks, ships, and airplanes; and stimulating fast and ambitious implementation of the obligations in the Energy Efficiency Directive regarding the renovation of central government buildings and the setup of an energy efficiency obligation scheme. This can be considered interaction of a binding energy savings target with (existing) energy efficiency policies. In case of no further policy interactions, the ex ante effect of implementing a binding energy savings target on top of existing (and already intended) energy efficiency policies would be the difference between a baseline projection without a binding target and a projection including such target. However, interactions with other policies will take place. Insight in these interactions is crucial from the viewpoint of evaluation as they provide input in explaining either success or failure in the progress made toward target achievement. In this section, we analyze the interaction between a binding energy savings target and the following policies:

• EU-ETS Directive (European Parliament and Council 2009c)

• Effort Sharing Decision (European Parliament and Council 2009d)

• Renewable Energy Directive (European Parliament and Council 2009e)

• CCS Directive (European Parliament and Council 2009f)

Interaction with the EU ETS Directive

Each of the four design options identified under step 1 will interact with the EU-ETS. An economy-wide binding energy savings target includes the energy use of ETS companies and has therefore a direct interaction with the ETS. A binding energy savings target including only the energy use of non-ETS end-users interacts indirectly with the ETS via electricity and district heating savings. A binding energy savings target that would promote electricity savings by end-users will reduce emissions of the power producers that participate in the EU-ETS.²¹ This is a clear interaction, but what does it mean? One view is the following:

• The EU-ETS forwards a CO₂-price signal to end-users that predominantly use fossil-based electricity which in theory should already provide sufficient incentives for reducing electricity demand. Additional incentives for end-use electricity savings (e.g. by means of a binding energy savings target) would be redundant, because the EU-ETS cap will guarantee that the emissions associated with electricity are reduced by one way or another (e.g. by fuel shift from coal to gas in power production, demand side savings, shift to renewables, etc.). Stronger electricity end use savings than envisaged in setting the ETS cap (because of introducing a binding energy savings target) could even endanger the EU-ETS as it reduces the scarcity under the scheme, reducing the CO₂ price and thus reducing the incentive to make long term investments in clean technology.

Alternatively one could argue that:

• EU-ETS is not the silver bullet for end-use electricity savings. A policy mix is always required, as price incentives alone are not sufficient to stimulate electricity savings due to the so-called bounded rationality of end-users and due to non-economic barriers. From a societal, economy-wide, cost-perspective electricity end-use savings are often cheaper than alternative options like a shift to low carbon fuels, renewables, CCS, etc. Realizing cheap emissions reductions outside the ETS scheme reduces costs for ETS participants, which is fully in line with the primary aim of the EU-ETS, i.e., to achieve the emissions cap against the lowest cost. Policies for stronger electricity savings than envisaged when setting the ETS cap should be designed in conjunction with future adjustments of the EU-ETS cap, in order to maintain the full incentives from the ETS instrument. In line with the latter, it has been discussed to include a tightening of the ETS cap under the new Energy Efficiency Directive (see, e.g., WWF 2012). Both the Environment (ENVI) Committee (December 2011) and the Industry (ITRE) Committee of the European Parliament (February 2012) voted in favor for such adjustment. However, no agreement on this issue has been reached with the European Council

From an evaluation point of view, we observe the following:

• The effectiveness of the ETS will only change in case the ETS cap is corrected downward because of additional electricity and district heating savings. In case of no correction, it is unlikely that more reductions than demanded will take place in the market. In that case, the additional electricity savings realized by the binding savings target will not lead to additional CO₂ savings.

• The cost efficiency of the ETS will most likely improve as the electricity and district heating savings are in general more cost-effective than, e.g., renewable electricity options. This effect will be stronger in case the ETS cap will not be adjusted.

• Without correction of the ETS cap, strengthening of the ETS by a binding energy savings target is only limited (coherence criterion).

• Disentangling the ETS impact and the impact from binding savings target with respect to electricity savings is virtually impossible. Evaluation of both policies separately would almost by definition lead to double counting. In case of a combined evaluation, an attempt could be made to isolate the impact of both policies, but the political meaning of such exercise would be subject to strong debate.

Interaction with Effort Sharing Decision

Each of the four design options identified under step 1 will interact with the Effort Sharing Decision or any follow up of this Decision after 2020. The targets under the Effort Sharing Decision are for direct GHG emissions from built environment, transport, non-ETS industry, agriculture, and waste sectors (the non-ETS sectors) and do therefore not include electricity consumption. The interaction between the Effort Sharing Decision and binding energy savings targets is therefore relevant for all target designs that include fuel consumption in the non-ETS sectors. As the majority of savings regards fuels, the interaction of a binding savings target with the Effort Sharing Decision would be substantial. The overall EU27 Effort Sharing target is −10 % GHG emissions in 2020 compared to 2005, with individual Member State targets ranging between −20 % for Denmark and +20 % for Bulgaria. In the Effort Sharing Decision, a quote can be found that directly links to a binding energy savings target: “Energy efficiency improvements are a crucial element for Member States to meet the requirements under this Decision. In this context, the Commission should closely monitor progress towards the objective to reduce energy consumption by 20 % by 2020, and propose additional actions if progress is insufficient.”²² A binding energy savings target, therefore, could strengthen the objectives of the Effort Sharing Decision. Alternatively, one could argue that political resistance may occur when a stringent binding energy savings target “overrules” a modest Effort Sharing target. Such resistance is not hypothetical as for a number of EU countries the effort sharing does not result in incentives for energy savings, whereas for other countries the burden is high (see Harmsen et al. 2011a). Recent developments in the policy debate on the Energy Efficiency Directive have shown that resistance against a binding energy savings target is strong.

From an evaluation point of view, we observe the following:

• The Effort Sharing Decision would in general be strengthened by a binding energy savings target (coherence criterion). Because of the identified imbalance in the Effort Sharing, this effect will be stronger for some Member States than for others. A tightening of the Effort Sharing Decision would be necessary, to correspond to a 20 % energy savings target.

• Disentangling the impact from the Effort Sharing Decision and the impact from a binding savings target with respect to fuel savings is virtually impossible. Double counting would most likely occur in case of separate evaluation of both policies.

Interaction with the Renewable Energy Directive

Options 1 and 3 that include the supply side of the economy will interact with the Renewable Energy Directive. Also for options 2 and 4, there could be interactions with renewable “behind the meter” but at least for electricity generating renewable those are smaller quantities, and today those are also considered in energy balances including renewable heat (though sometimes with high uncertainty in data).

The objective of the Renewable Energy Directive is to realize an overall 20 % share of renewables in total EU27 final energy consumption and 10 % renewable energy in transport in 2020. It is explicitly stated in the Directive that energy efficiency and energy saving policies are some of the most effective methods by which Member States can increase the percentage share of energy from renewable sources.²³ Thus, a binding energy savings target would help to meet any renewable energy target that is defined as a fixed percentage of energy consumption. The societal profit that arises from energy savings is double. Savings as such are very cost-effective from a societal perspective, where renewables still come at a net cost—disregarding external costs. This emphasizes the cost-efficiency of energy savings measures. Further, energy savings reduce the need for more interconnection and transmission lines which are subject to cost and acceptance debates with concerned groups.

Less known is that an increase of renewable electricity from wind, solar, and hydro results in primary energy savings. In Eurostat energy statistics and the official energy scenarios for the EU27 (Capros et al. 2008, 2010), the “physical energy content method” is used for reporting renewable energy statistics. In this method, primary energy is defined as the first commodity which can be converted into secondary energy (e.g., electricity). For wind, hydro, and solar power, this first usable commodity is considered the electricity produced. One unit of primary wind, hydro, or solar energy converts into 1 unit of electricity, i.e., a conversion efficiency of 100 % is assumed. This implies that renewable electricity from wind, hydro, or solar “saves” energy in case conventional power production is replaced (see Fig. 2). For biomass, the situation is different as power generation from biomass is generally less efficient than power generation from fossil energy sources, at least natural gas (at best it reaches the efficiency of gas). More than 20 % of the energy policy impact identified in Fig. 1 is due to the net savings effect of renewable electricity (i.e., the “unsavings” from biomass power are corrected for). So far, this contribution has been unrecognized in any of the evaluations carried for or by the Commission focusing on Europe’s energy savings gap (see, e.g., European Commission 2006, 2008, 2011a, c). For a more detailed analysis of the “energy savings” effect of renewable electricity, see Harmsen et al. (2011b)).

Fig. 2

“Energy savings” effect from wind, solar, and hydroelectricity (source: Ecofys and Fraunhofer ISI 2010)

From an evaluation point of view, we observe the following:

• Disentangling the net energy savings impact from additional renewable electricity and the impact from a binding savings target that includes the supply side can be done. From a policy design point of view, it makes sense to account for the savings effect from renewable electricity when setting the target.

• The approach for disentangling is to isolate the additional electricity production from wind, solar, and hydro, and biomass and then calculate how much energy would have been used in case non-renewable power plants would have been built (using efficiencies of state-of-the-art non-renewable power plants). Subtracting both figures provides the net “saving” effect of renewable electricity.

Interaction with the CCS Directive

Capture, transport, and storage of CO₂ consume energy. CCS decreases the net efficiency of a power plant by 7–10 % points (Hendriks et al. 2004) and perhaps smaller when the plants are better adapted to CCS. There are also CCS projects proposed that are outside of the power sector, e.g., on steel production. For those processes, it is not yet established whether energy consumption necessarily increases with adapting the processes to CCS. Large-scale application of CCS with an efficiency penalty will interact with all target designs that include the fossil supply sector (CCS for coal- or gas-based power production) and, to a smaller extent, power production from biomass-fired plants and large industrial boilers or processes. An energy savings target including the power sector and, thus, expressed in primary energy (options 1 and 3) needs to take into account the amount of additional primary energy due to application of CCS when setting the target.

From an evaluation point of view, we observe the following:

• Disentangling the additional energy use from CCS and the impact from a binding savings target that includes the supply side can be done. From a policy design point of view, it makes sense to account for the additional energy use from CCS when setting the target.

• The approach for disentangling is to isolate the energy consumption of CCS plants and recalculate this energy consumption as if no CCS takes place. Subtracting both figures provides the additional energy use.

Step 4: evaluating the feasibility of design options regarding flexibility to Member States

In this section, we scan through the opportunities and challenges of the four different design options identified in step 1. Here, the main criterion on which we evaluate the options is the flexibility that the options provide to Member States. Together with the interaction with standing policies, this criterion can be more broadly interpreted as the “coherency” of a design option with standing EU policies.

Binding targets should establish high level accountability and be regarded as the benchmark for the implementation of energy efficiency policies such as energy efficiency obligations for energy distributors, soft loans for renovations of buildings, top ambition for energy or emissions standards of products, etc. Such instruments should be tailored to move key players or obliged parties toward achieving the overarching binding target. Figure 3 provides a simplified overview of possible obliged parties, running from fuel suppliers to power- and industry installations, retail, consumers, and appliances producers. The colors indicate similar types of actor groups that might be considered to become the obliged parties under a binding energy savings scheme. Note that the ETS companies (orange) already are obliged parties under the EU ETS and that the manufacturers and building sector (light blue) are already responsible for meeting the minimum performance requirements of new products, cars, and buildings. The non-ETS consumers (yellow) currently do not have savings obligation whereas energy distributors and retailers (dark blue gray) are the intended target group of the energy efficiency obligation schemes of the Energy Efficiency Directive.²⁴

Fig. 3

Possible obliged parties under a binding energy savings target (colors indicate comparable actor groups). TSO transmission system operator, DNO distribution network operator

Flexibility in relation to design options 1 and 2

A single (or sectoral) EU economy-wide binding target(s) would create a new boundary condition for EU legal acts that already set targets or binding measures at the EU level, like the EU-ETS, the CO₂ performance of passenger cars, and the Eco-design Implementation Measures. An EU economy-wide binding energy target that includes fossil fuels from ETS installations limits the flexibility that EU-ETS provides. Instead of a market-based choice between fuel switching, reducing non-CO₂ GHG emissions, using CDM, or improving energy efficiency, ETS companies would be forced to deliver a certain amount of energy savings, emphasizing the higher value of savings compared to other options mentioned above. This implies that a future ETS cap and allocation procedure should be designed in such a way that it integrates both energy and GHG constraints.

Options 1 and 2 target designs would stimulate the introduction of new policies like CO₂ standards for heavy trucks, ships, and airplanes. However, such target would be most “disconnected” to EU policies like the EPBD being largely delegated to the Member State level. The same counts for the Energy Efficiency Directive: Article 7.1 obliges Member States to set up an energy efficiency obligation scheme, but Article 7.9 leaves flexibility to Member States to adopt other measures. Because of this disconnection, it is unclear what parties could actually be made responsible for meeting the target.

Flexibility in relation to design options 3 and 4

A single (or sectoral) national target(s) would provide Member States with flexibility on how to implement the target. It would create a positive incentive for ambitious implementation of framework Directives like the EPBD and the Energy Efficiency Directive, and it would strengthen the incentives for energy savings under the Effort Sharing Decision (non-ETS). As a result of a national binding energy savings target, Member States will be expected to take an ambitious position in Brussels with respect to setting of new standards in the Eco-design implementation measures and transport regulations. When binding energy saving targets are set on a Member State level, for the whole economy or a subset of sectors, incoherency could occur in the case where product standards have not been set—for whatever reason—ambitious enough to facilitate national target achievement. This is because Member States are not, or to a very limited extent, allowed by EU rules on common markets and by WTO rules to tighten product standards at national level. In such case, Member States have to rely on the softer labeling instrument or design more expensive programs for accelerated replacement of old equipment with more efficient equipment.

Member States may also conceive incoherency of a national economy-wide energy savings target with EU-ETS policies. This is because the ETS sector in a Member State is allowed to increase CO₂ emissions (and thus its primary energy use) as long as this is compensated EU-wide, elsewhere in the Trading Scheme. In such case, the increased primary energy use would require an additional effort from this Member State to meet its energy savings target. To avoid this incoherence with EU-ETS, a partial national target could exclude the fuel use of ETS.

Conclusion

The aim of this paper was to consider which design of a binding energy savings target for the EU is the most feasible. Although in the current political debate there seems no room for discussing a binding energy savings target—at least for 2020—our analysis contributes to the debate of defining policies and targets beyond 2020, being initiated by the EU 2050 roadmap (European Commission 2011d).

Whether a binding target is set at the Member State level for the economy as a whole, or for selected section(s) of that economy, success in achieving that target relies on effective implementation. Experience suggests that there is no single “silver bullet” for achieving deep and large-scale energy savings through efficiency, but rather a mix of delivery strategies and national policies will be needed, tailored to local circumstances.

Though in theory all four design options identified can be chosen, our analysis suggests that the most feasible design option which is workable and can be effectively evaluated is to introduce a binding energy savings targets for end-users at the Member State level. Our key findings on this and related design issues are summarized below.

A binding target for end-use sectors at Member State level is the most feasible

A binding target at Member State level would ensure political accountability and commitment to deliver results while providing flexibility to choose and apply the most suitable tools to achieve the target. It could provide a framework to guide ambitious and coherent implementation of existing EU energy efficiency policies, like the EPBD, as well as the strengthening of national policies. Such policy package should reduce the risk of fragmented or weak national implementation activities. Furthermore, binding targets at Member State level will make Member States take an ambitious position in Brussels when new energy performance standards for, e.g., appliances or cars are to be set.

A Member State binding target applied to end-users (excluding ETS companies) is a design option that covers the vast majority of energy savings potential (see Table 1) and maintains the flexibility for ETS companies and supports a most cost-effective increase of the share of renewable energy.

In order to achieve coherence with the 20 % overall energy savings target, an effort sharing may be necessary which bring the Member States targets into a coherent framework. In our view, a good criterion for sharing the effort between the Member States would be the cost-effective energy savings potential that could be deployed in the target period considered.

A binding target is best defined in absolute energy use terms

A savings target should be transparent and easy to monitor and evaluate. By far the most straightforward way to comply with these criteria is to define the target as an absolute energy use in a target year and monitor the absolute development of energy use over time. This means that the energy use which remains is measured, rather than estimating the savings. Under this approach, the volume of energy savings, as compared to a baseline development, is only estimated once, and upfront, when setting the target. Subsequently, existing energy statistics, already implemented in all EU Member States through statistical offices, provide a straightforward way to monitor progress toward target achievement and an adequate starting point for policy evaluation. Such approach would also best safeguard the strong energy savings that are required to achieve the EU’s ambition of deep GHG reductions toward 2050. A target defined in such a way does equally accept a reduction in energy consumption arising from a lower than expected economic growth and policy induced energy savings. There are clear overlaps with the GHG reduction targets. If both targets are not set in coherence with each other, one of them will be devaluated.²⁵

A binding target is best expressed as “adjusted final energy”

Our analysis suggests that a target for end-users should preferably not be expressed in primary energy terms to avoid a disconnection between the energy statistics of end-use consumption and the target. The target may preferably be expressed as “adjusted final energy use.” Here, the electricity and district heat components of final energy use data, readily available from energy statistics, are weighted with a factor of 2.5 and 1.2, respectively. This is to assure a level playing field between electricity and district heat savings on the one hand and fuel savings on the other. We recommend weighting factors that are constant over time and across Member States, at least during the target period. This method resembles the primary energy use definition but may take away some of a natural tendency to use Member State-specific conversion factors. A constant factor over time would provide a most transparent view on end-use energy savings achieved. A constant factor across Member States would assure that fuel, district heat, and electricity savings are weighted the same way across Member States, which would provide an EU-wide level playing field for end-use energy savings and is most appropriate for electricity as Europe is aiming for a common electricity market.

How to evaluate such target?

A binding energy savings target for end-use sectors at Member State level such as described above can be evaluated in a relatively straightforward way. Energy statistics are the basis for determining the impact of the savings target and allow assessing whether target achievement is on track or not. In case target achievement is not on track, the evaluator should descend into the specific sectors to find out which one of them is responsible for the underachievement by making use of a detailed set of energy efficiency indicators. Insight in the potential contributions to the target of different energy carriers (fuels, electricity, district heat) and/or sectors (transport, residential, services, industry) would steer the evaluation of the energy efficiency policies that (are intended) to support target achievement and allow (if needed) for effective strengthening of existing policy instruments or adding new ones to the package. The main difficulty for evaluators related to our recommended design is the exclusion of ETS sectors from the target.²⁶ In order to facilitate future evaluation, it is highly recommended to provide separate statistics for both ETS and non-ETS industrial energy use.

Our recommended target design avoids a number of difficulties that would make effective evaluation harder. Most of these difficulties relate to economy-wide binding energy savings target which cause interactions with renewable electricity and CCS, which create obscurity in energy savings achieved at the supply or demand side and which have a relatively loose link with end-use savings, especially with regard to electricity and district heating savings. A more general difficulty for evaluators relates to the introduction of a binding energy savings next to existing policies such as ETS and the non-ETS Effort Sharing. Inevitably, impact evaluation of those policies in isolation will lead to double counting.