Energy, EU – Baltic States, Investments, Legislation

The proposal will set out a vision with real actions and firm implementation; hence it is accompanied by a list of concrete measures. European Commissioner responsible for energy and climate, Arias Cañete underlined most important dimensions of the “energy union”, i.e. such as energy efficiency (particularly energy efficiency in industry), energy security, and renewable energy sources.  

Proposal’s key dimensions

Firstly, the challenge of energy security; without swift and decisive EU member states actions, the EU will remain dependent on a single supplier; very often such a supplier would view the sale of gas/oil not simply as a commercial matter, but as a political weapon.

Furthermore, the EU will become more dependent on imports; extra imports delivered via new pipelines like the Southern Corridor will be offset by declining domestic production.

Important that the Commission’s concrete action would be in the form that European citizens would immediately understand and appreciate.

However, the member states need to consolidate relationship with the European trusted partners such as Norway, as well as reaching out to new transit countries and suppliers like Turkey and Algeria, while supporting old friends, like Ukraine.

The EU should build the necessary infrastructure to bring gas/oil to where it is most needed in the EU. With this in mind, the Commissioner would propose a new EU LNG strategy, while working to accelerate other infrastructure projects.

Secondly, the development of the Internal Energy Market; much remains to be done in order to achieve a truly integrated market. The idea is that a citizen in one member state must be able to buy electricity freely and simply from a company in another state. Besides, locally produced renewable energy must be absorbed easily and efficiently in the energy grid; and prices for citizens must be affordable and competitive.

EU politicians must develop long-term investment signals that will encourage sustainable and competitive supplies.

The member states have strong foundations to build on the energy market; however such market with a broad vision does not exist today, and achieving this would need additional efforts, argued the Commissioner.

Thirdly, renewable energy; the Commission’s President has set an ambitious to be a world leader in this area. This means becoming a global centre of excellence for developing and manufacturing the next generation of renewable energy technologies.

In order to achieve this, the EU needs to put in place the policies that will catalyse an extraordinary expansion of investment in the new and highly competitive clean energy (the target is to reach 27% by 2030).

The member states’ present target is towards meeting 20% renewable-share by 2020. Moreover, the challenge is to create a single EU market for renewable energy that would be fully integrated and competitive with the European electricity market; a renewable energy market must reward innovation and promote efficiency.

This will make an important contribution to improving energy security while being a driver for creating jobs and growth. In order to reach these objectives, the Commission will consult on and propose a new Renewable Energy Package.

Fourthly, a dimension that is integral to achieving all energy union objectives, i.e. the need to succeed in research. Without a leading edge in research and technology, the EU will not be the world leader in renewable energy, will not deliver the energy efficient homes, and will not be able to build truly smart cities nor to maintain a leading position on more traditional energy technologies and efficient vehicles. For all this to achieve, the EU needs a renewed emphasis on research.  

Fifthly, the moderation of demand and energy efficiency, an area that merit greatest determination at EU, national, regional and individual level. The EU is already a world leader here, said the Commissioner, with the EU’s motto "efficiency first". Already adopted EU’s framework of product standards, labeling and buildings codes have become the global “gold standard” in energy efficiency.

The Commission sees the need for a three-point initiative:

- First, new and updated legislation: a revision of the eco-design, labeling, buildings and energy efficiency directives; a new strategy on heating and cooling; and new measures on efficient vehicles, including promoting electro-mobility;

- Second, greater and more effective use of available funds, including the Juncker Investment Initiative and regional and structural funds. In this respect the Commission will promote a “Smart Cities and Communities” initiative and use the “Covenant of Majors” to its full potential; and

- Third, a new approach on improving energy efficiency of buildings. Investments in insulation are amongst the most profitable for citizens and industry today. Most of the work here has to be done at national, regional and local level, but the Commission is going to play a strong role creating the ideal framework for progress, with a particular focus on the poorest citizens in rented accommodation and those in energy poverty.

More on energy efficiency

Energy efficiency is one of the most cost effective means to reduce greenhouse gas emissions, improve energy security and economic competitiveness, and make energy more affordable for consumers.

And energy efficiency has an important role in creating jobs and growth; latest estimates show that 800 000 thousand jobs can be created through investments in energy efficiency.

An example is in the construction sector, where energy efficiency investments will be effective in contributing to economic growth and jobs, and where effects also have the benefit of being local.

In industry, energy efficiency policy aims to reduce the energy intensity of industrial activities, i.e. to increase energy productivity by producing the same or more with less input.

Energy price disparities with global competitors - and their impact on the overall costs of energy - are a major cause for concern for the competitiveness of Europe's energy intensive industries. It is estimated that EU industrial electricity prices are 20 to 30 % higher than those in the USA. The price gap for gas is even more striking: the price is roughly twice as expensive for EU industry as compared to that in the USA.

EU industry has responded to these trends by increasing its energy efficiency: in this century’s first decade (2001-11), the EU companies improved their energy intensity by 19% compared to 9% in the US. This has allowed them to maintain the same level of energy costs per million euro of added value as their US competitors, despite the latter benefiting from much lower energy prices.

Public-Private Partnership

The EU has developed industrial leadership initiatives that help to promote the uptake of breakthrough technologies that promote energy efficiency in industry, such as public-private partnership "Sustainable Process Industry through Resource and Energy Efficiency" (SPIRE). This partnership is dedicated to innovation in resource and energy efficiency, bringing together eight industry sectors operating in Europe who have a high dependence on resources in their production process. Its objective is to develop the enabling technologies and solutions along the value chain, required to reach long term sustainability for Europe in terms of global competitiveness, ecology and employment.

The EU has to ensure that the cost of energy in the long term allows EU industry to remain competitive, notably through increased energy efficiency but also the completion of the internal market for energy (through full implementation of the 3^rd energy package).

But energy efficiency in the industry context is not only a way of addressing rising energy prices but also a business opportunity. The International Energy Agency (IEA) estimates that investment in key energy efficiency markets worldwide totaled up to $300 billion in 2011 with a high potential for further growth. Markets for energy management technologies, efficient products, or efficient construction materials will be growing in the future and it is important that the EU industry fully capitalises on that.

Business and energy efficiency

European businesses, in particular the manufacturing industry, have already contributed much to making Europe one of the most energy efficient regions in the world, argued the Commissioner. For example, Ecodesign and energy-labeling legislation are instruments that contribute to incentives for industry to innovate and to create value. The carbon price that comes from the Emissions Trading System, ETS is another strong incentive for industry to become more and more efficient.

However, to further improve the investment signals towards a low-carbon economy, the EU ETS needs to be reformed. The Commission has proposed to establish a Market Stability Reserve, which will ensure better coherence between the ETS and other EU policies on energy efficiency and renewable energy. Commission expects that this proposal will be agreed by the European Parliament and the Council in the coming months. After that, the Commission will propose a wider review of the Emissions Trading Directive, to set the rules until 2030, including rules to adequately protect the competitiveness of EU industry where needed.

Energy and consumption

A decoupling of economic growth and energy consumption is reflected in the improvements that can be observed at the level of different end-uses: new dwellings built today consume on average 40% less than dwellings built 20 years ago, while cars consume on average 2 litres less than 20 years ago. This is to a large extent the result of concrete policies like the introduction of energy efficiency requirements into building codes and the setting of fuel-efficiency standards for passenger cars; there are numerous other examples.

At the same time there remains a considerable cost-effective energy savings potential. In order to produce the benefits that this potential represents, the EU has developed a comprehensive set of measures to drive progress. Hence, energy efficiency will remain central to the Climate and Energy Framework after 2020. This is because the challenges of uncertain energy supplies, growing energy prices and achieving a low-carbon energy system cannot be meaningfully addressed without increasing the energy efficiency of European economy.

Energy efficiency and consumption are also driven by other factors, e.g. energy prices and economic activity. Slower growth than previously anticipated contributes to reaching the 2020 target (the target is formulated in terms of absolute energy consumption). However, the impact of this factor should not be overstated: analysis shows that the impact of policies is twice the size of the impact of the economic slowdown.

Commission has estimated that the EU is currently on track to achieve 18-19% energy savings in 2020, leaving a gap of just 1 to 2 percentage points to the 2020 EU target.

In order to close the gap the member states need to make excessive efforts to fully implement already agreed legislation. The Commission will continue to work with the member states to ensure that the rules agreed by them at EU level are transposed, implemented and enforced on the ground; thus the key is proper implementation and firm enforcement.

Energy Efficiency Communication identified in 2014 some measures to push energy efficiency to get the best returns on investments, in lower energy bills, in increased security of supply, in more jobs and in benefits that energy efficiency brings (e.g. better homes providing more comfort to their inhabitants) by 2030.

In the Communication on the 2030 Climate and Energy Framework, the Commission already indicated that the cost-effective delivery of the 40% greenhouse gas target would require increased energy savings by 25%.

Note: recent events in Ukraine have highlighted the strategic value of energy efficiency that goes well beyond the contribution it makes to emission reductions. Commission shows that gas imports would be reduced by 2.6% for every additional 1% in energy savings. This is a win-win solution which will free up money that can then be allocated to other important areas. For example, spending money on the refurbishment of buildings rather than on gas imports makes sense both economically and as a community measure, as it creates local jobs and allows for better living conditions.

The Commission also proposed that the member states set the objective of saving 30% of energy by 2030. The European Council decided to opt for a target of 27% and asked the Commission to revisit this issue before 2020 having in mind the level of 30%.

Despite being less ambitious, reaching a target of 27% is not a business as usual approach. It already necessitates more efforts from policy-makers and market actors. To achieve this target, in fact, the energy intensity of the residential sector – for example – will have to be improving almost 5 times faster between 2020 and 2030 than it was the case between 2000 and 2010.

Achieving savings within this range will require the mobilisation of significant investments. The majority of the energy-saving potential is in the building sector and almost 90% of building floor-space in the EU is privately owned.

This fact points to the need for significant private financing: it is essential that a market for energy efficiency improvements emerges and public funds act to leverage private capital.

In recent years, the EU has been developing pilot schemes of innovative financing instruments and has earmarked €38 billion for low carbon economy investments under the Structural and Investment Funds (ESIF) 2014-20, and this sum can be multiplied by attracting private capital.

The Commission will continue to work with the financial institutions and the member states to put in place the necessary financing framework.

Climate and energy efficiency

At the climate conference in Paris at the end of 2015, the EU wishes to adopt a single global legally binding for all agreement preferably in the form of a new Protocol, with collective contributions aiming to ensure that the global temperature increase stays below 2°C relative to pre-industrial levels.

The EU has demonstrated its ability to meet ambitious objectives; the EU’s energy efficiency measures have played a key role in achieving these objectives. The same will be true for the EU 2030 target, and energy efficiency will also be a key element globally.

It is important to remember that some energy efficiency measures can deliver quick results. That is crucial because the Paris-2015 agreement will only really come to play after 2020, whereas there is still a big mitigation gap to be filled between now and 2020 (if the global intention is to reach the 2° C objective).

Hence energy efficiency goals and policies should not only play a key role in countries' emission targets for 2020 and beyond, but also in current policy making.

Finally, the Commissioner invited EU member states’ governments to take due note of this report in their vision for their energy future and in developing determined action to reap the benefits of energy efficiency for all.  

Reference: European Commission, Speech by Commissioner Arias Cañete at the Lisbon Council “Towards an Effective Energy Union”, Brussels, 17 February 2015. In:

http://europa.eu/rapid/press-release_SPEECH-15-4439_en.htm?locale=en