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DIRECTORATE GENERAL FOR INTERNAL POLICIES

POLICY DEPARTMENT A: ECONOMIC AND SCIENTIFIC POLICY

INDUSTRY, RESEARCH AND ENERGY

EU Energy Efficiency Policy – Achievements and Outlook

Abstract

The European Energy Efficiency Policy has had limited success thus far. The non-binding political target of 20% energy savings compared to a business-as-usual development cannot be achieved with current policies. Major additional policy measures need to be implemented in order to tap the large energy savings potentials that provide economic benefits to energy consumers.

IP/A/ITRE/ST/2010-02 & 03 December 2010

PE 451.482 EN

IP/A/ITRE/ST/2010-02 & 03 PE 451.482

This document was requested by the European Parliament's Committee on Industry, Research and Energy (ITRE).

AUTHOR(S)

Ludwig-Bölkow-Systemtechnik (LBST) Mr. M. Altmann, Mr. J. Michalski

HINICIO Mr. A. Brenninkmeijer, Mr. J.-C. Lanoix, Ms. P. Tisserand

Centre for European Policy Studies (CEPS) Mr. C. Egenhofer, Mr. A. Behrens, Ms. N. Fujiwara

College of Europe (COE) Mr. D. Ellison

Mr. P. Linares

RESPONSIBLE ADMINISTRATOR

Balazs Mellar

Policy Department Economic and Scientific Policy

European Parliament

B-1047 Brussels

E-mail: [email protected]

LINGUISTIC VERSIONS

Original: [EN]

ABOUT THE EDITOR

To contact the Policy Department or to subscribe to its monthly newsletter please write to: [email protected]

Manuscript completed in December 2010.

Brussels, © European Parliament, 2010.

This document is available on the Internet at:

http://www.europarl.europa.eu/activities/committees/studies.do?language=EN

DISCLAIMER

The opinions expressed in this document are the sole responsibility of the author and do not necessarily represent the official position of the European Parliament.

Reproduction and translation for non-commercial purposes are authorized, provided the source is acknowledged and the publisher is given prior notice and sent a copy.

mailto:[email protected]


http://www.europarl.europa.eu/activities/committees/studies.do?language=EN


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CONTENTS

CONTENTS iii

LIST OF ABBREVIATIONS vi

LIST OF TABLES ix

LIST OF FIGURES x

EXECUTIVE SUMMARY xi

1. EU Energy Efficiency Action Plan 1

1.1. Introduction 1 1.1.1. Energy savings in the EU 1 1.1.2. Energy efficiency potentials in the EU 5

1.2. The EU Energy Efficiency Action Plan 6 1.2.1. State of Implementation of the EEAP 7 1.2.2. The Revision of the EEAP 12

1.3. Concluding Remarks 13 1.3.1. A binding target on energy efficiency? 13 1.3.2. Increasing member state involvement 14 1.3.3. The role of white certificates 15 1.3.4. Focus on transport 15 1.3.5. A broader view on resource efficiency 16

2. Energy Services Directive 17

2.1. National Energy Efficiency Action Plans 17 2.1.1. State of play of transposition/implementation of the Directive 17 2.1.2. Overview of the type of measures adopted under the NEEAPs 20 2.1.3. Impact and effectiveness of adopted measures 21 2.1.4. Best practice in the public sector 28 2.1.5. Preliminary conclusions on the possible options for the revision of the Directive 29

2.2. Stimulating the energy services sector: Role of ESCOs 32 2.2.1. Definition of Energy Services, Energy Contracting and ESCOs 32 2.2.2. ESCOs European market outlook 35 2.2.3. Barriers to ESCOs development 38 2.2.4. Best practices and innovative business models 41

2.3. The role of electricity and gas companies in energy savings 47

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Policy Department A: Economic and Scientific Policy

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2.3.1. The involvement of electricity and gas companies in Energy End-use Efficiency strategies 47 2.3.2. Experiences in European Member States and the US with energy efficiency obligations 48 2.3.3. Lessons for the European Union from MS and US experiences 53 2.3.4. Perspectives for an energy efficiency obligation system at EU Level 55 2.3.5. Combination of a European energy efficiency obligation system with other energy efficiency mechanisms 59

3. Energy Efficiency Policies of other Global Players 62

3.1. Overview 62 3.1.1. US 62 3.1.2. Japan 62 3.1.3. China 63

3.2. Energy efficiency policy and measures 63 3.2.1. US 64 3.2.2. Japan 67 3.2.3. China 71

3.3. Energy performance standards and labelling schemes in third countries 75

3.4. Concluding remarks 75

4. Policy Options for Energy Efficiency 77

4.1. Successes and gaps of the current EU legal framework 77

4.2. Policy options for the EU Energy Efficiency Action Plan and the possible recast of the Energy Services Directive 79 4.2.1. Binding energy savings target 79 4.2.2. Harmonised NEEAPs 81 4.2.3. Energy Service Companies 81 4.2.4. Energy efficiency obligations 82 4.2.5. White certificates 83 4.2.6. Energy labelling and minimum performance requirements 83 4.2.7. Transport 84 4.2.8. Buildings 86 4.2.9. Enforcement of regulations 86 4.2.10. Progressive energy prices 87 4.2.11. International cooperation 87 4.2.12. Combinations of measures 87 4.2.13. General aspects 88

4.3. Options for other EU sectoral instruments and legislation 88 4.3.1. A broader view on resource efficiency 88

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4.3.2. Agriculture 88 4.3.3. Education and training 89 4.3.4. Social protection and social inclusion 89 4.3.5. Enterprise and industry 89 4.3.6. Environmental policy 89 4.3.7. Transport 89 4.3.8. Information society and media 90 4.3.9. Regional policy 90 4.3.10. Research 90 4.3.11. Financing and Pricing 90 4.3.12. Development and international cooperation 90

References 91

Annex I: Examples of Energy Labelling 100

Annex II: Workshop Proceedings 103

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LIST OF ABBREVIATIONS

ACEEE American Council for an Energy Efficient Economy

CAFE Corporate Average Fuel Economy

CASBEE Comprehensive Assessment System for Building Environmental

Efficiency

CERT Carbon Emission Reduction Target

CIP Competitiveness and Innovation Framework Programme

CR-EPC Comprehensive Refurbishment of Buildings through Energy

Performance Contracts

DG TAXUD Taxation and Customs Union Directorate-General

DSM Demand-Side Management

EBRD European Bank for Reconstruction

EDMC Energy Demand Management Committee

EEAP Energy Efficiency Action Plan

EEI Energy Efficiency Improvements

EEO Energy Efficiency Obligation

EERS Energy Efficiency Resources Standards

EES Energy Efficiency Service

EIB European Investment Bank

EIP Entrepreneurship and Innovation Programme

ELENA European Local Energy Assistance

EMAS Eco-Management and Audit Scheme

EPBD Energy Performance of Buildings Directive

EPC Energy Performance Contract

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ESC Energy Supply Contracting

ESCO Energy Service Company

ESD Energy End-use Efficiency and Energy Services Directive

ESMO Energy Service Market Operator

ESP Energy Saving Partnership

ETS EU Emission Trading Scheme

G5 Brazil, People's Republic of China, India, Mexico, South Africa

G8 Group of Eight: Canada, France, Germany, Italy, Japan, Russia,

United Kingdom, United States

GAO Government Accountability Office

GBEL

GIF

Green Building Evaluation Labelling

High Growth and Innovative SME Facility

HPI High Policy Intensity Scenario

IEA International Energy Agency

IEC Integrated Energy Contracting

IEE

IFI

Intelligent Energy Europe

International Financial Institution

IPEEC International Partnership on Energy Efficiency Cooperation

LEED Leadership in Energy and Environmental Design

LFI Leasing Financing Institution

LPI Low Policy Intensity Scenario

M&V Measurement and Verification

NEEAP

NPV

National Energy Efficiency Action Plan

Net Present Value

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PUC Public Utility Commissions

SEE Sustainable Energy Europe

SME Small and medium enterprise

TPF Third Party Financing

UNIDO

ZEB

United Nations Industrial Development Organization

Zero Emission Buildings

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LIST OF TABLES

Table 1: Energy efficiency in power generation (1990-2005) 2 Table 2: Expected savings potential and corresponding specific costs 24 Table 3: Typical costs and revenues of an ESCO 35 Table 4: Ms-by-MS Assessment of the customer groups with the highest commercial

potential 38 Table 5: Important ESP figures 43 Table 6: IEC project in Styria (Austria) 44 Table 7: Energy savings broken down by end-use sector in the EU 50 Table 8: Overview of Energy Efficiency Obligations in the EU 51 U

Table 9: 19 US States with Energy Efficiency Resource Standard 52 Table 10: Options for an EU Wide energy efficiency scheme 57 Table 11: Pros and cons of a binding EU-level economy-wide energy savings target 80 Table 12: Pros and cons of binding EU-level sectorial energy savings targets 80 Table 13: Pros and cons of a binding Member-State-level economy-wide energy savings

target 81

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LIST OF FIGURES

Figure 1: Energy intensity in the EU27 between 1997 and 2008 2 Figure 2: Energy intensity of the EU27 and its member states in the year 2008 3 Figure 3: Yearly energy efficiency improvements of households by country (1997-2007) 4 Figure 4: Development of primary energy demand and of negajoules from 1971-2005 5 Figure 5: Notification status for single NEEAPs 18 Figure 6: Overall and intermediate national energy savings targets 19 Figure 7: Provisions on the exemplary role of the public sector and information and advice

to final customers 20 Figure 8: Expected potentials for additional energy savings within the high policy intensity

scenario (HPI) by sector 23 Figure 9: Total savings potential in all economic sectors for primary energy in 2020. 25 Figure 10: Policy gap in comparison to energy savings achievements from current

measures. 31 Figure 11: EES value chain 32 Figure 12: Simplified representation of the ESCO business model 34 Figure 13: Gap between energy savings based on current regulatory frameworks and the

20% EU target 77

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EXECUTIVE SUMMARY

Background

In view of the revision of the EU Energy Efficiency Action Plan foreseen for 2011, the Committee on Industry, Research and Energy (ITRE) of the European Parliament requested this study on "EU Energy efficiency policy – achievements and outlook".

The study is complemented by a workshop involving international experts in energy savings. Two experts have summarized their findings and recommendations in a briefing paper annexed to this study.

Aim

It is the aim of the study to provide background information and advice for the Members of the ITRE Committee on priority measures and actions to be undertaken in the field of energy efficiency.

EU Energy Savings Target

In view of the crucial importance of energy efficiency in the transition towards a low-carbon economy, in March 2007 EU member states set themselves a non-binding energy savings target of reducing energy consumption by 20% by 2020 compared to projections.

As a follow-up to the 2000-2006 “Action Plan to improve energy efficiency in the European Community"1 and in response to the 2005 Green Paper on energy efficiency “Doing more with less”2, the Energy Efficiency Action Plan (EEAP) was tabled by the European Commission in October 20063, endorsed by the Council of the EU in November 20064, and is effective from 1 January 2007 to 31 December 2012.

The EEAP has defined 85 actions and measures within six key areas to be taken within the timeframe of 2007-2012. About 40% of the actions had been fully implemented by mid-2010. Most other actions are ongoing or ongoing with delay and only very few have not (yet) been realised at all. Most attention has been paid to the key area of energy performance requirements for products, buildings and services, which has been most successfully implemented. The single largest energy savings potential is in buildings (both private and commercial sector), which account for 40% of the total savings potential in all Member States.

In a report published by the European Climate Foundation, the authors find that the EU has sufficient cost-effective energy end-use savings potential to realise this target. More concretely, they calculate that existing energy efficiency policies, renewable energy policies and the economic recession may reduce energy consumption in the EU27 in 2020 by 7% compared to the baseline projection. Comparing these expected savings with the estimated cost-effective energy efficiency potential shows that additional savings of 13% could be realised, achieving the target. Closing this gap, the authors conclude, will require “a threefold increase in policy impact compared to energy savings policies since the 2006 EEAP” but would result in additional savings in EU energy bills of about €78 billion annually in 2020.

1 COM(2000)247 final. 2 COM(2005)265 final. 3 COM(2006)545 final.

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Yet, despite considerable potential for further energy efficiency increases in the EU, progress towards achieving them is slow. In its “Stock taking document”, the European Commission notes that the energy savings potential in the EU27 “continues to be greatly underutilised” and that – despite “significant advancements in Community energy efficiency and savings policy” – there is “large room for improvement”.

Binding energy savings target As current policy measures will be inadequate to achieving the energy savings target of 20% by 2020 and as on the other hand the EU has sufficient potential to achieve the target, there is a need to increase the policy impact and to create policy incentives. A binding target is a feasible option and is seen as desirable by many experts.

Design options for a binding target include EU level versus Member State level targets and economy-wide versus sectoral targets.

Member State level targets would ensure political accountability and would provide flexibility to account for national or regional differences. An EU level target on the other hand would leave most of the design power to the European institutions. This would ensure coherence of measures across Europe, which for certain measures is indispensable. It must be ensured that measures are flexible enough to account for national or regional differences.

Irrespective of the concrete design option chosen, a binding target is recommended and would need to be clearly defined, transparent in its methodology and easy to monitor.

Policy options for the EU Energy Efficiency Action Plan and the possible recast of the Energy Services Directive

National Energy Efficiency Action Plans One of the key requirements specified by the Directive on Energy End-Use Efficiency and Energy Services (ESD)5 is the preparation of the National Energy Efficiency Action Plans (NEEAPs), which are intended to provide substantial information on the implementation status of the Directive in each Member State. The first NEEAP was due in 2007.

The cross-country comparison of the implemented measures in the NEEAPs shows a wide variety of approaches, designs and level of information. This is mainly due to different evaluation foci, calculation methods and assumptions. However, measures concentrating on the building environment (both in the residential and tertiary sector) as well as on technological progress in the transport sector on the one hand and mechanisms with financial or binding elements on the other hand seem to provide the potential for the highest impact and effectiveness on energy efficiency.

A possible recast of the ESD should define clear and consistent specifications for forthcoming NEEAPs in an EU-wide reporting format in order to improve the comparability and transparency of the reports, particularly in regard to the overall reporting format, description and parameterisation of single measures and the methods of calculation of actual and expected energy savings.

5 Directive 2006/32/EC.

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Energy Service Companies, Energy Utilities, Energy Efficiency Obligations, White Certificates Energy Service Companies (ESCOs) play an important facilitating role in realising cost effective energy savings. ESCOs and energy utilities acting under energy efficiency obligation schemes are complementary actors in the market.

Energy efficiency obligations (EEOs) for energy utilities have proven to be an effective tool for increasing energy savings both in several Member States and in California. EEOs transform the classical business model of utilities from selling energy to selling services, i.e. from selling megawatts to selling negawatts. Energy utilities will continue to earn money by selling energy, but EEOs also allow them to earn money by not selling energy.

The multiplicity of national experiences and the differences between modalities in the Member States represent a concrete challenge for setting up an EU-wide scheme for EEOs. Therefore, a European EEO system should provide high design flexibility to the Member States as well as provide clear definitions of the obligation and of the methodologies for assessing the savings.

In combination with EEOs, White Certificates would be a powerful and efficient tool for energy savings and their introduction is highly recommended. Trading of White Certificates at national level is regarded as feasible, while trading at EU level represents complex challenges even though it would bring added value.

Energy labelling of products Energy labelling of household appliances has been extended to all energy consuming products and to products having a significant impact on energy consumption, e.g. windows, through the recast of the labelling directive. Furthermore, it has closed a major loophole by requiring the label to be displayed in all sales channels including distance selling by mail order or Internet.

Energy consumption grades displayed on labels should be rescaled regularly in order to promote continued energy efficiency improvements. The Japanese Top Runner Programme introduced in 1999 sets efficiency targets at high standards, notably best available technology or better, which manufacturers or importers need to meet in several years’ time. This scheme has an inherent dynamic of further improvements, which could serve as a role model for Europe.

Even efficient products may consume large amounts of energy in absolute terms because they are very large. Examples include 400 m2 homes, 600 liter refrigerators, and 2 m2 TVs. For both technical and energy savings reasons, large products may be required to achieve higher efficiencies. Thus, stricter energy efficiency requirements for larger refrigerators would be a natural choice as this goes along with the laws of physics, whereas the same requirements for all sizes gives an unfair legal advantage to large appliances. For all products displaying such characteristics, so-called progressive energy efficiency standards should be applied.

Transport Measures proposed in the EEAP focus strongly on fostering technical solutions, while innovative mobility solutions and improvements of energy efficient public transport modes are less strongly targeted.

For all transport modes, air quality and energy savings have synergies.

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Necessary local air quality improvements as required by the EU directive on ambient air quality and cleaner air for Europe are achieved by various measures including driving bans in restricted areas of cities, congestion charges etc. Here, public transport offers mobility solutions significantly reducing air pollution and energy consumption alike. Collateral improvements include noise reduction and enhanced quality of life in general. Also, advanced mobility solutions such as innovative car sharing or bike rental concepts are becoming very popular and commercially successful, while door-to-door mobility solutions based on public transport are still lacking.

In order to eliminate the bias towards technical solutions, it is recommended that energy savings policies put a stronger emphasis on non-technical approaches.

Buildings The single largest energy savings potential is in buildings (both the private and commercial sectors), which account for 40% of the total savings potential in all Member States. Buildings have a long technical lifetime on the order of 100 years. The energy refurbishment cycles of buildings are too low at present to achieve climate goals with around 1% of all buildings energetically refurbished every year. Cycles need to be accelerated to at least 2.5% of all buildings being energetically refurbished every year.

Refurbishment of existing buildings needs to be in the central focus of political action as on the one hand the requirements set in the Energy Performance of Buildings Directive for new construction are sufficiently strict and as on the other hand existing buildings represent by far the largest share of the energy savings potential. Innovative solutions proposed by ESCOs such as the comprehensive refurbishment of buildings through an Energy Performance Contract or Integrated Energy Contracting appear to be effective and very cost efficient.

General issues Enforcement of regulations at all levels is central to tapping the full savings potential. Especially in the building sector there is room for improvement in this respect.

Progressive energy prices for consumers which increase the price per kilowatt hour (kWh) for each additional kWh sold are encountered in certain emerging and developing economies. These give consumers an additional incentive to save energy. In addition, they have a social dimension in that low income households with lower energy consumption have disproportionately lower energy bills.

The EU policy initiatives for international partnerships in energy efficiency kick-started with the EEAP in 2007 should be given new momentum. In the framework of the international climate protection negotiations, energy savings could play an important facilitating role because of the net economic benefits.

No single measure can deliver the full potential of energy savings, nor can a focus on a single sector or target group. Intelligent packages of measures combining for example economic incentives, normative and regulatory action, information and dissemination efforts as well as innovative market solutions have proven to be very effective. Also, it is useful to tailor measures to specific target groups in combination with the relevant actors.

Conclusions Energy savings have a vast economically interesting potential, but manifold barriers. Because of this, the economic benefits of energy savings both for the individual consumer and the economy as a whole should be highlighted much more strongly. These include the job creation potential of energy savings.

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It is highly probable given increasing global resource constraints that energy prices will continue to increase further improving the economics of energy savings and thus further enhancing savings potentials.

Energy efficiency is an important aspect of the wider issue of resource efficiency. Energy efficiency policy thus needs to be seen in the broader context of the resource efficiency flagship initiative of the European Commission in its “Europe 2020” strategy for economic growth.


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1. EU Energy Efficiency Action Plan

1.1. Introduction The European Union’s energy policy is aimed at ensuring “safe, secure, sustainable and affordable energy for all” [EC 2010a]. Within this context, EU member states have agreed to collectively reduce greenhouse gas emissions by at least 20% by 2020 with a vision of reducing them by 80-95% by 2050 (compared to 1990 levels). Energy savings are of central importance for reaching these climate targets cost-effectively. Similarly, they help to achieve member states’ renewables targets, which are expressed as a share of final energy consumption (the lower the final energy consumption, the lower the required energy from renewables in absolute terms). Energy savings may also contribute to increasing the security of European energy supplies through a reduction of necessary imports. In addition, the International Energy Agency, for example, notes that energy savings “can reduce the need for investment in energy infrastructure, cut fuel costs, increase competitiveness and improve consumer welfare” [IEA 2010].

This chapter assesses the EU’s achievements and potentials with regard to energy savings and analyses the progress of EU energy savings policies within the context of the Energy Efficiency Action Plan (EEAP). The Action Plan includes measures to improve the energy performance of products, buildings and services, to improve the yield of energy production and distribution, to reduce the impact of transport on energy consumption, to facilitate financing and investments in the sector, to encourage and consolidate rational energy consumption behaviour and to step up international action on energy efficiency. The EEAP covered the period between 2007 and 2012 and foresaw a mid-term evaluation in the course of 2009, together with the preparation of a revised Action Plan. However, this evaluation was repeatedly postponed and is currently planned for early 2011. This chapter will also look at possible changes to be introduced with the revised action plan.

1.1.1. Energy savings in the EU In the past decades, the EU has achieved some improvements in energy savings. However, there remain great disparities between individual member states, most notably between western and eastern European member states.

As shown in Figure 1, energy efficiency policies, technological progress and the ongoing structural change of formally planned economies in Central and Eastern Europe have resulted in a decline in the energy intensity of European economic activities since 1998. By 2008, around 18% less energy was required to produce one unit of GDP compared to 1998. While in 1998, some 204 toe (tons of oil equivalent) were needed to produce €1 million of GDP (at 2000 market prices), in 2008 only around 167 toe were required to produce the same amount of economic output in the EU27 [own calculations based on Eurostat and Ameco data]. Yet, the EU is far from reaching its non-binding energy efficiency goal of reducing primary energy consumption by 20% by 2020 compared to projections. In fact, at the rates of implementation of current energy policy initiatives in member states, the EU is projected to achieve a mere 9% primary energy consumption reduction by 2020 [European Commission, 2010b].

The European Commission [EC 2008] reports that the EU27 final energy efficiency increased on average by 1.3% per year between 1997 and 2006. The largest improvements were achieved in the industrial sector, which in 2006 was 24% more efficient than in 1997. The transport sector and households, on the other hand, only achieved improvements of 9% each over the same period.

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The European Commission [EC 2008] also notes that energy generation and transmission efficiency could be greatly improved. Given upstream losses, energy efficiency gains at the consumption level result in even higher savings where generation and transmission are also considered. For example, savings of 1kWh of electricity by consumers leads to savings of 2.5kWh of primary energy use.

Figure 1: Energy intensity in the EU27 between 1997 and 2008

Source: Own calculation based on Eurostat and Ameco data Note: Energy intensity is expressed as the ratio of Gross Inland Consumption of primary energy to the real GDP at 2000 market prices.

However, there are positive developments regarding energy efficiency in power generation, as observed by [Graus/Worrell 2009] for the period 1990-2005. These trends are summarised in Table 1. Whereas generation from coal and oil exhibited few efficiency gains and little future potential for such gains, gas illustrated very dynamic development between 1990 and 2005. The installation of new, higher efficiency generating capacity is largely responsible for the improvements. Overall, the CO2-intensity of fossil-powered generation fell from 920g/kWh in 1990 to 720g/kWh in 2005 and is projected to decrease further to 630g/kWh in 2015. This is due to a shift from coal to natural gas as a mode of electricity generation, as well as efficiency improvements in gas-fired power plants.

Table 1: Energy efficiency in power generation (1990-2005)

Efficiency (%) by year

Mode of generation

1990 2005

Percent change per year between 1990 and 2005

Projected efficiency (%) in 2015

Gas 34 50 2.6 54

Coal 34 38 0.6 40

Oil 35 40 0.8 40

Source: Graus/Worrell 2009

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Further energy efficiency improvements can be achieved with a broader use of cogeneration or combined heat and power (CHP) plants. In fact, complementing electricity with heat production represents the only option to drastically increase energy efficiency of fossils based and nuclear power plants due to the fact that electricity generation efficiency is technically limited by the so-called ‘Carnot cycle efficiency’.6 While most conventional power stations convert only about 30-50% of consumed energy into electricity, the fuel efficiency of industrial CHP plants can reach up to 90%. Currently, however, only about 11% of EU electricity is generated by these plants.

Positive developments of the EU27 average hide the fact that there still exist large disparities between different member states. Figure 2 pictures energy intensity levels for each member state and shows that the 10 countries of Central and Eastern Europe, which joined the EU in 2004 and 2007 represent the 10 most energy intensive economies in Europe.

Figure 2: Energy intensity of the EU27 and its member states in the year 2008

Source: Own calculation based on Eurostat and Ameco data Note: Energy intensity is expressed as the ratio of Gross Inland Consumption of primary energy to the nominal GDP at current market prices (converted into EUR for countries outside of the Euro zone).

With 587 toe per €1 million of GDP, Bulgaria’s energy intensity is four times the EU27 average, which makes the country an outlier even amongst the central and east European countries. The most energy efficient economies amongst the new member states are Latvia and Slovenia with around 200 toe per €1 million of GDP, albeit still almost 40% above the EU27 average.

All five large western European economies, on the other hand, have energy intensities below the EU27 average. Italy is the most efficient of them, followed by the United Kingdom, Spain, Germany and France. The most energy efficient member states in the EU are Denmark and Ireland, whose energy intensities are about 40% below the EU average.

6 The ‘Carnot cycle efficiency’ describes the efficiency in which an idealised engine cycle (called the Carnot cycle) converts heat into mechanical energy. Limited by the second law of thermodynamics, no device can exceed the efficiency of such a Carnot cycle.

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However, high energy intensities in Central and Eastern Europe compare with considerable energy efficiency improvements in that region over the last decade. ADEME [2009], for example, shows that household energy efficiency increased at rates above the EU27 average in eight east European countries between 1997 and 2007 (see figure 3). Similarly, the top four countries are all in Eastern Europe: Romania, Poland, Estonia and Lithuania. Hungary and the Czech Republic were the only countries from that region which achieved energy efficiency gains below the EU27 average. Among the West European states, the Netherlands, France, Ireland, Austria and Germany stand above the European average, while especially Portugal, Finland and Greece show hardly any improvement at all.

Figure 3: Yearly energy efficiency improvements of households by country (1997-2007)

Source: ADEME, 2009

To conclude, energy efficiency improvements have made a considerable contribution to reducing overall energy demand and reducing emissions. In fact, it could be argued that energy efficiency has become the largest “source” of energy or emissions reductions in the EU. Figure 4 shows the development of primary energy demand between 1971 and 2005. It shows that improvements in energy intensity have contributed significantly to reducing energy demand. In fact, had energy intensity not improved between 1971 and 2005, primary energy demand in 2005 would have been about 50% higher than is currently the case. EC 2006a].

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Figure 4: Development of primary energy demand and of negajoules from 1971-2005

Source: European Commission, 2006a Note: This graph shows the contribution of various energy sources to primary energy demand in the EU. While coal, oil, gas, nuclear, other electricity and biomass refer to ‘real’ sources of energy, the top category in dark green refers to ‘negajoules’, i.e. energy not consumed due to enhanced energy efficiency since 1971.

1.1.2. Energy efficiency potentials in the EU The potentials of cost effective energy savings were analysed by the European Commission [2006a and 2006b] and added up to a total of 20% of projected energy use by 2020, equivalent to more than 390 Mtoe per year or to more than the current annual gross inland consumption in Germany. The largest potentials were estimated for the residential (households) and commercial building sectors (tertiary sector), with 27% and 30% of energy use, respectively. The cost-effective savings potential in the transport sector was estimated at 26% and for manufacturing industry at 25% of energy use. The direct cost of failing to realise these efficiency potentials was estimated at more than €100 billion.7

Energy efficiency also plays a major role in all recently published energy scenarios. For example, the European Climate Foundation [ECF 2010a] in its “Roadmap 2050” estimates that cost-effective energy efficiency measures could reduce the demand for power by some 220 gigawatts, equivalent to some 440 medium-sized coal plants, and reduce the cost of transition to a decarbonised power sector by up to 30%. The key message of the report is that energy efficiency measures in buildings and industry flatten the projected power demand growth between 2005 and 2050 (although it should be noted that power demand still increases due to fuel shift, e.g. due to the electrification of transport). Similarly, the International Energy Agency [IEA 2009a] asserts that “end-use efficiency is the largest contributor to CO2 emissions abatement in 2030”.

7 390 Mtoe (2.886 bn barrels) at $48/barrel net of taxes. The savings potential increases to €220 billion per year at an oil price of $96/barrel net of taxes.

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It finds that more than half of total CO2 savings in 2030 are due to energy efficiency in its 450 Scenario, compared with the Reference Scenario.

In view of the crucial importance of energy efficiency in the transition towards a low-carbon economy, member states of the EU in March 2007 set themselves a non-binding energy efficiency goal of reducing energy consumption by 20% by 2020 compared to projections. In a report published by the European Climate Foundation [ECF 2010b], the lead authors of Ecofys and Fraunhofer ISI find that the EU has sufficient cost-effective energy end-use savings potential to realise this target. More concretely, they calculate that existing energy efficiency policies (95 Mtoe), renewable energy policies (20 Mtoe) and the economic recession (70 Mtoe) may reduce energy consumption in the EU27 in 2020 by 185 Mtoe compared to the pre-crisis baseline projection. Comparing these expected savings with the estimated cost-effective energy efficiency potential of about 390 Mtoe (see above) shows that additional savings of more than 200 Mtoe could be realised. Closing this gap, the authors conclude, will require “a threefold increase in policy impact compared to energy savings policies since the 2006 EEAP” but would result in additional savings in EU energy bills of about €78 billion annually in 2020.

Yet despite considerable potentials for further energy efficiency increases in the EU, progress towards achieving them is slow. In its “Stock taking document” [EC 2010a], the European Commission notes that the energy savings potential in the EU27 “continues to be greatly underutilised” and that – despite “significant advancements in Community energy efficiency and savings policy – there is “large room for improvement”.

1.2. The EU Energy Efficiency Action Plan As a follow-up to the 2000-2006 “Action Plan to improve energy efficiency in the European Community" [COM(2000)247 final] and in response to the 2005 Green Paper on energy efficiency “Doing more with less” [COM(2005)265 final], the Energy Efficiency Action Plan (EEAP) was tabled by the European Commission in October 2006 [COM(2006)545 final], endorsed by the Council of the EU in November 2006 [15210/06], and is effective from 1 January 2007 to 31 December 2012. According to the European Commission, the purpose of this Action Plan is to mobilise the general public, policy-makers and market actors, and to transform the internal energy market in a way that provides EU citizens with the most energy-efficient infrastructure (including buildings), products (including appliances and cars), and energy systems in the world.

The EEAP aims at progressing towards achieving the 20% energy efficiency target by putting forward 85 actions and measures within six key areas to be taken in the short and medium-term at EU and national level. The six key areas on which the EEAP focuses include:

• Dynamic energy performance requirements for products, buildings, and services;

• Energy transformation – improving efficiency of new and existing generating capacity and reducing transmission and distribution losses;

• Transport – creating a comprehensive and consistent approach to target different actors within the sector;

• Financing and pricing – maintaining appropriate and cost-reflective price signals and creating improved financing tools and economic incentives;

• Energy behaviour – increasing awareness and promoting behavioural change; and

• International partnerships – addressing energy efficiency issues on a global level.

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The EEAP also lays down ten priority actions which were to be “initiated immediately and implemented as soon as possible for maximum effect” [EC 2006a]:

• Appliance and equipment labelling and minimum energy performance standards;

• Building performance requirements and very low energy buildings;

• Making power generation and distribution more efficient;

• Achieving fuel efficiency of cars;

• Facilitating appropriate financing of energy efficiency investments for small and medium size enterprises (SMEs) and Energy Services Companies (ESCOs);

• Spurring energy efficiency in the new Member States;

• Coherent use of taxation;

• Raising energy efficiency awareness;

• Energy efficiency in built-up areas; and

• Fostering energy efficiency worldwide.

What follows is an assessment of how successfully the EEAP has been implemented to date. Since the implementation of the EEAP is ongoing until the end of 2012, this assessment is preliminary and only focuses on the main elements of the EEAP.

1.2.1. State of Implementation of the EEAP Assessing developments in each of the 85 proposed measures is a daunting task. First, the measures cover a wide range of issues which are dealt with by various Directorates General of the European Commission. Second, the status of implementation varies between member states. And third, implementation is still ongoing at least until the end of 2012 when the current EEAP expires. In the context of this chapter it is thus only possible to give a broad overview. The implementation will be assessed based on whether measures have been “completed”, are “ongoing”, “ongoing with delay”, or are “not realised”. 8 Completed measures have been fully implemented. Ongoing measures have been initiated and the implementation is progressing on time. Ongoing with delay means that the measure has been initiated, but progress is not in line with the timetable set out in the EEAP. When a measure has not yet been implemented or has not been implemented as foreseen in the EEAP, it is labelled as not realised.

This study will consider the state of implementation of the EEAP based on the six categories the Commission has set out with high potential for improvement. By November 2008, one third of the actions were completed [EC 2008]. A rough overview in mid-2010 based on information from the European Commission shows that about two fifths of all proposed measures have been fully implemented. However, it should be noted that this conclusion is based on an input rather than an output indicator based assessment. This means that energy savings may not have actually been achieved in practise, but that political action has been taken in the respective category of actions. For example, the completed revision of a directive does not necessarily mean that the directive is fully implemented and correctly applied.

8 Due to the fact that this study was commissioned in June 2010 and due for presentation in the European Parliament in September 2010, the bulk of the research was done in summer 2010. The implementation status of the EEAP thus largely refers to the status in mid-July 2010. However, upon inquiry at the European Commission in November 2010, only very few minor updates have been reported. These were incorporated in the text of this study depending on their relevance.

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Overall, the first area – energy performance requirements for products, buildings, and services – has received a great deal of attention and has been most successfully addressed. The five other key areas require more attention.

Energy performance requirements for products, buildings, and services

The recast of the Ecodesign Directive [Directive 2009/125/EC], which provides EU-wide rules for improving the environmental performance of energy related products, entered into force in November 2009. It extends the scope of the original directive from only those products that run on electricity (e.g. household appliances or electronic devices) to all products that are related to the use of energy (e.g. windows, sanitation technology, insulation products). The Commission now has a mandate to bring forward, where appropriate, detailed implementing acts on the eco-design of products. Implementation of the directive is ongoing, with a review foreseen in 2012.

The recast of the Labelling Directive [92/75/EC] entered into force in June 2010. While the former directive introduced the energy label for household appliances, the recast extends its scope to products in the commercial and industrial sectors. Implementation is ongoing and a comprehensive survey on the implementation of the directive is ongoing with delay and will be launched in 2010.

The implementation of the Energy Star Programme is ongoing. A new agreement was concluded in December 2006 and the development of stronger energy efficiency criteria for office equipment is ongoing together with the US Environmental Protection Agency.

The implementation of the Energy End-Use Efficiency and Energy Services Directive [2006/32/EC] is ongoing. This directive, inter alia, requires member states to adopt and achieve an indicative energy saving target of 9% by 2016 in the framework of a National Energy Efficiency Action Plan (NEEAP). However, by mid-November 2010 there were still four open cases of non-communication of full transposition by member states, of which one was expected to be settled in the very near future (i.e. the German case). Bilateral discussions with member states where the directive has not been fully transposed are ongoing. All member states have submitted their first NEEAPs and a summary report on the NEEAPs assessment was published in June 2009 [SEC (2009)889]. The template for the second NEEAPs is under preparation. Similarly, draft recommendations on common methods and indicators for measuring and verifying energy savings have been sent to the Energy Demand Management Committee (EDMC). As regards the amendment of the directive, a study to investigate the issues at stake has been launched and the final results are expected in 2011.

A recast of the Energy Performance of Buildings Directive [2010/97/EU] entered into force in July 2010 and member states are required to transpose it by July 2012. One of the main changes of the recast was the extension of the scope of the directive by eliminating the threshold for minimum performance requirements. This means that the directive now covers almost all existing and new buildings. As to the implementation of the old directive, there are still two open infringement cases for non-communication.

The implementation of the Construction Products Directive is ongoing [89/106/EEC]. A Regulation on Construction Products is aimed at replacing the existing directive. This regulation will simplify and clarify the current situation, including the procedures leading to CE marking (Conformité Européenne, certifying that a product has met EU consumer safety, health or environmental requirements). It will also ensure that the declaration of performance accompanying the product is accurate and reliable. The second reading is envisaged to be completed in early 2011.

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The only measure that has been postponed and thus not realised is the preparation of a Memorandum of Understanding on energy efficiency in cooperation with the Council of European Energy Regulators (CEER) through the European Regulators' Group for Electricity and Gas (ERGEG). This was deemed problematic as not all regulatory authorities have competence in end-use energy efficiency.

Energy transformation

Two reference documents have been adopted providing industry with guidelines on good operating practices for existing capacity above 50MW. However, no direct measure was proposed to set minimum efficiency requirements for new electricity, heating and cooling capacity lower than 20MW.

Although the Commission has had discussions with European energy regulator groups (CEER/ERGEG), the envisaged guidelines on good regulatory practices to reduce transmission and distribution losses have not been realised. However, a new regulatory framework for the promotion of grid access and connection of decentralised generation has been adopted with Directive 2009/72/EC concerning common rules for the internal market in electricity.

Cogeneration is one area addressed in the EEAP in order to make power generation and distribution more efficient; however, progress in this area has not been sufficient. The Directive on the Promotion of Cogeneration [2004/8/EC] aims to establish a transparent, harmonized framework to promote and facilitate the installation of highly efficient cogeneration plants, taking into account specific national circumstances. As regards its implementation, reports by member states regarding their national potentials, guarantees of origin, administrative barriers and solutions and progress made with the implementation are currently being assessed. A report by the Commission on the implementation including an evaluation of national support schemes is scheduled for 2011. Progress has also been made with a Commission Decision on detailed guidelines for CHP electricity calculation, which was adopted in November 2008. However, due to the fact that the Commission’s evaluation of the national reports will only be finalised in 2011, agreement on harmonised electronic guarantees of origin, stricter requirements for market regulators to promote CHP and the requirement of member states to identify heat demand suitable for CHP are delayed.

Transport

There have been various developments as regards transport with progress in all of the measures proposed in the EEAP. Amongst the main achievements is a regulation on emissions performance standards for new passenger cars as part of the EU’s integrated approach to reduce CO2 emissions from light duty vehicles. This regulation [443/2009] entered into force in June 2009 and requires newly registered vehicles to reach an EU average specific emissions target of 130g CO2/km incrementally by 2015. Similarly, a new Directive on the promotion of clean and energy-efficient road transport vehicles entered into force in May 2009. This directive aims at promoting and stimulating the development of a market for clean and energy-efficient vehicles, inter alia through public procurement. Member states need to transpose this directive by 4 December 2010. Furthermore, Regulation (EC) No 1222/2009, a labelling scheme for tyres mainly for fuel efficiency purposes, was adopted in November 2009. As regards urban transport, this measure was completed with the adoption of a Green Paper “Towards a new culture for urban mobility” and the adoption of the Action Plan on Urban Mobility with 20 actions in six thematic areas.

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Regarding the aviation sector, political agreement was reached to include the aviation sector in the EU Emissions Trading Scheme as of 2012. Also, the Sesar Joint Undertaking was established in spring 2007 to promote energy efficiency in the aviation sector. With regard to shipping, regulation 782/2003 has been modified to exploit the potential for optimising the hull cleaning of ships, which can amount to a 5% difference in energy requirements. In the rail sector, the legal framework for rail transport has been established and member states need to implement it to increase interoperability.

Other measures are either ongoing or ongoing with delay. For example, the Commission has supported EU-wide real-time traffic and travel information (RTTI) systems through the EasyWay project, which was supported with €100 million over the period 2007-2009. A follow-up proposal for the period 2010-2011 has been submitted and negotiations on this follow-up will start after successful conclusion of the first phase. Another ongoing measure is the European Green Cars Initiative, which was launched in July 2009 and includes a large-scale demonstration project on electric vehicles as well as the Fuel Cell and Hydrogen Joint Undertaking, the first European public private partnership in the energy area. Projects are expected to start in the beginning of 2011. Amongst the delayed actions is the revision of the Directive relating to the availability of consumer information on fuel economy and CO2 emissions with respect to the marketing of new passenger cars. The revision is planned but a specific timeline is yet to be determined.

Financing and Pricing

Some progress has been made in this area but there remain some significant barriers to investments in energy efficiency. On a regular basis, the Joint Research Center of the European Commission is working to identify and remove legal barriers in member states to use Energy Service Companies (ESCOs) and contracting instruments for energy efficiency. Financing of energy efficiency has been facilitated in cooperation with the EIB and EBRD. The role of international financial institutions (IFIs) has been considered in the operation of the Intelligent Energy Europe (IEE) Programme IEE and its 2010 Work Programme foresees support for the creation of revolving funds for energy efficiency. However, discussions with IFIs on funding for debt financing, guarantees and venture capital for SMEs, ESCOs and other enterprises offering energy services are ongoing. As regards the costs and benefits of tax credits, in January 2009 the European Commission’s Directorate General for Taxation and Customs Union (DG TAXUD) published a report on the costs and benefits of using direct tax incentives to promote the purchase of energy-efficient products. However, it remains in the competence of member states to use these products. Finally, the Commission submitted proposals to be discussed in the Council regarding the narrowing of excessive differences in tax levels for commercial diesel across member states, as well as regarding an initiative to relate vehicle taxation to CO2 performance.

The facilitation of leveraging of financing for energy efficiency projects, including the multi-family and social housing sectors in the new Member States through the Structural and Cohesion funds, is ongoing. Regulation 397/2009 of the Council and the European Parliament allowed Member States to use Cohesion Policy Funds for energy efficiency in housing, especially multifamily and social housing. Up to 4% of the total ERDF allocations can be reallocated. Similarly, the European Local Energy Assistance (ELENA) program established by the Commission and EIB in December 2009 facilitates the mobilisation of funds for investments in sustainable energy at local level. ELENA support covers a share of the cost for technical support that is necessary to prepare, implement, and finance the investment programme, such as feasibility and market studies, structuring of programmes, business plans, energy audits, and preparation for tendering procedures.

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The promotion of networking amongst Member States and regions to ensure financing of best practices in energy efficiency is also ongoing. Some 20 out of the 200 projects supported by the Intelligent Energy Europe programme are specifically aimed at networking and information exchange. Furthermore, the Commission in 2006 launched the Energy Efficiency Finance Facility, which aims to support energy efficiency investments in the industry and building sector in Bulgaria, Romania, Croatia and Turkey. Further initiatives have been developed by the EIB in this area, focusing on the promotion of the use of public-private energy efficiency funds and finance packages for SMEs and public sector organizations for energy audits and specific energy efficiency investments identified in energy audits.

Encouragement of the use of Community financing is ongoing, including the Green Investment Funds, co-financed by the Competitiveness and Innovation Framework Programme (CIP), for SMEs in view of promoting eco-innovation solutions. For the period 2007-2013, €433 million have been earmarked for Eco-innovation under one of the CIP pillars - the Entrepreneurship and Innovation Programme (EIP). Part of this money, more than €200 million, has been allocated to the High Growth and Innovative SME Facility (GIF), which supports eco-innovation but also other types of innovation.

The only delayed measure in the area of financing and pricing is the review of the Energy Taxation Directive. A proposal for such a review is under discussion in the Commission.

Energy Behaviour

Two measures were completed aimed at changing energy behaviour. Most visibly, the Covenant of Mayors was launched in 2008 and as of 10 November 2010 included 2,108 towns and cities. The signatories of the Covenant of Mayors make a formal commitment to go beyond the EU’s 20% greenhouse gas reduction target through the implementation of their Sustainable Energy Action Plan. Secondly, the EMAS Regulation [1221/2009] was revised for the second time and entered into force on 11 January 2010. It improves the applicability of the scheme and strengthens EMAS’s visibility and outreach.

The vast majority of other measures are ongoing, one of them with delay. Only the planned vocational educational initiative on energy efficiency was not proposed. Ongoing measures include training, awareness raising campaigns (e.g. “You control climate change”), green public procurement, awards for special achievements in terms of energy efficiency (e.g. launch of the first competition in 2010/2011 to award the most energy efficient practices in schools), as well as the second phase of the Sustainable Energy Europe (SEE) Campaign.

In an effort to lead by example, 23 Commission buildings have already been EMAS registered. Eight more are planned to be registered by the end of 2010. EMAS will gradually be extended to cover all Commission-owned buildings by 2014 (thus delayed because originally foreseen by 2012). The European Parliament is registered for all three sites in Brussels, Strasbourg and Luxemburg.

International partnerships

There have been Memoranda of Understanding and some bilateral agreements. The International Partnership on Energy Efficiency Cooperation (IPEEC) was signed in May 2009. Members include the G8 + Australia, Brazil, China, India, Mexico, South Africa, and South Korea. The EU became a member in January 2010. G8 + G5 collaboration in the "Heiligendamm Process" focused on energy efficiency and information exchange, notably on energy efficiency in buildings. This process will be continued under IPEEC.

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The focus on energy efficiency in EU bilateral agreements has increased and special collaboration frameworks are being established. The Action Plan on Sustainable Industrial Policy has a strong focus on international cooperation. Improvement of energy efficiency measures and energy savings is also covered in several Memoranda of Understanding (MoUs) on specific energy efficiency issues between the EU and important third countries such as China.

1.2.2. The Revision of the EEAP The EEAP [EC 2006a] foresaw a major mid-term review to take place in 2009. The commitment to evaluate the EEAP in 2009 and to prepare a revised action plan based on the evaluation was reaffirmed by the European Commission in 2008 [EC 2008]. However, due to delays the evaluation and revised action plan are expected in early 2011. One reason for the delay was the fact that the outgoing Commission left the dossier to the newly appointed one taking office in early 2010. Other reasons may include different views between member states and the Commission on making the energy efficiency target binding and on the impact on carbon prices. Also, the ongoing climate negotiations may have played a role in the postponement [IEEP undated].

The revision of the EEAP is crucial given current achievements. According to the European Commission [EC 2008] the current level of implementation of measures will only achieve energy savings of about 13% by 2020. In order to increase the effectiveness of the plan, the focus of the revision will be on streamlining the EEAP based on what has been effective [EC 2010c] and to outline new legislation to be proposed by the Commission on energy efficiency. The revised action plan will focus on fewer and more targeted actions and will be less technical in terms of the level of detail. In this way, the Commission aims to make the document more strategic and to increase its visibility. Accordingly, the revision will not contain many new elements, but will focus on areas where the EEAP can have value added. In addition, the revision will correct structural problems. The Commission hopes to increase the commitment of member states, e.g. by possibly tying the NEEAPs from the Energy Services Directive (see above) into the EEAP. Similarly, it will also be necessary to address differences between old and new member states – e.g. burden sharing and early action.

Instead of listing a large number of concrete measures, the Commission will most likely propose policy lines, outlining an objective and the steps to attain it. These policy lines will identify priority actions while allowing for mainstreaming energy efficiency in other relevant policy areas. Policy lines may include:

• Supply and Demand: Engaging utilities in a process aimed at increasing the efficiency of their production and at strengthening the interaction with their consumers (e.g. by providing more information on energy use of their consumers and possibly by providing “differentiated offers” similar to the telecom industry).

• Buildings: Setting clear objectives, e.g. for boosting renovation levels of buildings, and setting incentives for achieving these objectives.

• Industry: Increasing the knowledge about energy consumption of large units and to improve information on energy efficiency issues for small and medium size enterprises. Similarly, a focus may be placed on widening eco-design and labelling requirements beyond inventory products.

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• Resource efficiency: While products may become more energy efficient over time, the whole economic system needs to focus on resource efficiency in a broader sense. The interaction between the product and the systems level will thus need to be addressed.

• Transport: A link may be established between the upcoming White Paper on sustainable mobility and the revised EEAP.

• Public sector: The EU and its member states have the possibility to put forward proposals to raise standards, e.g. in the buildings sector.

A goal of the revised EEAP will be the mainstreaming of energy efficiency into various policy actions in different areas and on different levels. Focusing on public procurement, financing and training will help meet this objective. A key question for the new Action Plan will be: what can be done at the EU level and what should be done at national levels. This question is also related to the possibility of introducing binding national targets. However, there is still no common denominator regarding the nature and methodology of such targets (e.g. whether there should be absolute caps or targets related to projected energy use) and it seems unlikely that member states would agree unanimously to such a move given diverse prior achievements, potentials, financial means etc.

1.3. Concluding Remarks Between June and August 2009, the European Commission conducted a Public Consultation on the evaluation and revision of the EEAP. Amongst the highlighted topics were energy efficiency of buildings, access to financing, energy efficiency both on the supply and demand side for SMEs and a better use of the Structural and Cohesion funds regarding energy efficiency projects [see EC 2009a]. The important role of local politicians was stressed and supporting cogeneration and district heating was deemed important. Furthermore, the international dimension of energy efficiency was stressed. The Public Consultation also brought up the issue of making the energy efficiency target binding. This was in principle welcomed by the stakeholders, however, with differences on methodology and verification. The Public Consultation gave some clear ideas about where (additional) action is required. In addition, we recommend taking the following five points into consideration.

1.3.1. A binding target on energy efficiency? Unlike for GHG emissions and renewables, there is no binding target on improving energy efficiency in the EU. Given the sluggish improvement of energy efficiency in member states, there seems to be increasing momentum for the European Commission to table a proposal for a binding 20% target in the context of the upcoming new Energy Efficiency Action Plan. There is thus a chance that the currently indicative target of saving 20% of Europe’s energy consumption compared to projections for 2020 could turn into a binding target in the future.

There are strong arguments on either side of the issue, with the Commission leaning toward the status quo and environmental groups pushing for a binding target. The energy efficiency target was not made binding in the original 2006 EEAP because the focus of the Commission was on CO2 emission reductions and renewable energy. Today, the binding target is meeting resistance because it changes the way in which the Commission can guide the implementation of energy efficiency measures.

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If the target were to be made binding, member states would have the freedom to implement any measure necessary to meet the goal. If, however, the target remains non-binding, it is possible for the Commission to take a measure-based approach, as seen in the 2006 EEAP. The Commission retains greater control over the implementation of energy efficiency improvements when it lays out the measures that will be taken and is responsible for measuring their success, rather than merely monitoring progress towards a long-term target.

On the other hand, a binding EU-wide target with national sub-targets would send a strong international message. By committing, through legislation, to improving energy efficiency, the EU will create new opportunities to negotiate with countries outside of Europe and improve cooperation in this field. If the EU wants to maintain its position as a world leader in climate policy, the binding target on energy efficiency is a logical next step.

A second option is to target specific sectors (at EU and member state level) with integrated policies such as energy conversion, transport, buildings or agriculture.

In any case, there will need to be agreement about the methodology and related indicator(s) of the target. For example, according to [ECF 2010b], the current 20% energy savings target can be expressed in five different ways:

• Setting a cap on energy use in 2020

• Setting a target for energy use in 2020 relative to a base year, e.g. 2005

• Setting an energy savings target relative to projected baseline energy use in 2020

• Setting a certain volume of energy savings to be realised by 2020

• Setting an energy savings target as an improvement in the energy intensity of an economy.

A binding target will need to be transparent in its methodology and easy to monitor.

1.3.2. Increasing member state involvement Complementary to a possible binding target should be an increasing involvement of member states in support of energy efficiency measures. This is necessary in order to ensure the effectiveness of EE policy at the national level, since the EU will forfeit control of measure-based legislation.

One of the difficulties of instituting a binding target is the issue of how serious Member States are about energy efficiency. The Commission has shown itself to take this issue quite seriously, with a strong record of implementation of the 2006 EEAP. Conversely, actions dependent upon Member States have stalled in many cases.

In 2008, the Commission released an assessment of the national energy efficiency action plans (NEEAPs) required under the energy end-use efficiency and energy services directive (2006/32/EC), which requires member states to adopt a national indicative energy savings target of 9% within nine years (by 2016) and aims at creating the conditions for the development and promotion of a market for energy services and other measures aimed at improving end-use energy efficiency.

“A first preliminary take on the Plans submitted gave some encouragement, but also indicated a considerable gap in several member states between the political commitment to energy efficiency and the measures adopted or planned and the resources allocated” [EC 2009b]. Ultimately, several Member States did present comprehensive action plans that would effectively meet the 9% target. However, a majority favoured a business-as-usual approach that would likely fall short.

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De Vos [2010] observes that the first generation of NEEAPs requires more effort. In order to better address energy efficiency in member states, the following policy recommendations could be implemented:

• Create a database of best practices in energy efficiency to be made available to member states to aid in policy development;

• Ensure new policies are integrated and coherent;

• Stimulate innovation, in particular through increased investment in energy efficiency;

• Develop a standard, EU-wide, reporting format.

1.3.3. The role of white certificates Market-based instruments, such as certificate schemes, are used in various member states to promote energy efficiency. White certificates, for example, have been introduced in Italy, France, the UK and Flanders. The schemes set specific energy savings targets for energy suppliers, which need to be fulfilled in order to attain the certificates. Once the energy savings have been certified, the certificates can either be used for target compliance of the energy supplier or sold to another party unable to meet its target (e.g. because costs of additional energy efficiency measures exceed the costs of the certificates). Tradable white certificates thus ensure that the energy savings target is achieved at the lowest cost.

The energy services directive did not introduce a European-wide certificate scheme, but left the opportunity open to do so at a later stage. In fact, it required the Commission to examine whether it was appropriate to come forward with a proposal for a directive to further develop the market approach in energy efficiency improvements by means of white certificates. This was to be done after an assessment of the first three years of the energy services directive. In 2008, the Commission thus prepared a study on a Community-wide certificate scheme, in which it concluded that such a scheme was not recommendable at the EU level, although national schemes for white certificates were considered useful for promoting energy efficiency.

Commonly cited drawbacks of a European-wide approach include potentially large transaction costs; substantial energy policy harmonisation requirements due to the linking of various systems; a focus solely on the most competitive actions and measures; and the potential impediment of local benefits of increasing energy efficiency such as employment opportunities, pollution reduction, reduced external fuel dependency, technical innovation etc. [Harmelink/Voogt 2007]. However, the magnitude of certificates exchanged across borders is likely to be limited due to the positive externalities of energy savings (which may lead member states to support energy efficiency projects in their own territory) [Duplessis et al. 2007]. Therefore, efforts to set up a European-wide white certificate scheme do not seem promising at the moment and national solutions should be preferred. This conclusion was also the result of the public consultations on the EEAP [EC 2009a], which mention that white certificates may be able to correct incentives but that there “seemed to be a general reluctance for a unified EU wide Certification Scheme to be introduced”.

1.3.4. Focus on transport Transport accounts for about a quarter of EU GHG emissions, as well as a significant portion of the forecast potential for energy efficiency improvements (see section 1.1.2). The upcoming transport white paper and its follow up will create an opportunity to address these energy efficiency potentials and to pave the way for an integrated strategy that sketches out a pathway to a low-carbon transport sector.

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The transport related elements of the energy and climate change package (including the “renewables directive”, the “clean cars directive” and the “fuel quality directive”) represent a step in the right direction, but Europe needs a “transport and climate change package” comparable to the energy and climate change package. This package must give answers to fundamental strategic questions about what a sustainable EU transport system should look like and how it can be achieved.

Efficiency standards should be the backbone of any sensible climate change policy. Fuel efficiency standards have been introduced for cars with the revised fuel quality directive in the context of the energy and climate change package. These should be extended to vans and trucks. Standards for aviation and shipping should also be taken into consideration.

1.3.5. A broader view on resource efficiency The use of fossil fuels is responsible for about 60% of global GHG emissions [IPCC, 2007]. At the same time, global warming is one of the biggest environmental challenges of our time. From this perspective, energy efficiency is indispensable. However, environmental problems go beyond climate change and many of them, global as well as local, have their root causes not just in the increasing use of energy, but in the rapidly increasing use of natural resources as a whole. It is thus necessary to incorporate energy efficiency policies in a broader strategy aimed at increasing resource efficiency.

If the economy is considered as an embedded subsystem of the environment, dependent on a constant throughput of materials and energy, it follows that increasing problems associated with waste generation and emissions are related to the scale of the material input. From this point of view, an overall reduction of global material use (i.e. dematerialisation) by means of increased resource efficiency represents a key strategy to combat environmental problems.

Resource efficiency is of increasing political relevance and creating a resource efficient Europe is one of the seven flagship initiatives of the European Commission in its “Europe 2020” strategy for economic growth. Within this context, the aim is “to help decouple economic growth from the use of resources, support the shift towards a low carbon economy, increase the use of renewable energy sources, modernise our transport sector and promote energy efficiency”. Against this background, energy efficiency policies are just one aspect of this broader strategy. As such it is important to assess the potential impact of all policies on resource use in order to achieve the target as laid out in the “Europe 2020” strategy.

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2. Energy Services Directive

2.1. National Energy Efficiency Action Plans

2.1.1. State of play of transposition/implementation of the Directive One of the key requirements specified by the Directive on Energy End-Use Efficiency and Energy Services (ESD) is the preparation of the National Energy Efficiency Action Plans (NEEAP), which are intended to provide substantial information on the implementation status of the Directive in each Member State. According to Article 14.2, three reports have to be prepared and submitted to the European Commission by each Member State by 2016, namely in 2007, 2011 and 2014. The first NEEAP was due on 30th June 2007 and was meant to include the following elements [Directive 2006/32/EC]:

• an overall national indicative energy savings target of 9% for the ninth year of application of this Directive calculated in accordance with the provisions and methodology set out in Annex I (as specified by Art. 4.1),

• an intermediate national indicative energy savings target for the third year of application of this Directive (as specified by Art. 4.2),

• provisions on the exemplary role of the public sector using at least two measures listed in Annex VI (as specified by Art. 5.1) and

• provision of information and advice to final customers (as specified by Art. 7.1).

These elements represent uniform formal criteria mandatory for each Member State and are therefore good comprehensive indicators for the general state of implementation of the ESD with regard to the National Energy Efficiency Action Plans. The following evaluation of single NEEAPs available from [EC 2010] is based on the overview and results provided on the one hand by the Energy Efficiency Watch in July 2009 in [EEW 2009] and on the other hand by the European Commission in its “Synthesis of the Complete Assessment of All 27 National Energy Efficiency Action Plans” in June 2009 in [EC 2009].

As indicated in Figure 5 all Member States had submitted their NEEAPs by June 2008 [COM 2008 (11)]:

• Only two Member States were on time (the UK and Finland),

• 17 Member States notified their NEEAP to the European Commission by the end of 2007 (Austria, Belgium, Bulgaria, the Czech Republic, Cyprus, Denmark, Estonia, Germany, Ireland, Italy, Lithuania, Malta, the Netherlands, Poland, Romania, the Slovak Republic and Spain) and

• 8 Member States had submitted their NEEAP by June 2008 (France, Greece, Hungary, Latvia, Luxembourg, Portugal, Slovenia and Sweden) with the latest NEEAP (Portugal) being notified on 6th June 2008.

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Figure 5: Notification status for single NEEAPs

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In addition, instead of providing one comprehensive NEEAP, Belgium provided four separate reports, one for each of three regions Wallonia, Flanders and Brussels, and one federal report.

Regarding savings targets, almost all Member States set an adequate overall national target of 9%:

• Belgium is the only Member State without a national target as no corresponding value is included in the federal NEEAP. However the three regional NEEAPs set the 9% target for each region assuring that this target will be reached by the whole country. This is due to the fact that in Belgium the regions are responsible for energy efficiency.

• 15 Member States set a national target of 9% as defined by the ESD (Austria, Bulgaria, Czech Republic, Estonia, Finland, France, Germany, Greece, Hungary, Latvia, Malta, Poland, Slovakia, Slovenia and Sweden) and

• 11 member States set either a national target which is more ambitious than the ESD requirements (between 9.6% in Italy and 13.5% in Romania) or the savings from the planned instruments are expected to exceed the 9% target (between 10.4% in Luxembourg and 18% in the UK). Other countries in this group are Cyprus, Denmark, Ireland, Lithuania, the Netherlands, Portugal and Spain.

In general, the overall targets and expected savings in all Member States amount to 1,280 TWh by 2016 corresponding to an average savings target of 10% calculated as a weighted average based on the estimated current total energy consumption implicitly assumed by all NEEAPs.

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The intermediate savings targets indicate however different states of implementation for various Member States:

• 8 Member States did not provide any intermediate savings target, or the calculation of the target was either unclear or contradictory (Belgium, Denmark, Estonia, France, Germany, Hungary, Portugal and Spain) and therefore the intermediate national targets are less indicative than the overall target,

• 3 Member States set comparatively low intermediate targets below 2% (Czech Republic, Latvia and Lithuania),

• 11 Member States set average intermediate targets between 2% and 3% (Austria, Bulgaria, Finland, Greece, Italy, Luxembourg, Malta, Netherlands, Poland Slovakia and Slovenia) and

• 5 Member States set ambitious intermediate targets above 3% (Cyprus, Ireland, Romania, Sweden and the UK).

Figure 6 summarizes the overall and intermediate savings targets provided by all Member States.

Figure 6: Overall and intermediate national energy savings targets

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Although, as specified by Art. 4.1, the timeframe for the implementation of the energy savings instruments is set from 2008 to 2016 and the methodology for the calculation of the savings is described in Annex I of the Directive, there are some difficulties related to a detailed cross-country comparison of the overall and intermediate savings targets. This is mainly due to shorter timeframes between 3 years (e.g. Belgium, Bulgaria and Finland) and 8 years (e.g. Denmark and Portugal) with differing starting dates (e.g. Denmark and Estonia) and ending dates (e.g. Romania, Slovakia and Spain) as well as different calculation methods such as excluding transport from energy consumption (e.g. Estonia), avoiding the specification of the reference consumption (e.g. France), using different energy units (e.g. Belgium) and counting savings from activities prior to the implementation of the Directive (e.g. Germany).

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The current status of the NEEAPs with respect to the provision on the exemplary role of the public sector and information to final customers is shown in Figure 7. The Czech Republic is the only Member State which did not include any measures or information regarding the public sector in its report. Six NEEAPs (Denmark, Estonia, Hungary, Lithuania, Portugal and Slovakia) mention and provide some information on the role of the public sector whereas the remaining 20 NEEAPs have an adequate approach. By contrast, the provision on information and advice to final customers is provided in all NEEAPs from all Member States. However, the scope in 9 NEEAPs (Czech Republic, Denmark, Estonia, Hungary, Latvia, Portugal, Romania, Slovakia and Spain) is incomplete as they do not go into detail about the information to final customers.

Figure 7: Provisions on the exemplary role of the public sector and information and advice to final customers

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2.1.2. Overview of the type of measures adopted under the NEEAPs The best overview of the type of measures adopted under the NEEAPs can be conducted according to the sectoral coverage. Although the categorisation of the measures is not consistent and can vary in single NEEAPs there are some major trends which can be identified for most Member States. In general, most instruments reported in the NEEAPs are related either to the residential, transport or industrial sectors whereas less attention has been paid to the tertiary sector and almost none to the agriculture sector.

Within the residential sector most Member States concentrate on measures for the improvement of energy efficiency in buildings in particular including:

• Thermal envelopes (e.g. in Cyprus, Finland, France, Ireland, Italy, Portugal and Slovenia)

• Building equipment (e.g. in Cyprus, Finland, France, Ireland, Italy, Portugal and Slovenia)

• Heat savings (e.g. Denmark, Latvia and Sweden)

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• Refurbishment of existing buildings (e.g. Germany, France, Ireland, Italy, Lithuania, the Netherlands and the United Kingdom)

In this context, the measures concerning existing and new buildings are related to:

• Integrated grant schemes (7 Member States)

• Soft loans for building refurbishment (9 Member States)

• Tax incentives for building refurbishment (11 Member States)

• Comprehensive strategies for buildings (11 Member States)

• Financial support for passive or low-energy houses (7 Member States)

• Significant strengthening of building codes for passive or low-energy houses (10 Member States)

• Subsidies for efficient appliances, heating, cooling and lighting (11 Member States)

• Phase-out of incandescent light bulbs (6 Member States)

Within the transport sector the major measures are:

• Comprehensive strategies in transport (8 Member States)

• Spatial planning provisions (2 Member States)

• Support for public transport (13 Member States)

• Mobility management (7 Member States)

• Eco-driving (12 Member States)

• Tele-commuting (4 Member States)

• Car-sharing (3 Member States)

• Modal shift (9 Member States)

• Tax incentives and disincentives for passenger vehicles (15 Member States)

• Tax incentives and disincentives for freight vehicles (13 Member States)

Within the industry sectors the major measures are:

• Voluntary agreements (14 Member States)

• Energy audit schemes (13 Member States)

• Energy management, energy standards, energy reporting (6 Member States)

In general, it can be observed that there is no single winner and the NEEAPs from different Member States include a variety of energy efficiency measures with some potential.

2.1.3. Impact and effectiveness of adopted measures In order to provide a comprehensive evaluation of the impact and effectiveness of the measures adopted under the National Energy Efficiency Action Plans in all Member States the following analysis will be based on the one hand on the synthesis of the complete assessment of NEEAPs carried out by the European Commission in [EC 2009] and on the other hand on available relevant expert studies related to energy efficiency in Europe in the national context in particular in [ISI 2009], [ECF 2010], [EMEEES 2009], [MURE 2010] and [EEW 2009]. Therefore this assessment will include not only general observations and expectations included in single NEEAPs but also academic research findings from the scientific literature.

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In general, the critical assessment of the measures will include the calculation of two measure-specific values for energy efficiency. The first number will indicate the expected absolute savings in kWh as a difference between the energy consumption after the implementation of the measure and the corresponding baseline value. The second value will be a relative number in percent expressed as expected absolute savings divided by the corresponding baseline value. Both values are good estimates for the impact and effectiveness of adopted measures and can be calculated by using either a static or dynamic baseline value.

In addition, the so-called specific costs are a good indicator for the cost-effectiveness of the adopted measures. These costs are calculated as the difference between additional technology costs (including annualised capital costs and operation and maintenance costs) and annual savings of energy costs divided by the amount of total energy savings. Consequently, positive specific costs indicate that the implementation of the identified measure is more costly than the expected energy savings while negative specific costs suggest economic net savings from the end-user perspective.

Finally, a similar analysis will be conducted for the values reported by selected Member States in single NEEAPs. Although due to varying assumptions and calculation methods the country-wise comparison of the energy potentials by measures can be conducted only to a limited extent, this analysis provides a good insight into the expectation of the future impact of different energy efficiency measures at the Member State level and therefore helps to validate general trends.

The first step of the evaluation considers the savings potential of the measures in different end-user sectors. A good comprehensive assessment of the technological and economical potentials is provided by [ISI 2009] and [ECF 2010]. Based on assumptions regarding future economic growth, energy price development and other crucial drivers such as expectations on technology penetration, the savings potentials are simulated according to a three step methodology:

• Definition of energy savings options in particular with respect to technical performance.

• Calculation of the differential technology costs.

• Definition of the technology mix and calculation of overall energy savings within four different scenarios (baseline scenario with autonomous energy efficiency improvements based on PRIMES-2007 assumptions, low and high policy intensity scenarios for different additional political efforts as well as a technical scenario taking into account all technically achievable options).

The following evaluation, based on the results from [ISI 2009], indicates additional savings potential for the residential (household), transport, industry and tertiary (service) sectors compared to the baseline scenario. In addition, only the findings of the high policy intensity scenario are analysed in detail as this scenario estimates total energy savings potential triggered by possible policy actions.

As illustrated in Figure 8, the major absolute savings potentials in the short-term can be achieved with efficiency improvements in the transport sector (approx. 45% of total savings potential), in particular through technical and behavioral measures for passenger transport. Also measures within the residential sector (approx. 30%) especially for electrical appliances can contribute some additional energy efficiencies in the short-term up to 2015. In the long-term up to 2030 the principal impact can be expected from the residential (approx. 36%) and transport sectors (approx. 32%).

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However, the energy savings potentials in the residential sector are mainly due to improvements in residential buildings (heating and sanitary hot water) and in the transport sector due to technical measures such as reductions in fuel consumption (approx. 23% and 20% of total saving potentials in 2030, respectively). In general, the savings potentials within the industry sector are represented by reduction of fuel consumption in non-EU Emission Trading Scheme (ETS) industry and by reduction of the electricity consumption of all industry. In the tertiary sector, building energy savings account for more than 50% of the potentials. Consequently, in the long-run until 2030 the measures related to buildings within the residential and service sector account for more than 40% of the total savings potentials in all Member States. However, the exact geographical break-down of these potentials can vary for single Member States due to climatic differences. In particular in the North, major potentials can be realised by measures related to heating, whereas in the South measures related to cooling of the buildings represent a large potential for savings.

Similar results can be expected also for energy efficiency calculated in percent as absolute savings divided by the energy consumption of the baseline scenario within the specific sectors. In the short-term the best efficiencies, up to 15%, can be achieved in the residential and transport sectors followed by the tertiary and industry sectors. However, in the long-term, major efficiencies are predicted for the residential sector (up to 60% in 2030) and tertiary sector (40% in 2030) followed by the transport (25%) and industry (15%) sectors (see table 2). This is mainly due to varying assumptions on the autonomous development of energy savings within the baseline scenario for different sectors and measures. In addition, comparatively high energy efficiency rates of up to 80% can be expected for buildings which are responsible for the major part of the savings potential within the household and service sectors.

Figure 8: Expected potentials for additional energy savings within the high policy intensity scenario (HPI) by sector

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Source: According to [ISI 2009] and [ECF 2010]

The same methodological approach is also used by [ECF 2010] with similar results. However, in addition to the expected energy savings potential, the study includes a comprehensive estimation of the specific costs for different energy efficiency measures. As summarized in Table 2 the specific costs from the energy savings vary substantially for different sectors based on a moderate annual discount rate of 4-8%.

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The broadest specific costs range between -35 €/GJ9 and +40 €/GJ can be expected in the transport sector. On the one hand the behavioral and modal shift measures do not require high investments and on the other hand the technical measures are comparatively cost-intensive. The specific costs in the residential sector are estimated to fall in a moderate range (-30 €/GJ and +25 €/GJ) due to the varying impact of different appliances measures. However, the specific costs of energy savings related to new and existing residential buildings are estimated at a low level between -10 €/GJ and +10 €/GJ. The tertiary sector is charaterised by high negative specific costs of up to -35 €/GJ for appliances and comparatively low positive costs of +10 €/GJ for energy savings measures related to existing buildings. Finally the lowest specific costs are estimated for the industry sector with a cost range between -25 €/GJ and +15 €/GJ for electricity savings in cross-cutting technologies on the one hand and space heat and process energy on the other hand.

Table 2: Expected savings potential and corresponding specific costs

Energy savings potentials

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1,751 TWh 60% -30/+25 €/GJ

Transport Sector

1,536 TWh 25% -35/+40 €/GJ

Industry and Tertiary Sector

860 TWh 15% -25/+15 €/GJ

Tertiary Sector

723 TWh 40% -35/+10 €/GJ

Source: According to [ISI 2009] and [ECF 2010]

As indicated in Figure 9 the overall energy savings target of 20% in 2020 can to a large extent be achieved in a cost-effective way (negative specific costs illustrated as economic net savings from the end-user perspective). Based on the expected consumption of primary energy, major cost-effective savings come from selected measures in different end-user sectors. Additional primary energy savings, though less cost-effective, can be achieved by improved energy conversion through renewable energy sources.

9 For comparison, household natural gas prices in Germany are on the order of 16 €/GJ. It should be noted that the numbers presented here are net figures including both the energy savings and the capitalized upfront investments.

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Figure 9: Total savings potential in all economic sectors for primary energy in 2020.

Source: [ECF 2010]

The above findings are consistent with the assessment results of single measures from the German, Italian and Austrian NEEAPs carried out by the EMEES project (Evaluation and Monitoring for the EU Directive on Energy End-Use Efficiency and Energy Services). As described in [EMEEES 2009] one of the objectives of this project was to support the European Commission through the development of a quantitative assessment tool for a consistent evaluation of NEEAP savings targets. The tool is based on the existing simulation tool MURE (Mesures d'Utilisation Rationnelle de l'Énergie) and includes several modified components within the qualitative and quantitative databases as well as simulation modules [MURE 2010]. In general, there is common agreement regarding the potentials and the break-down across sectors and technology types in the different studies. However, to some extent there are differing views on the cost-effectiveness of single measures.

According to [EEW 2009] only six Member States, namely the Flemish Region in Belgium, Germany, Hungary, Italy, Spain and the United Kingdom) provided detailed information on the expected energy savings for single measures in the NEEAPs. Due to differing target horizons and political priorities the following examination of expected savings potentials mentioned in the NEEAPs of different Member States can be conducted only to a limited extent for the targets in 2016.

Flemish Region /Belgium

In Flanders, the NEEAP predicts the greatest energy savings within the residential (approx. 30% of total energy savings) and tertiary (25%) sectors followed by the transport (18%) and (15%) agriculture sectors. The major instruments accounting for more than 50% of the expected savings are either legislative-ones including building standards and obligations for electricity distribution system operators or financial-ones containing grants of subsidies for different sectors. The Flemish regional NEEAP includes the following three measures which are expected to have great impact on energy efficiency in Belgium:

• Imposition of public service obligations on the electricity distribution system operators for final household customers in the residential sector,

• Mobility management or measures that bring about a shift in the choice of mode in the transport sector and

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• Grants of subsidies for energy-saving measures in agriculture and horticulture (cultivation under glass) in the agriculture sector.

Germany

The German NEEAP contains a comparatively detailed list of different measures for all sectors. The sectoral allocation of energy savings is in line with the results from [ISI 2009] and [EMEEES 2009] indicating major potentials in the residential (40%) and transport (31%) sectors. According to the German NEEAPs, almost 75% of the estimated savings potentials will be achieved by implementation of informative measures such as advisory actions and financial instruments in the form of additional governmental funding. Major measures proposed in the German NEEAP are:

• CO2 building redevelopment programme including promotion of the redevelopment of heating in existing residential buildings and special funding for replacing direct electrical central heating systems with fossil fuel heating systems, reverse cycle heating systems and other regenerative energies in the residential sector,

• Funding programme for optimising conventional drives and fuels of and for private cars and heavy goods vehicles in the transport sector and

• Campaign for greater implementation and notification of training for car drivers in relation to fuel-saving driving techniques as well as for acceleration of information and motivational measures for increasing the demand for low rolling-resistance tyres and oils in the transport sector.

Hungary

In Hungary the major energy savings expected from the adopted measures stem from the industry (35%), tertiary (25%) and residential sectors (22%). A minor impact is predicted for the transport sector (6%). Most measures described in the Hungarian NEEAPs are financial instruments which account for more than 50% of the energy efficiency targets. Some impact (20%) is also expected from the implementation of informative measures. The Hungarian NEEAP foresees the following major energy efficiency measures:

• Financial support for energy efficiency investment projects of institutions and enterprises within the industry sector,

• Support of third-party financed services and projects to decrease lighting and heat energy demand in the tertiary sector and

• Support for the energy-efficient modernisation of residential buildings built by industrialized and prefabricated technologies in the residential sector.

Italy

The predicted energy savings in Italy can mainly be achieved in the residential sector, accounting for approx. 45% of total savings. Other sectors are expected to contribute smaller but similar amounts between 17% and 19%. In Italy the following principal energy efficiency measures are planned:

• Incentives for using efficient heating installations both in the residential and tertiary sectors,

• Introduction of a 149 g CO2/km consumption limit to reduce emission in the transport sector and

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• Incentives for the thermal insulation of opaque surfaces of pre-1980 residential buildings by means of white certificates, information programmes and tax relief in the residential sector.

Spain

Although the Spanish NEEAP provides a very detailed analysis of the energy savings potentials and economic benefits by measure, it cannot be directly compared to other Member State NEEAPs as the timeframe for the implementation ranges only between 2008 and 2012. Nevertheless, the principal energy savings are expected in the transport sector (more than 50% of total savings over the entire timeframe) and buildings (13% without the energy savings from residential appliances). In addition, the Spanish NEEAP estimates a total investment of 13.5 bn € within the residential building sector which accounts for more than 60% of total investments (approx. 22.2 bn €). Since these figures do not take into account maintenance and operation costs and future energy prices, they cannot be compared with specific technology costs as described above. The major impacts on energy efficiency in the Spanish NEEAP are expected from:

• Management of transport infrastructure to achieve higher efficiencies, both for the transport of passengers and goods in the transport sector,

• Implementation of energy audits to determine energy-saving potentials and encourage adequate investment in the industry sector and

• Preparation of urban mobility plans to enhance modal shifts in favor of more efficient means in the transport sector.

United Kingdom

The NEEAP provided by the UK includes potential calculations for different measures in the residential, private, public and transport sectors. In this context, the household sector accounts for more than 52% of expected energy savings and makes the greatest contribution to overall energy efficiency improvements. The private and public sectors (excluding the residential sector) account for 26% and the transport sector for 21%. Major policies in the British NEEAP concentrate on efficiency improvements in building energy use which are expected to contribute more than 30% of the total savings through regulatory actions in different areas. The major measures proposed in the British NEEAP are:

• Continuously tightening building regulations and standards for new houses in the residential as well as public and private sectors,

• Supplier obligations for selling of energy efficiency services in the household sector and A voluntary agreement package including reform of company car taxation and graduated Vehicle Excise Duty in the transport sector.

Appreciation of potentials

In general, the overall evaluation of different energy efficiency measures based on expert studies and the NEEAPs shows that the main saving potentials can be realised within the residential and transport sectors. Within the transport sector, the best improvements can be achieved through modal shift and behavioral measures in the short-term and technical measures in the long-term. Since behavioral mechanisms do not require high investments, such measures can be implemented at comparatively low cost.

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Technical measures with the highest impact are usually related to reduction of transport fuel consumption and require additional investments in the development of adequate technologies. Good practice in NEEAPs in this area are represented by plans to increase public transport use (e.g. in Finland, France, Portugal, Slovenia, Spain and the United Kingdom) and to introduce and enhance car-sharing initiatives (e.g. in Austria).

In the residential sector the major impact on energy efficiency can be expected from initiatives related to the reduction of fuel and electricity consumption for heating and sanitary hot water in buildings. However, additional energy savings require considerable investments as calculated in the Spanish NEEAP. Due to long lead times such measures should be implemented far in advance in order to achieve the estimated targets on time and allow them to unfold their potential in the long-term. Good practices are for example strict building certification requirements (e.g. in Denmark, France and Sweden), minimum quotas for efficiency classes in new buildings (e.g. in Portugal and Austria) and additional financial programs and incentives (e.g. in Germany, Austria and Italy). In the short-term energy savings in the residential sector can be realised by improved appliances and lighting. However, additional investment may cause high positive specific costs for selected measures. Similar results are estimated for the tertiary sector indicating high savings potential for office appliances in the short-term and extensive potential for buildings in the long-term.

Energy savings in the industry sector are expected to remain at a moderate level with major effects from cross-cutting technologies such as electric motors and lighting applications. Good examples for successful measures in this sector are mandatory energy audits combined with financial support for the implementation of successful instruments (e.g. in Finland, Germany, Portugal, Slovakia and Czech Republic).

2.1.4. Best practice in the public sector According to Article 5 of the ESD, an important element of energy efficiency policies is represented by the exemplary role of the public sector. In this regard, Member States are encouraged to implement cost-effective measures which are intended to reduce energy consumption in the public sector in the most efficient way. In this context, Members States should include at least two measures for energy savings in the public sector from Annex VI of the Directive in their NEEAPs and develop adequate guidelines for tender evaluation in public contracting processes.

As described in Section 2.1.1 almost all Member States mention the exemplary role of the public sector and 20 Member States provide clear information on planned actions to comply with the Directive. Although the exact impact and effectiveness of the measures related to the public sector cannot be estimated for every Member State, there are several examples of best practice. According to [EC 2009] and [EEW 2009] the best practices which can be observed in different Member States cover one or several of the following aspects:

• Setting quantitative targets for energy use in the public sector

• Development of enhanced public procurement strategies and obligations

• Mandatory implementation of energy saving projects

• Development of ambitious standards for public sector buildings

• Use of financial instruments for energy efficiency improvements in the public sector

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The first aspect, setting clear quantitative savings targets, indicates a strong commitment of the Member State to the exemplary role of the public sector and usually provides extensive incentives for the corresponding public bodies to implement effective energy saving measures. For example, such targets have been introduced in Ireland (33% target to be developed by a high-level working group), Spain (9% energy savings by 2012), the UK (ambitious targets for emission reductions in office buildings and administrative vehicle fleets and for energy efficiency improvements per square meter in public administration offices), Germany (30% reduction in CO2 emissions from actions in the public sector by 2012) and Portugal (20% of state buildings within a higher energy class).

The second aspect is related to public procurement as a favourable opportunity to enhance energy efficiency technologies. In this way the public sector can contribute not only to the reduction of total energy consumption but also to the elimination of market barriers such as economic management and organisational uncertainties, lack of knowledge and behavioural aspects for energy saving technologies. Such procurement obligations are included for example in the Netherlands where the so-called Sustainable Operational Management for Governments Programme develops sustainable procurement criteria which are binding for 100% of procurements at the central government level and 50% at the regional and local levels, as well as in Portugal where 50% of public procurements have to be carried out under the National Strategy for Ecological Public Procurement.

A similar approach is represented by the obligation in the public sector to implement all energy efficiency projects which have been identified in energy audits and are expected to have a short payback period. On the one hand such obligations can help to test innovative measures and, in some cases, to accelerate the market introduction of selected technologies. On the other hand, the short payback period assures that the public funds are spent in an economically efficient way. This kind of obligation can be found for example in the Danish NEEAP.

Additional energy efficiency improvements can also be achieved through the development of ambitious standards and codes for public sector buildings. In this way Member States can exploit the great savings potential in the building sector in a cost-effective way. For example, the Austrian NEEAP requires low-energy or passive house standards for new public buildings, whereas in France a number of existing public buildings have been scheduled for thermal renovation within several years.

Finally the use of financial instruments in the public sector is expected to have a favorable impact on energy efficiency improvements. As described in Section 2.1.4, financial measures provide great potential for energy savings and therefore should also be utilised in the public sector. Combined with measures in the building sector, financial instruments can make an important contribution to the overall reduction of energy consumption. Good examples are included in the NEEAPs from Germany, Austria and Cyprus.

2.1.5. Preliminary conclusions on the possible options for the revision of the Directive

The cross-country comparison of the implemented measures in the NEEAPs shows a wide variety of approaches, designs and level of information. This is mainly due to different evaluation foci, calculation methods and assumptions. However, measures concentrating on the building environment (both in the residential and tertiary sectors) as well as on technological progress in the transport sector on the one hand and mechanisms with financial or binding elements on the other hand seem to provide the potential for the highest impact and effectiveness on energy efficiency. For such measures both major

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private spending resulting in net savings for the concerned investors and minor public spending resulting in positive net economic impact at national level are needed.

Although the implementation of these measures requires comparatively high up-front investments and therefore may constrain the available budgets in the short-term, the overall benefits from economy-wide energy savings are expected to more than compensate costs in the long-term. However, to some extent, the currently difficult public finance situation may constrain or delay implementation. It is difficult to estimate the exact impact of financial restrictions, as no detailed evaluations or forecasts are available.

The evaluation of the impact and effectiveness of energy efficiency measures is limited in several ways. The major drawback is the fact that most of the results both in the expert studies and in single NEEAPs at the Member State level are based on projections for expected energy savings by measure. Consequently, calculation assumptions, in particular regarding the development of future energy prices, have a crucial impact on the overall results. General modeling difficulties such as the availability and quality of input data as well as inconsistent patterns of results, as described by [Vine et al. 2010] and [Joskow et al. 1992] may also affect the present findings. In addition, in order to provide a comprehensive and realistic evaluation of all measures, other economic and behavioural issues such as bounded rationality, principal-agent problems, market imperfections and rebound effects10 should be also taken into account. Further weaknesses of the ESD related to the NEEAPs are:

• Heterogeneous designs, calculation methods and level of information provided in the various NEEAPs.

• Difficulties in the comparison of savings effects from the ESD with the effects of other programs and Directives (e.g. Energy Using Products Directive and Energy Performance of Buildings).

• Ambiguities between overall and intermediate targets as well as between the national targets and effective estimates provided for single measures.

• Mixture of old and new measures due to the lack of precise specifications in the Directive.

• For some Member States there is a considerable gap between the political commitment to energy efficiency and the measures adopted or planned, as reported in the NEEAPs, and the resources attributed to them.

• For most Member States there is no link between the public procurement measures reported in the NEEAPs under the Energy Services Directive and those reported under the Commission's Green Public Procurement policy.

In general, future revisions of the ESD should consider the need for more clear and consistent specifications for forthcoming NEEAPs in order to improve the comparability and transparency of the reports, particularly in regard to the overall reporting format, description and parameterisation of single measures and the methods of calculation of actual and expected energy savings. In this way the NEEAPs would provide a better opportunity to examine the link between the savings targets and the proposed measures. The NEEAPs could also allow for their integration with other Member State reporting obligations, e.g. with the Directive on the Energy Performance of Buildings or in general with greenhouse gas emissions reporting related to the 20-20-20 target, in order to reduce

IP/A/ITRE/ST/2010-02 & 03 PE 451.482 30 10 For a brief discussion of these effects see [Linares 2010].


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the total reporting effort (e.g. by combination and synchronization of reporting periods and calculation instruments).

In addition, as postulated by [COM (2008) 772 final] the current level of implementation of measures can realise maximum energy savings of about 13% by 2020. Therefore, according to [ECF 2010] achieving the total target of approximately 394 Mtoe in 2020 will require substantial additional policy efforts. As indicated in Figure 10, after adjusting for autonomous energy savings through recession effects, the Member States should increase the impact of current measures by a factor of three in order to close the gap between expected energy savings and the envisaged target of 20% by 2020.

Figure 10: Policy gap in comparison to energy savings achievements from current measures.

Source: [ECF 2010]

In a broader context, the ESD should encourage the Member States to focus more on whole policy packages instead of isolated instruments in order to benefit from the improved effectiveness of such packages of measures. This strategic approach can be better achieved for example by involving local authorities and actors in the entire process of implementing energy efficiency measures.

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2.2. Stimulating the energy services sector: Role of ESCOs

2.2.1. Definition of Energy Services, Energy Contracting and ESCOs

Energy services

The notion of energy service (ES) has been defined as follows in the ESD : “the physical benefit, utility or good derived from a combination of energy with energy efficient technology and/or with action, which may include the operations, maintenance and control necessary to deliver the service, which is delivered on the basis of a contract and in normal circumstances has proven to lead to verifiable and measurable or estimable energy efficiency improvement and/or primary energy savings” [EC 2006].

Following the adoption of the ESD, stakeholders have been working at EU level in order to set forth clear standards and basic requirements for energy services. Thus, according to the standard defined by the European Committee for Standardization (CEN), an Energy Efficiency Service “shall be designed to achieve an improvement in energy efficiency and meet other agreed performance criteria” [Piantoni undated]. The terminology (Energy Efficiency Service, EES) is slightly different from the one used in the ESD (Energy Service).

There exist a very wide variety of ES (or EES) ranging from energy analysis and audits, energy management, project design and implementation, maintenance and operation to monitoring and evaluation of savings, property/facility management, energy and/or equipment supply, provision of service (space heating/cooling, lighting, etc.), etc. [Bertoldi et al., undated]. This whole range of services can be represented in a coherent way on the ES value chain (that may also be interpreted as a complete EES project cycle). The different stages of this value chain were identified in the Change Best project (see Figure 11).

Figure 11: EES value chain

Source: [Irrek et al. 2010]

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Energy Service Company (ESCO)

The concept of Energy Service Company (ESCO) has also been characterized in the ESD. It is “a natural or legal person that delivers energy services and/or other energy efficiency improvement measures in a user's facility or premises, and accepts some degree of financial risk in so doing. The payment for the services delivered is based (either wholly or in part) on the achievement of energy efficiency improvements and on the meeting of the other agreed performance criteria.” [EC 2006]. In other words, an ESCO is an ES (or EES) provider that takes over both the technical and the financial risk (wholly or in part) by providing a guarantee of the results (energy savings or reduction of energy costs) to its clients. From the customer’s point of view, energy performance contracting is similar to the outsourcing of financial and technical risk. Their clients may be public or private organizations. The EU-funded Change Best project for instance categorized ESCO customer segments into 11 distinct categories:

• For the public sector: primary and secondary school, university, local administration (municipalities, provinces, and regions), health/hospitals and public housing.

• For the private sector: hotels/hospitality, office/commercial, retail, industry, residential and transport.

In theory, if one sticks to the definitions of EES given above, an ESCO will be positioned on the whole EES value chain. However, this is rarely the case and most ESCOs tend to focus their core business only on some stages of the value chain [Irrek 2010].

By definition, ESCOs are 100% based on the delivery of EES to their customers. However, it is important to bear in mind that ESCOs are not the only type of entities that may provide EES. Energy companies such as energy distributors or retailers may very well deliver this kind of service as a side business. And for residential clients, where the transaction costs are high because of the small size of each project (see section 2.2.3), they have a clear competitive edge as they can benefit from their established client portfolio. For energy companies, providing ES is a way of improving their client’s loyalty while at the same time balancing the risk of losing revenues from higher energy efficiency and lower sales.

While they could be considered as competitors, it appears that the profile of energy companies and ESCOs can actually be very complementary and a lot of synergies can be detected in terms of expertise, financial capacities, marketing, etc. And we are likely to see an increasing number of energy companies partnering with an ESCO or owning one as a subsidiary company.

Energy Performance Contracting

From a legal standpoint, ESCOs have the possibility of proposing Energy Performance Contracts (EPCs) to their clients. An EPC is a contractual tool designed for the supply of EES. It is defined by the ESD as “a contractual arrangement between the beneficiary and the provider (normally an ESCO) of an energy efficiency improvement measure, where investments in that measure are paid for in relation to a contractually agreed level of energy efficiency improvement” [EC 2006]. Under an EPC, the cost reductions induced by the savings on the client’s energy consumption are shared between the ESCO and the client, thus generating profit for both parties and repaying the initial investment and recurrent costs. From the ESCO standpoint, the profit is therefore directly linked to the energy performance of the project but not to the means deployed [ADEME 2008].

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By signing an EPC, the ESCO and the client are actually creating a win-win situation resembling a partnership in which their interests converge towards reducing the energy consumption of the client. This approach is result-oriented and allows the client to reduce energy costs and at the same time focus on its core-business. The principle is illustrated in a simplified way in the figure below:

Figure 12: Simplified representation of the ESCO business model

Source: authors

Regarding the issue of financing, an ESCO project can either be funded by the ESCO, the client or a third party (TPF: Third Party Financing) such as a bank. In the latter case, a credit is provided by a bank to the ESCO or the client. It may be backed by the performance guarantee issued by the ESCO. There are different ways of sharing the project benefit between the client and the ESCO. Under a shared savings model, the ESCO takes over the performance and credit risk. The profit is shared at a fixed percentage for a predefined number of years and the ESCO guarantees the level of energy cost reduction. Under a guaranteed savings model the ESCO only assumes the performance risk but not the credit risk. In that case the ESCO guarantees a certain level of energy savings and the client takes care of the financing (with his own finance or with a credit) [ADEME 2007].

As explained by the IEA, the underlying idea is to “shift the focus away from selling units of final energy (like fuel oil, gas or electricity) towards the desired benefits and services derived from the use of the energy, e.g. the lowest cost of keeping a room warm, air-conditioned or lit” [IEA 2009a]. EPCs actually make possible switching from a “Megawatt-hour business model” to a “Negawatt-hour business model”. The current architecture of the internal energy market tends to come in confrontation with energy efficiency goals. Indeed as long as no binding target and fully functioning market-based energy efficiency instruments (such as a White Certificate Scheme) are in place, there is more incentive to sell megawatts than negawatts. And this has been the traditional business of energy companies for decades. In fact, existing business models provide few incentives at all for energy companies to encourage their clients to undertake energy efficiency actions as their revenues depend directly on the amount of energy sold or transported: the more energy they sell or transport, the more

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revenue they get (it is however worth noting that night tariffs, though they do not constitute an energy efficiency action as such, do provide an incentive to smooth consumption and could potentially lead to reduced energy consumption and production).

Providing the right market incentives are in place, EPCs potentially allow new players, namely ESCOs, to come into the energy value chain and provide services to the consumer with the objective of lowering energy consumption. Favoring the spread of EPCs on the contrary is a clever step in the right direction as it provides a framework in which revenues are correlated to the amount of energy saved, thus encouraging the reduction of client energy consumption.

Many other contractual models are available to ESCOs (see the example of Germany in section 2.2.2), but the focus of this section deliberately has been placed on EPCs as they seem to represent the most efficient and result-oriented contractual tools to deliver on energy savings. Energy Supply Contracting (ESC) is another option for ESCOs. This consists of an ESCO supplying energy to the client with efficient technology, from renewable sources (solar, geothermal, etc.) or CHP. ESCs also result in energy efficiency improvements. We will see in the following that EPCs and ESCs can be combined to further increase efficiency gains.

Important components of the ESCO business model

The typical categories of costs and revenues of an ESCO are provided in the following table. It is noteworthy that a White Certificates scheme, if in place, provides an additional source of income for ESCOs.

Table 3: Typical costs and revenues of an ESCO

Revenues Costs

Revenues of energy services

Revenues from selling White Certificates

Energy Efficiency Service Costs recovered from Government or Government Funds: subsidy, tax break, etc.

Energy Efficiency service costs including:

Costs of energy efficient technologies and other materials, personnel costs, costs of external partners, insurance costs (for the equipment), taxation, costs of capital, overhead costs, transaction costs.

Source: [adapted from: Suerkemper 2010]

2.2.2. ESCOs European market outlook

Cross-country market outlook

The European ESCO market started developing in the late 80s-early 90s [Bertoldi 2007] and continues to expand despite ups and downs in some countries like Sweden. It is nevertheless still an emerging market which has not really taken off in many countries. The level of market development varies widely from country to country mainly for historic reasons and due to differences in national frameworks [Labanca, 2010].

It has been rather difficult to obtain consistent information on the EU ESCO market. A limited number of sources are available in the literature and they are sometimes contradictory.

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All experts agree however on the fact that Germany is by far the largest market for ESCOs among MSs. The first German ESCO emerged two decades ago in the early 90s and the phenomenon has grown rapidly. As demonstrated by the establishment of the Energy Saving Partnership in Berlin (see below), the support of public actors has been a crucial element in the emergence of a national ESCO market. Around 500 ESCOs have been referenced in various reports ([Bertoldi 2007], [ADEME 2008] and [Irrek 2010]). However, the number of ESCOs operating under an EPC model varies between 10-15 [Irrek 2010] and 50 [Bertoldi 2007]. Most ESCOs therefore do not propose EPCs but instead other types of contracts like renewal and operation contracting (Anlagen Contracting), operation-only contracting (Betriebsführungs-Contracting) or finance contracting (Finanzierungs-Contracting) [ADEME 2008]. German ESCOs can be either small or large local companies or multinational corporations. Finally the dominant technologies and fields of application on the market are heating and insulation while CHP is growing very rapidly [Bertoldi 2007]. The German example will be further investigated in the section on best practices. In Italy, dozens of ESCOs are operating in the public, commercial, industry and residential sector. In 2007, CHP investment alone represented a total value of 95 million €. The implementation of a White Certificate Scheme is recognized by most experts as a key success factor of the Italian ESCO industry [Bertoldi 2007].

Behind Germany other MSs, like the UK, France and Italy have well developed ESCO markets. In 2007 the UK had between 20 and 24 ESCOs for an annual turnover of 860 to 940 million EUR. The industry sector is the main ESCO client but demand from the commercial and public sectors has started to rise [Bertoldi 2007]. In France, it is estimated that around 250 facility and operation companies provide EES using EPC [Irrek 2010] for an overall turnover of 3 bn €. The market has traditionally been driven by both the public sector and industry. Lately new opportunities seem to have emerged from the residential sector [Bertoldi 2007]. The market is mainly dominated by two large players (Dalkia and Cofely) [Irrek 2010] but energy utilities are increasingly offering energy services as a way of increasing their customer’s loyalty and improving their corporate image.

Regarding Spain, the two main reports available in the literature provide contradictory information. Bertoldi [2007] categorizes Spain as being part of the ESCO “Premier League” with 10 to 15 private players and even public ESCOs primarily targeting the public sector and to a lesser extent industry. However, Irrek [2010] describes the Spanish market as “not well developed”. This emphasizes the lack of information on the ESCO market and the need to produce more consistent data and make it available to stakeholders. The Hungarian situation seems unclear as well. While data show a dynamic and established market with around 30 ESCOs for an overall turnover of €150-200 million, feedback from market players seems to suggest a very different reality and a shrinking market.

Sweden, the Czech Republic and Austria are interesting examples of rapid uptake of the ESCO model due to the set up of appropriate policy mix. Sweden failed twice to kick-start the ESCO market during the 70s and subsequently during the 90s. More recently (as discussed in more detail below), the adoption of a clear strategy supported by consistent policy measures resulted in an impressive rise of the market reaching an annual turnover of 40-60 million € in 2007. 10 to 15 ESCOs were listed in 2007, mainly operating under EPC. The Swedish success story will be studied in more detail in the following. Similarly, the introduction of mandatory audits and consultation with the public and private sectors have allowed the Czech Republic to become one of the most dynamic ESCO markets in the EU. In 2007, 10 to 15 ESCOs exclusively using the EPC format (according to Irrek et al.) were identified in the Czech Republic with an overall turnover of 10-20 million € [Bertoldi et al. 2007]. Austria offers another example of an ESCO market success story [Bertoldi 2007]. Demand coming from the public sector was a key success factor. In

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less than a decade, Austria managed to become a leading ESCO industry country in Europe. In 2006, Bertoldi listed 30 public and private ESCOs focusing mostly on public buildings and on the following technology segments: heating, cooling, lighting and water management.

In other MSs such as Portugal, Latvia, Estonia, Slovakia, Slovenia, Poland, Bulgaria and Greece, the ESCO market remains at a early stage of development [Bertoldi 2007 and Irrek 2010].

Notably, a group of MS represented by Denmark, the Netherlands and Lithuania, have proven to be successful in their energy efficiency policy but with no or a very limited internal market for ESCOs. As emphasized by [Bertoldi et al.], this fact demonstrates that ESCOs and EPCs can be efficient tools to achieve ambitious energy efficiency goals but are certainly not the only ones. Developing the ESCO market should not be a goal in itself but simply a means to tap even more energy savings compared to a “business-without-ESCOs scenario”. In Denmark for instance, there is a dynamic market for EESs, but the players are electricity distributors, district heating utilities, natural gas distributors, NGOs and consulting firms. Thus only 6 to 8 ESCOs currently operate in Denmark [Irrek 2010].

ESCO market development level and business opportunities per customer segment

On average in the EU, the most developed markets are local administration, the industrial sector and hospitals while the least developed are the public housing sector, retail and the residential sectors [Irrek 2010].

Not surprisingly, the economic potential of the ESCO market in Europe is like the untapped energy efficiency potential: huge. It has been estimated in the literature that this sector could amount to a value of 25 billion EUR in the long-run [Bertoldi 2007]. In fact, in addition to helping the EU to achieve its energy and climate goals, it would actually generate an enormous amount of new economic opportunities for the European energy sector together with green collar jobs.

The following table is based on Irrek’s country-by-country assessment of the customer segments with the highest potential from a business point of view [2010]. It is based on specific country reports that were elaborated in the context of the EU-funded ChangeBest Project. The data only focus on the MSs that were covered in the study.

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Table 4: MS-by-MS Assessment of the customer groups with the highest commercial potential

Countries Main potential identified

Germany Building sector (market potential of 2 billion €)

Denmark Local administration and hospitals

Belgium (Flanders) Tertiary sector

Netherlands New (non-residential) buildings

Czech Republic Public and private facilities

Austria Hospital, private non residential sector

France Built environment

Italy Private sector (in particular SMEs)

Portugal Residential sector, public buildings, public lighting

Spain Primarily hospitals/health, national and local administrations and residential sector

Latvia All sectors

Slovakia Industry and residential sector

Slovenia Residential, industry, commercial and public building sectors

Bulgaria Residential buildings, universities, industrial enterprises and hotels

Source: [adapted from: Irrek 2010]

2.2.3. Barriers to ESCOs development

Common barriers

In all sectors, low energy prices are the main barrier to the development of the EES business. As long as energy represents a small share of household, private company or public entity budgets, there will be no or few incentives to pursue energy efficiency measures. On the other hand, the likely rise in energy prices in the not-too-distant future as a result of primary energy resource scarcity will probably create a much more favorable environment for ESCOs.

In addition, supportive policies at national and EU levels are not ambitious enough to really kick start the ESCO market. By adopting the EPBD and the ESD, the EU has taken important steps in the right direction. But the lack of ambitious and binding targets for energy efficiency represents an indisputable loophole that could substantially boost the ESCO market.

Apart from that, all experts agree that lack of awareness and information of potential clients on energy efficiency and the ESCO concept represent major hurdles for ESCOs. Most individuals, public organizations and companies have absolutely no idea about their energy savings potential.

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This is somehow related to the low energy price issue as energy matters tend to receive little attention in non-expert decision-making except during high price periods. As a consequence energy efficiency projects are frequently given a low priority compared to other projects. For instance in private companies, energy efficiency projects have to compete with other projects more directly related to the core business and more urgently required in order to stay competitive. Those projects therefore understandably gain priority. The lack of awareness from financial institutions is also problematic and often results in inappropriate financial solutions (see below).

In addition, potential clients tend to mistrust and be very skeptical about ESCOs and EPCs. Related to that, the lack of standard procedures for Measurement and Verification (M&V) and standard documents (e.g. standard EPC contracts) are also discussed in the literature [Bertoldi 2007]. Clear and reliable M&V standards combined with specific standard documents are important keys to gaining customer trust.

From the economic and financial standpoint, the fairly long pay-back period compared to the time horizon of the clients is problematic. On average, the pay-back period of an ESCO project ranges between 5 and 10 years [ADEME 2007]. In the residential sector for instance, this tends to discourage tenants from making initial investments as they are often uncertain whether they will stay in their dwellings that long. In private companies and especially in SMEs, 5 to 10 years is a very long time compared to other more rapidly profitable internal projects. In many countries, in the public sector political mandates are shorter than the 5 to 10 year payback period. This represents a disincentive for political leaders, since positive results are unlikely before the next election.

Finally, it is often noted in the literature that the banking sector does not provide adequate forms of financing to ESCOs and their clients. This is in fact strongly related to the lack of awareness and trust indicated above. In general, banks primarily look at the client’s or ESCO’s credit worthiness but not the quality of the project. The evaluation method is therefore asset-based, when it should be cash-flow based. Instead of requiring collateral on the client or ESCO asset, it would be much more supportive if the collateral could be based on the stream of revenues generated by the project energy savings [Bertoldi 2007]. Additionally, as no off-balance sheet solutions are available, the credit incurred by an organization to implement an ESCO project burdens its balance sheet and decreases its credit-worthiness, thus limiting its ability to invest in other projects [Irrek 2010]. Innovative forms of finance will be further investigated in the following section on best practices.

Barriers specific to the public sector

In addition to the common barriers mentioned above, specific barriers exist in the public sector. First, the procurement and tendering rules very often seem inadequate to ESCOs and EPCs. For example, in many cases, tender specifications and selection criteria only look at the up-front investment costs and totally overlook the complete project life-cycle cost which is really where the added-value of ESCOs and EPCs lies [ADEME 2007].

Secondly, there is an issue of split incentives. As noted by ADEME [2007], budgetary rules create a disincentive to take energy efficiency actions. Indeed, the energy budget is based on the previous year’s consumption. Therefore, if the energy costs are reduced, the public entity will see its budget reduced the following year.

Thirdly, the complexity of the tendering procedures as well as low quality and ambiguous specifications create unnecessary administrative hurdles, especially for small players. All this tends to push up the cost of developing business in the public sector (transaction costs) [Irrek 2010]. IP/A/ITRE/ST/2010-02 & 03 PE 451.482 39


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Lastly, despite huge potential gains, Bertoldi [2007] highlights an aversion to outsource energy in the public sector in CEE countries. The reason for this is a fear of losing control and possible layoffs if an outsider is allowed to intervene on energy equipment. Bertoldi notes nevertheless that in other countries like France, Belgium, the UK and Slovenia, the situation is totally reversed and the public sector shows a strong interest in outsourcing energy management.

Barriers specific to the industry sector

In the industrial sector, there is an issue of risk perception. Companies often fear that the ESCO project may force them to interrupt operation and that they might become dependent on the contractor [Irrek 2010]. The fear of having to disclose sensitive and confidential information is also underlined in the literature [ADEME 2007].

Besides, there is an organizational barrier inside companies for taking energy efficiency actions. Indeed, the organizational structure of companies in different units with different budgetary lines and budgets makes it complicated due to insufficient qualified staff and because links with the strategic management level are limited or non-existent [ADEME 2007].

Related to the low energy price issue mentioned above, the low level of energy intensity of certain industry sectors does not incentivize the implementation of energy efficiency projects as energy represents a small share of company expenditure. However, the success of ESCOs in some countries characterized by low energy intensity demonstrates that this barrier can be overcome [Irrek 2010].

Barriers specific to the commercial sector

In the commercial sector, we see a reluctance to enter into multiyear contracts. In addition, large players often have the financial capacity to carry out projects themselves, thus limiting business opportunities for ESCOs. One can also note in certain countries a suspicion of the tertiary sector towards ESCOs and EPCs due to past disappointments. This is the case for example in Sweden where the ESCO industry failed to deliver what it had promised during the 70s and the 80s. Finally, there is also a mistrust of ESCOs and banks towards the commercial sector, which is not seen as a reliable client [ADEME 2007].

Barriers specific to the residential sector

The primary barrier in the residential sector is transaction costs: the energy savings potential is often small in comparison to the investment cost. The risk of long negotiations resulting in no project approval should also be taken into account.

Similar to the public sector, we see an issue of split incentives with the renter-owner division. Neither party has an interest in investing in energy efficiency. On the one hand, the owner, who in principle should be responsible for renovation investments, would not benefit from the energy savings because the tenant pays the energy bill. On the other, the tenants have no incentive to make the investment as they never know in advance if they will stay long enough in the dwelling to cover the pay-back period [Bertoldi 2007].

Other barriers are mentioned in the literature like the investment cost or the fear of commitment and disturbance during the project. Eventually, in multi-apartment buildings, the division of ownership makes the negotiation more complex [ADEME 2007].

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2.2.4. Best practices and innovative business models

Examples of successful policy mixes

Germany

As mentioned above, Germany represents the biggest ESCO market in Europe. A very large part of the energy savings potential of the country remains untapped and several barriers still exist for instance regarding public procurement rules and unfavorable budgetary principles in the public sector [ADEME 2007]. However, there are quite interesting lessons to be learned, especially in terms of how political will can be a major driver of development for the energy efficiency service sector.

The support of policy makers at all levels, governmental, regional and municipal, is considered the number one key success factor of the ESCO industry in Germany. In this regard, the Energy Saving Partnership (ESP) established in 1992 by the city of Berlin is viewed as a major step forward for the ESCO business. This initiative actually demonstrates the relevance of developing demonstration projects in the public sector to create a market for ESCOs. The basic idea was to bundle several buildings in order to lower the transaction costs. The ESP will be studied in more detail in the following section on successful business models.

At national level, several legislative and regulatory measures were particularly relevant for the energy efficiency market. In this regard, the German National Energy Efficiency Action Plan and Integrated Energy and Climate Plan (which is the implementation of the EU Climate and Energy package at German level) represents an important signal delivered to the market. The NEEAP in particular aims to foster the deployment of Third-Party Financing (TPF) in federal government buildings [Irrek 2010b]. The national government also strongly supports sustainable energy projects (including energy efficiency projects) with a set of mechanisms like feed-in tariffs, loans, funding schemes and R&D programs.

The liberalization of the national energy market in the late 90s was another key event in the young history of the German ESCO industry. The establishment of an energy tax by the national Government which, combined with the rise of oil and gas prices, resulted in a doubling of prices between 2002 and 2006 made energy efficiency investments more economically attractive [Bertoldi 2007]. This confirms the opinion of most experts: an energy (or carbon) tax is the most efficient way to boost energy efficiency.

In Germany, energy agencies often serve as facilitators and interface between ESCOs and clients (in particular in the public sector). They may assist in negotiations or provide project guidelines and standard documents. They can also offer consulting and assist in communication on the project [ADEME 2007].

Finally, the development of standard documents (for instance standard contracts) and procedures (for instance for M&V) also greatly facilitated the task of ESCOs. In 2007 for instance, Bertoldi referenced 7 standard ESCO contracts available in Germany.

Sweden

The development of ESCOs in Sweden over the last few years is generally perceived as a success story. In 2007 Forsberg noted that in less than 5 years, EPCs had conquered at least 5% of the total stock of the country’s public buildings.

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Various attempts to create a market for EPCs were unsuccessful in the 80s and 90s. But this time, the targeted and fine-tuned strategy put in place by the government was more successful and literally kicked-started the market. This section is based on the work of Anna Forsberg from the Swedish Energy Agency [2007].

The strategy consists of a coherent and comprehensive set of measures:

• Creation of a Forum for Energy Services: this initiative has been launched as a coordinating platform for stakeholders. The work of this forum has provided the Swedish Energy Agency with enough background knowledge to put in place the other elements of the strategy.

• Background studies were carried out with the participation of all stakeholders in order to identify the barriers and the necessary actions to overcome them.

• Market research studies made it possible for stakeholders to understand the EPC market’s ins and outs and identify the main business opportunities.

• Guidelines for procurement and model contracts: as in the German case, standard contracts and procurement procedures have been developed.

• Pilot projects: demonstration projects were carried out in order to prove the feasibility of EPCs and test the guidelines that have been developed.

• Targeted and neutral information on EPCs was provided to potential clients

• Dissemination and capacity building: a website has been developed to share information; training sessions and regional seminars have been organized through the network of regional energy agencies; strategic partnerships have been built between the Swedish Energy Agency and other stakeholder organizations (e.g. the Swedish Association of Local Authorities and Regions); finally staff from the national and regional energy agencies have been actively trained.

• Subsidies are available for energy efficiency investments in public buildings

• Evaluation studies: the strategy has been carried out through qualitative surveys. The main conclusion is that the strategy has been successful in removing knowledge and risk aversion barriers. It has contributed to a great extent to the spectacular rise of the market seen over the last decade.

Overall, this successful result suggests that it is possible to really kick start the ESCO market providing a well-designed and targeted combination of coherently planned and implemented regulatory and “soft” measures. At the same time, this example demonstrates the importance of public investment in the early stages of development of the ESCO market. The stock of public buildings represents the number one early market for the ESCO industry and public actors at all levels have a crucial role to play to boost this industry.

Examples of successful projects and business models

The Energy Saving Partnership (Berlin, Germany) [from: Piller 2009]

Berlin’s Energy Saving Partnership (ESP) was established in 1992 as a public-private partnership. It was founded by 4 shareholders (Federal State of Berlin, Vattenfall Europe, GASAG and KfW Banking Group). As of 2009 it disposed of 2.5 million EUR of capital stock for an annual turnover of 6 million EUR.

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The staff of 45 members provides a wide range of energy services from consulting (to the public sector, the housing industry and private companies) to contracting (planning, financing and operation of CHP, cooling, air compresses, lighting, etc.) and international know-how transfer. The ESP uses Energy Performance Contracting with Third Party Financing.

The ESP relies on the innovative idea of bundling small projects to push down transaction costs. An overview of the ESP’s main results is provided below:

Table 5: Important ESP figures

Total number of Pools 21 (more than 1300 buildings)

Guaranteed savings in total 10.5 million EUR

Annual CO2 reductions 63,844 t

Total net investment 44.43 million EUR

Source: [adapted from: Piller 2009]

One ESP, for example, pooled 11 swimming pools to carry out energy efficiency improvements. Baseline energy consumption was 57,141 MWh per year or 4.9 million EUR. The contract entered into force in 2002 for an overall duration of 10 years and an investment cost of 7.9 million EUR. The ESP has guaranteed a reduction in annual energy costs of 33.54%.

The key success factors of the ESP initiative that help remove risk perception barriers are: the support of local policy-makers, readily available information on the legal framework (EPC, tender and award procedure), the existence of standard procedures and contracts and the perceived neutral position of the ESP.

Integrated Energy Contracting (IEC)

IEC is an innovative ESCO model that promotes a combination of energy efficiency improvement (EPC) and the efficient supply of renewable energy (ESC). This section is based on a discussion paper published within Task XVI “Competitive Energy Services (Energy Contracting, ESCo Services)” of the IEA’s demand side management implementing agreement [IEA 2009b]. The objective of the IEA discussion paper is not to replace EPC but rather to provide another string in the ESCO bow.

The basic idea is to reduce energy consumption and then to supply the remaining energy needs with energy-efficient technologies, preferably renewables.

The range of possible technologies and fields of application under an IEC is very wide: HVAC, lighting, building envelopes, user motivation, electricity, water, compressed air, etc. The positive benefits can be the modernization of the energy system, reductions in energy consumption and costs, CO2 emission reductions, the reduction of water consumption, improvements in comfort, etc. The service package has to be adapted to the client’s specific needs and expectations. While ESPs and EPCs achieve on average respectively “only” 15-20% and 20-30% efficiency improvements, IEC’s potential is significantly higher.

This example indicates that ESCOs can play a wide variety of roles beyond the mere promotion of energy efficiency gains such as improving general resource efficiency (including for instance water) or the comfort of building occupants. It is probably advisable to encourage this kind of service diversification from market players as a way to differentiate.

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While the regulatory environment should set clear standards, it seems prudent not to be too restrictive in order to leave the door open for such enlargements in the ESCO scope.

Typically the ESCO’s remuneration under an IEC is designed to cover the energy price (expenditure for fuel and auxiliary electricity with no margin for the ESCO), a flat service rate (costs related both to the supply of energy and the efficiency improvement) and optionally the capital cost if the ESCO provides in-house financing. But the same options as with EPCs are available: the project may also be financed either by the client or a third party.

In order to reduce the transaction costs, the approach does not require a complex baseline calculation and M&V procedure. Instead of fixing a performance guarantee, the contract contains Quality Assurance Instruments (QAI). As explained in the IEA paper: “The EPC savings guarantee is replaced by individual quality assurance instruments, which secure the functionality and performance of the efficiency measures implemented, but not its exact quantitative outcome over the project cycle, which largely depends on factors external to the ESCo’s influence such as changes in ambient climate conditions or utilization of the facility.”. A QAI can be defined for each action undertaken by the ESCO. The IEA paper provides a number of examples of possible QAI such as the inspection of the construction measures, energy book-keeping and annual energy audits with improvement proposals.

The IEC model has been applied in Austria by the State Real Estate Company of Styria (Landesimmobiliengesellschaft Steiermark) for various pools of its buildings through an EU-wide call for tender.

The project was to be implemented by the end of 2009 and it has not been possible to obtain data on the results. Nevertheless, the IEA paper provides the main elements contained in the IEC contract signed with the ESCO for one pool of buildings representing 20.000m². It gives the reader an idea of the type of objectives that were set at the beginning of the project. Significant results were expected. In particular, the results in terms of CO2 savings are spectacular (which tends to suggest that a carbon tax could greatly stimulate the spread of this model and of ESCOs in general).

Table 6: IEC project in Styria (Austria)

Contractual elements of the project

Thermal energy savings 16.8 – 30.8 %

Thermal power savings 0 – 27.6 %

Electric energy savings 4.8 – 11.8 %

Water savings 0 – 20 %

CO2 emission savings 92 %

Economic benefits over the project lifetime From -15,000€ up to – 250,000€

Quality assurance instruments (selection) Review of detailed planning, “acceptance” after construction phase, computational saving verifications, adjustment protocols, thermo graphic recordings, measurement of solar thermal output, …

Source: [IEA 2009b]

IP/A/ITRE/ST/2010-02 & 03 PE 451.482 44


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The IEC model is still exploratory and its relevance needs to be confirmed and optimized. But the results collected from eight projects have confirmed both the feasibility and the potential of this type of contractual arrangement.

Comprehensive refurbishment of buildings through an Energy Performance Contract

The Comprehensive Refurbishment of Buildings through EPCs (CR-EPC) is a way to combine construction measures like the thermal insulation of building envelopes with standard EPC measures. It is described in detail in a paper published within Task XVI “Competitive Energy Services (Energy Contracting, ESCo Services)” of the IEA’s demand side management implementing agreement [IEA 2009a].

CR-EPC is defined by the IEA as “a comprehensive energy service package including building construction measures aiming at the guaranteed improvement of energy performance and cost efficiency of real estate objects. A general contractor, a general planner or an Energy Service Company (ESCo) implements a customized package of energy efficiency and refurbishment measures and services such as planning, building, operation & maintenance, (pre-) financing or user motivation and takes over technical and commercial performance risks and guarantees for the project. The measures are partially repaid out of guaranteed future energy cost savings, but with (substantial) contributions by the facility owner.”

The pay-back period of the construction measures are longer than the one of building technology measures. Therefore either the building owner has to co-finance the project or the contract has to cover a longer period, typically 15 to 25 years (instead of 10 years for a typical EPC commitment).

As in the case of EPCs, the performance guarantee is an essential component of the deal and the ESCO’s remuneration is directly linked to the energy savings achieved. QAI such as thermal comfort conditions or quantity of emission reductions may also be included into the contract.

From an energy standpoint the approach is integrated and could be compared to IECs: the focus is put first on reducing the energy needs of the building and then on switching to efficient alternative supplies of energy.

Three options are available depending on the specific needs and expectations of the owner:

• The General contractor model where the owner only provides the functional specifications in technical, financial, organizational, legal and economic terms. The contractor then implements the project on a one-stop-shop basis.

• The General Planner model where the owner goes beyond specifying the functional specifications and decides on the nature of the solution provided (e.g. the design of the façade). Then, the building construction work and the energy efficiency measures are contracted separately with a construction company and an ESCO, respectively. A General planner is also contracted for the project coordination and optimization.

• The Comprehensive Refurbishment “Light“-EPC Model: when the construction work is relatively limited, an ESCO is contracted to take care of the whole project.

The choice between the above options depends on the specific project needs, in particular the amount of construction versus technology measures, the level of detail of the client’s specifications and the nature of the parties in charge of supervision and optimization.

IP/A/ITRE/ST/2010-02 & 03 PE 451.482 45


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Overall the CR-EPC model appears to be attractive and replicable for the renovation of buildings especially in the public sector. It seems worthwhile to promote its spread across public authorities and ESCOs in Europe.

Innovative financing options

As noted previously, the availability of appropriate financing options is of crucial importance for the success of an ESCO project. In a paper published in Task XVI “Competitive Energy Services (Energy Contracting, ESCo Services)” of the IEA’s demand side management implementing agreement [IEA 2008b], the authors explore a number of innovative financing options for ESCO projects.

Leasing financing provides the ESCO or its client with the exclusive right to use the investment provided by a Leasing Financing Institution (LFI) in exchange for a leasing rate. While the technical and economic risk associated to the project is retained by the ESCO, the financial risk is then transferred to the LFI. According to the IEA [2008b], some LFI do accept basing the leasing security on the project’s future cash flow. It may involve the cession of future revenues like feed-in tariffs obtained with renewable electricity production.

Pure forfeiting contracting is another interesting example. In this case, the Financial Institution provides the ESCO with a one-time discounted payment in exchange for a fixed part of the future cash flow generated by the project. It can be seen as a forfeiting of part or all of the ESCO’s remuneration to the Financial Institution. This solution may be applied either to finance the overall project or only a part of it. Under such contracts, the ESCO takes over the economic and technical risk of the project. For the moment, the collateral for such agreements is still based on the client’s creditworthiness. But it is desirable in the future to encourage Financial Institutions to accept the project cash flow as collateral.

It is not the scope of this section to describe all the innovative options available for financing an ESCO project and evaluate their pros and cons in full detail. Rather the section aims to provide decision makers with two meaningful examples of existing solutions and to show that such solutions actually exist and may deserve much more attention. Getting Financial Institutions on board by helping them design and provide the appropriate financial instruments for energy efficiency projects is crucial if the EU is to kick start the ESCO market. In this regard, awareness-raising, capacity building and inclusive consultations with the banking sector are urgently needed.

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2.3. The role of electricity and gas companies in energy savings

2.3.1. The involvement of electricity and gas companies in Energy End-use Efficiency strategies

The integration of utility end-use energy efficiency schemes is identified by the International Energy Agency (IEA) as one of its policy recommendations made to the G8 in 2008 for energy efficiency.11

Energy efficiency obligations are legal obligations imposed on energy utilities, such as electricity and gas companies, to realise energy efficiency measures and achieve substantial energy savings. The obligations are promoting energy efficiency and stimulating investments, with the final goal of saving energy in different end-use sectors: residential, commercial, industrial, transport or other, such as district heating. In practice, the obligation is placed on energy companies by the Government and “a formal monitoring and verification process is enacted to ensure the targets are met by the promotion and installations of eligible energy savings measures” [Lees, 2010]. When the obligation includes the possibility to buy or sell energy savings credits, it is usually called a White Certificate. White Certificates are “certificates issued by independent certifying bodies confirming the energy savings claims of market actors as a consequence of energy efficiency improvement measures.”[ESD, 2006]

These energy efficiency obligations can be implemented in multiple ways and different terms are used to refer to them: for example, “utility end-use energy efficiency scheme”, “Energy efficiency commitment system”, “energy efficiency obligations” or “Energy Efficiency Resource Standards” (EERS) in the US. In the scope of this study, we will refer to “energy efficiency obligation” (EEO) schemes covering both retailer and supplier obligations, while we will use the term “white certificate” only for energy efficiency obligations that are certified and can be traded.

There is no doubt that electricity and gas companies must be involved in energy efficiency strategy to achieve end-use energy savings. The contribution of energy utilities can be significant, as they have an organisation in place throughout the country, a privileged relationship as well as direct access with their customers. Additionally, energy utilities build on established knowledge and know-how about selling energy which is important for the actual implementation of the energy efficiency measures. Finally, action by utilities in energy end-use efficiency seems extremely cost-effective12.

Yet, energy efficiency measures do not appear at first sight to be in the interest of energy utilities, whose traditional business model is based on “selling more energy” not selling less. There are therefore some concerns about the willingness of these companies to engage and perform well in energy efficiency measures. This triggers the need to create an adequate incentivizing mechanism to ensure that energy utilities do engage in energy efficiency, implement energy savings measures and perform well. EEOs appear among the key measures that can be implemented to integrate energy utilities in energy efficiency strategies and incentivize them to perform well.

11 IEA/OECD (2008) “Energy Efficiency Policy Recommendation, in support of the G8 Plan of Action” http://www.iea.org/papers/2008/cd_energy_efficiency_policy/1-Croos-sectoral/1-G8_EE_2008.pdf

IP/A/ITRE/ST/2010-02 & 03 PE 451.482 47 12 IEA (2009) “Progress with implementing energy efficiency policies in the G8” citing Waide & Buchner, 2008

http://www.iea.org/papers/2008/cd_energy_efficiency_policy/1-Croos-sectoral/1-G8_EE_2008.pdf


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2.3.2. Experiences in European Member States and the US with energy efficiency obligations

Belgium (Flanders), Denmark, France, Italy and the United Kingdom (UK) are the first European Member States (MS) to experience EEO schemes. The UK is generally considered as the “role model”, since it has the longest established and largest system in the EU. Yet, innovative EEO schemes are rapidly growing in some other MS, notably France and Italy, which have introduced White Certificates and extended the range of covered end-use sectors [Lees, 2008]. Next to these leading examples, Ireland has also experimented with an EEO scheme, focused only on electricity and at a smaller scale. Other MS have also expressed their interest in integrating EEOs into their policy toolbox, in particular the Netherlands and more recently, Portugal, Poland, Bulgaria and Romania [Bertoldi et al, 2010]. EEOs are also implemented in the United States (US), where almost half of the States have introduced utility obligations [Cowart, 2009].

The review of national experiences contributes to the analysis and understanding of the critical role electricity and gas companies can play in improving end-use energy efficiency. The study concentrates on the national schemes which have been running for the longest time and have acquired a significant scale. Lessons and best practices for the European Union will be drawn from these experiences and discussed below.

Denmark

The current Danish scheme has been introduced for the entire period 2006-2013 with annual energy savings target obligations set for energy grid companies. The obligations can be fulfilled in any energy type: electricity, natural gas, district heating and oil, and all end-use sectors are covered, apart from transport.

The key characteristics in Denmark are the administrative simplicity of the system [Togeby et al, 2007]; the integration of the energy company in the energy efficiency project before the investment, and finally the realization of the largest part of the savings in the industrial sector [Boot, 2009]. The obligations are based on a voluntary agreement between the obliged parties and the Government for the electricity, natural gas and oil sectors while district heating companies are obliged by law.

All obligated companies exceeded their target for the period 2006-2008 (on average by 11%) [Lees 2010]. For the period 2010-2020, the annual savings target is set at 5.4 PJ, corresponding to an 85 % increase over the previous year’s performance. This annual end use savings target corresponds to 1.5% of the overall final energy consumption (in the sectors covered by the obligations, with 2006 taken as a baseline).

Flanders (Belgium)

The current Flemish scheme has been in place since 2003 with the main objective of promoting the efficient end-use of energy in a liberalized market. The obligations are set on the electricity distribution network managers and cover all electricity end-use sectors.

In Flanders, the electricity grid managers have the obligation to achieve the set target with the opportunity to use any energy efficiency measures. The target was originally differentiated across high and low voltage end-users. Since 2008, separate savings targets are defined for residential and non-residential sectors [Lees, 2010].

Due to the lack of quantitative data and limited publicly available evaluations, it is difficult to assess the Flemish results, though further evaluation is planned for 2010. In 2007, all the obliged parties had met their objectives, with one exception. In addition, the cost of the scheme was considerably lower than initially expected. IP/A/ITRE/ST/2010-02 & 03 PE 451.482 48


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France

The French scheme has been in place since July 2006, with the main objective of reaching the diffuse potential sources of energy savings, in particular in existing buildings [Bodineau, 2009].

One of the main distinctive characteristics in France is the existence of a certified trading system for the savings realized by the obligations. There is no formal market in place. Yet, trading is realized directly between the companies involved, which can sell or buy the certified savings (White Certificate) between them. It’s an OTC: Over the Counter system. A second specificity in France is due to the structure of the energy market in France: only ten obliged companies account for 85% of the overall obligation scheme, with around 80% falling only on EDF (30TWh) and Gaz de France (13 TWh) [Lees, 2010]. Finally, the savings in France are defined in TWh/cumac. Cumac expresses the total discounted energy savings over the life of the equipment.

The savings target was exceeded by approximately 20% and amounted to 65 TWh/cumac at the end of the first phase (July 2009). Extra savings were reported in September 2009 and will be transferred to the second phase of the obligation scheme, starting in 2010. In total, 84.5 TWh/Cumac had reportedly been saved by September 2009. In addition, energy suppliers have integrated new services in their portfolio, such as low interest loans for renovations.

France is strengthening the impact of its scheme for the next period (2010-2013) with increased energy savings targets (at least 100 TWh cumac/year), and expanding the scheme to include transport fuel. [Bertoldi et al 2010]

Italy

The current Italian energy efficiency obligations scheme has been running since January 2005, although previous targets to reduce electricity and gas consumption had already been established in 2002.

The Italian scheme is strongly linked to the country’s Kyoto commitments with the objective of reducing CO2 emissions primarily due to the contribution from White Certificates. By 2012, 1/3 of CO2 savings should come from White Certificates. [Lees 2010] Another key characteristic in Italy is that the EEO scheme should ensure the development and promotion of an energy services market [Pavan, 2009]. The trading of White Certificates is realized either on a specific market place (administered by the Electricity Market Operator) or OTC.

Trading constitutes a core element of the obligation scheme in Italy. On the one hand, the obliged parties can develop energy efficiency projects alone (“in house”) or jointly with third parties, such as ESCOs and then trade the certified savings. On the other hand, the obliged parties can directly acquire a white certificate verifying the savings achieved by third parties to meet their obligations.

In general, the Italian experience has been successful both in terms of energy savings and cost efficiency. 2 Mtoe have been saved compared to the original target of 1.1 Mtoe for the period 2005-200713.

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13 Although this is partly due to previous measures implemented before the start of the scheme and integrated in the results [Lees (2010)].


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UK

The UK energy efficiency obligations scheme is the longest running and largest scheme in the European Union. Obligations have been in place since 1994 and the current programme, called the Carbon Emission Reduction Target (CERT), will remain effective over the period from 2008 to 2012. CERT is designed to tackle carbon dioxide emissions and is the only scheme currently expressing the savings target in “lifetime CO2

savings”. The other schemes target primary energy savings (Flanders, France, Italy) or delivered energy savings (Denmark).

One of the key characteristics of CERT is its exclusive focus on the residential sector, integrating a social dimension, as obliged parties must achieve at least 40% of their savings in low income households. In addition, as the UK is a fully liberalised market, CERT ensures that the obligations do not act as a market entry barrier to new suppliers and only apply to energy suppliers with more than 50,000 customers.

The UK experience is very successful and is considered by the IEA as “the principal driver of energy efficiency improvements in existing homes in Great Britain”.14 The previous scheme [EEC2 2005-2008] achieved a total (lifetime) savings of 59 MtCO2 and was highly cost-effective since it proved that saving energy costs much less than purchasing energy [Purchas 2009]. Yet, observers state that there is a need to tackle more expensive measures, as the market-based approach tends to favour low cost measures (a “scatter-gun approach”, [Purchas 2009]).

Table 7 illustrates the total energy savings realised in different MS broken down by the end-use sectors targeted by the EEO schemes. Table 8 summarizes the main characteristics of the MS schemes.

Table 7: Energy savings broken down by end-use sector in the EU15

Denmark

For 2008

Flanders (Belgium)

For 2008

France

For 2006-2008

Italy

For 2005-2008

UK

For 2005-2008

Residential (Electricity and

heat) 42% 58% 86.7% 83% (60% electricity

+ 23% heat) 100%

Commercial (Electricity and

heat) 4.3% 0% Not covered

in the scheme

Industry

50% (trade and industry) 42%

7.4% 10% Not covered in the scheme

Transport Not covered in the scheme

Not covered in the scheme 0.4% 0% Not covered

in the scheme

Other 8% Not covered in the scheme

1.3% (district heating)

6% (public lightning, CHP and district

heating) Not covered

in the scheme

Source: Adapted from [Lees, 2010]

14 IEA, Energy efficiency policies and measures database http://www.iea.org/textbase/pm/?mode=pm&id=3782&action=detail

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15 Data must be compared with caution, bearing the different time periods in mind. The results are given for a period of time (France, Italy, UK) or for one year only (Denmark, Flanders). This is linked to how the measures are made in the different MS and to the availability of data.

http://www.iea.org/textbase/pm/?mode=pm&id=3782&action=detail


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Table 8: Overview of Energy Efficiency Obligations in the EU Denmark Flanders16

France Italy UK (CERT)

Current Phase 2006-2013 2008 (annual target)

Mid 2006- Mid 2009

2005-2012 2008-2012

Target Set by Government Flemish Government

Government Government Government

Administrator Danish Energy Authority

Flemish Government

French Government

Regulator (AAEG)

Regulator (Ofgem)

Obliged Parties

Electricity, gas and heat distributors

Electricity distributors

All suppliers of energy

Electricity and gas distributors

Electricity & Gas suppliers

Eligible Customers

All, except Transport

Residential and non energy intensive industry and service

All, including Transport (except those covered by EU ETS)

All, including Transport

Residential only

Nature of saving target

Lifetime delivered energy

Annual primary energy

Lifetime primary energy

Cumulative primary energy

Lifetime CO2

savings

Current target 0.12 Twh annual

0.58 TWh annual

54.7 TWh/cumac over 3 years

22.4 Mtoe at least between 2005-2012

185 MtCO2 by December 2012 for the period 2008-2012

Estimated actual savings

NA NA 84.5 TWh/cumac in September 2009 for 2006-2009

2Mtoe in 2007 for the period 2005-2007 against a target of 1.1 Mtoe for the same period

59 MtCO2 for the EEC2 2005-2008

Cost estimate (€M/year)

25 25.8 180 196 900

Penalty if miss target

Linked to size of under performance

10 €/MWh missed

20 €/MWh missed cumac

Fixed by the Regulator, related to the non-compliance

Related to size of the miss (can be as high as 10% of the suppliers turnover)

Trading • Trading only between distributors

• No certificate

• No trading • White Certificate

• Only OTC trading

• White certificate

• Spot market sessions & OTC Trading

• Trading only between suppliers (obliged parties)

• No certificate

Source: Adapted from [Bertoldi, et al. 2010] and from [Lees 2008]17

16 In Flanders, the scheme is in place since 2003 and the target is set annually based on 2% of the amount of electricity supplied to household customers in the previous 2 years and 1.5% for the non-residential sector.[Bertoldi, 2010]. In this table, the data expressed as those measured for the year 2008.

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17 Important: These data must be taken with caution. Each country’s data are independent from each other’s and cannot be compared, as data expressed differ according to the length of the programme, the value chosen and the scope of the programme.


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Utility obligations in the US

Retail obligations were first introduced in the US after the 1973 energy crisis and developed as Demand-Side Management Programmes (DSM) before evolving towards their current design at the end of the 1990s: “Energy Efficiency Resource Standards” (EERS).18

In the US, the EERS are seen as an essential element for green house gas emission reductions and as a key complement to the cap-and-trade for carbon programmes. The US experience differs from the European one mainly in terms of the governance of the scheme. The EEOs in Europe are managed and implemented by the Government (with targets set by the government and the scheme managed either by the Government directly or by the regulator). On the contrary, EERS in the US are implemented by Public Utility Commissions (PUC).

The US now counts 19 significant EERS nation-wide. Minnesota, the Pacific Northwest, California and Vermont are among the leading states or regions [Cowart, 2009].

Table 9: 19 US States with Energy Efficiency Resource Standard

Source: [Cowart 2009]

One of the leading examples of EERS in the US is the state of Vermont19, where the scheme is managed by an independent non-profit utility: “Efficiency Vermont” (following a public tender and competitive bidding). Efficiency Vermont is required to achieve energy and demand savings targets, based on a performance contract supervised by the energy regulator. It is funded via an energy efficiency charge on ratepayers' electric bills to support the delivery of the energy efficiency services. In 2009, Efficiency Vermont contributed to 7% of Vermont’s energy savings and the objective is to reach over 12% by 2012 [Coward 2009].

The EERS in the US have produced tremendous results (10 MtCO2 in 2000). The ambitions for 2020 are high, demonstrating the effectiveness of the scheme: CO2 emissions down 260 MMT in 2020, peak demand savings of 90 000 MW and a net savings of $ 144 billion [Cowart 2009].

For a full overview of US energy efficiency policies, please refer to chapter three below.

18 Although many programmes were downgraded or stopped during the 1990s, when the restructuring and deregularisation of the utility market took place [Waide et Buchner 2008] 19 Other States have experienced other mechanisms to achieve the savings targets: Obligation on distribution utility (California for example); obligation borne by a State agency (for example: New York); Performance contracts with 3rd parties like in Texas or bidding into regional capacity market such as the New England ISO Forward Capacity Market. [Cowart, 2009]

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2.3.3. Lessons for the European Union from MS and US experiences Existing experiences at national level demonstrate the advantages shown by EEOs and allow the identification of best practices that could be useful at European level in the perspective of creating a European wide scheme.

The advantages of the energy efficiency obligations

The advantages shown by the national experiences make the EEOs and white certificate trading schemes a valuable option to be considered at the EU level to achieve end-use energy savings. In particular, the national experiences have demonstrated the following advantages:

• EEOs are a successful market-based policy instrument that can boost market liquidity on the supply side and decrease the compliance costs for the obliged parties20.

• EEOs have produced more savings than the original set targets (over compliance with the savings targets) and can therefore be a very powerful tool to realize substantial energy savings and effectively reduce GHG emissions.

• EEOs appear to be a cost effective policy instrument, where in addition the cost is not met by the Government. The cost is reported on the consumers´ energy bills but the financial benefits are higher than the investment cost and bring external benefits (environment, energy security).

• EEOs offer a stable system and give incentives for utilities to engage in energy efficiency strategies.

• EEOs offer many design modalities: targets (size and nature), measures.

• EEOs provide a flexible mechanism working in multiple energy market situations whether fully liberalized or under monopoly conditions.

• EEOs can apply to all the energy sectors, whether supply and/or distribution, in the field of electricity, gas, heat and oil.

• EEOs can benefit one or more end-use sectors: residential, commercial and industrial.

Using EEOs and white certificates represent a strong added-value by incentivizing the integration of energy utilities in energy end-use efficiency strategies.

Electricity and gas companies, as already mentioned, can play a significant role in the full realisation of energy savings potential. Yet, adequate market and regulatory incentives are needed to overcome the threat that energy efficiency policies can present to energy utilities, whose traditional business model is based on selling and supplying more energy. Energy Efficiency Obligations and White Certificates can facilitate the energy utility switch toward a “negawatt” approach [Dexia, 2010], since they can trigger new opportunities and incentivize utilities to create new business, new services or develop new actions to adapt to the scheme, as demonstrated for example in the UK (new and several routes to market, including direct marketing), Italy (entry of new market actors) or Denmark, where Energy companies are strongly involved. A white certificate system, instead of being seen as an “obligation” can be used as a motivation to realise energy savings investments.

IP/A/ITRE/ST/2010-02 & 03 PE 451.482 53 20 Joint Research Center (2009) Proceedings from Workshop on “White Certificates utility and supplier obligations”


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The trading dimension creates market incentives for utilities to invest in energy savings measures and comply with their obligations. Furthermore, the market mechanisms can cover the investment and transaction costs engaged by the utilities and appear therefore as a “win-win” situation for all parties involved. Finally, depending on the flexibility of the trading systems, white certificates might be traded across different segments (like green certificates and the EU ETS 21), which increases the interest of private actors like energy utilities or ESCOs to engage in energy efficiency. In any case, gas and electricity companies need to adapt their business models towards “selling less energy” and, as such, they are calling for an evolution that does not go too fast, to allow adaptation.22

Having reviewed the advantages of EEOs, we briefly outline below the most important best practices retained from the existing experiences in EU MS and in the US.

Recommendations from identified best practices in the national experiences

• Setting clear targets and defining clearly who the obliged parties and beneficiaries are.

• Putting a strong focus on the residential sector seems to be the most effective option in general as low-cost and standard measures can be efficiently delivered while at the same time targeting a large number of beneficiaries23.

• Defining standard methodology for Monitoring and Verification (M&V) measures to optimally balance the costs of the scheme and the accuracy of the energy savings declared, as well as to ensure the simplicity and cost-effectiveness of the systems for the obliged parties.

• Integrating a white certificate dimension with trading opportunities. EEOs have so far mostly been implemented without significant trading; although observers clearly state that this is the way forward. White Certificates could bring substantial impacts on energy savings, including increased competition and transparency between the EEOs players. Additional costs and complexity of the trading systems are not considered as a major factor compared to the benefits identified.

• Integrating a focus on technological innovation. To-date, the focus has been placed on expanding the number of well-proven energy efficiency measures in use [Lees, 2010].

• Making more targeted efforts to influence behavioral change.

• Expressing the savings targets in lifetime CO2 savings enhances the coherence of the policy with Green House Gas emissions reduction (like in the UK scheme) and outlines that energy savings will be key to achieve the CO2 emissions reduction target and that emission reductions are not always equivalent to increasing prices.

• Including a social dimension by ensuring that a certain amount or share of savings is realized in low income households (like in Flanders and UK).

• Integrating actively the Energy Company and third parties (ESCOs) in the project before the investment.

21 The importance of further assessing a potential combination between a white certificate scheme and green certificates or EU ETS scheme is repeated in the section 2.3.4 and 2.3.5 below. 22 Findings in Bertoldi Paolo & Rezessy Silvia (2009) 23 In this regard, Eoin Lees notes that “obligations are best suited to those sectors with low individual energy

IP/A/ITRE/ST/2010-02 & 03 PE 451.482 54 demand and for which trading arrangements cannot be envisaged in the near future” [Lees, 2010].


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• Ensuring a strong and transparent regulation to control the scheme and savings.

• Ensure a strong additionality of the tools with other efficiency policy mechanisms.

Nonetheless, what proves to be successful at national level might not be at the EU level. The section below discusses the opportunities for creating an obligation system at the EU level, focusing on the key issues a European harmonization could raise and the core design parameters and options that should be considered in doing so.

2.3.4. Perspectives for an energy efficiency obligation system at EU Level Drawing on the lessons learned from existing experiences in the EU Member States and the US, the study outlines the opportunities and issues considered in the literature in the context of creating a European energy efficiency obligation system.

The ESD stipulates in article 4.5 that the EC shall “examine whether it is appropriate to come forward with a proposal for a directive to further develop the market approach to energy efficiency improvements by means of white certificates” [ESD, 2006]. This should be considered by the EC only after the 2nd NEAAPs, due by 30 June 2011. Whether to introduce an EU-wide energy efficiency obligation scheme that would include a white certificate dimension is however a burning question that requires urgent consideration, in particular in view, first, of the success at the national level, and second, of the momentum created with the scheduled revision of the EEAP.

Issues for the EU harmonization

One of the key messages from the national experiences is the importance of defining clear criteria and modalities for the implementation of the scheme.

While the energy efficiency obligation systems introduced at the national levels are in principle quite similar, the core design elements along with the conditions of implementation have led to many differences. This constitutes a major hurdle for an EU harmonization: the multiplicity of experiences and the differences between modalities in the Member States represent a concrete challenge for setting up an EU-wide scheme for energy efficiency obligations [Bertoldi et al, 2010].

The main identified obstacles to the creation of an EU obligation system are the following [Bertoldi et Rezessy, 2009]:

• The need to harmonize very different design modalities and trading experiences

• Equity concerns (cross-subsidisation)

• The need to harmonize M&V methodologies

• The lack of mature cross-border energy markets

• Differences in energy taxation across MS

• Differences in energy efficiency policies across MS

Among the other key issues, are those encountered also by the national experiences that will also need to be solved at the European level. In particular, the following elements are critical [Boot, 2009]:

• Additionality relative to other policies and tools (ex: energy taxes)

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• The rebound effect. The rebound effect is the situation where “the potential gains from the use of energy efficient measures can result in a reduction in the relative price of the energy services, but the consumption of these energy services subsequently will increase, as a response to the price decrease, and therefore the efficiency of these measures will be eroded”.24

• Transaction costs

• The choice of baseline

Besides solving core issues, a series of key parameters will need to be defined in order to create a European obligation system. Several options for such a system are considered in the literature and summarized below.

Key parameters and potential options for the EU dimension

1. Define the energy efficiency obligations:

• A clear savings target (size and nature of the obligation)

• A clear target group (eligible end-use sectors and projects)

• Clear obliged parties (supply/demand and eligible energy sectors)

2. Define the methodologies for assessing the savings

• A clear baseline

• Consistent and coherent monitoring and verification protocol

• Monitored administrative cost

3. Define the white certificate trading mechanisms, if any:

• A clear certification process (size, validation mechanisms, frequency)

• Clear trading mechanisms (OTC, spot market)

Furthermore, the design of the scheme should assess whether all core parameters are to be designed at EU level or only some of them, and if yes: which ones. In addition, the design of the scheme should assess which end use sector (residential, commercial, industry, transport, other) might be the most effective to target. Best practices from MS experience demonstrate that the EEOs are so far largely focused on the residential sector. Similarly, the design of the scheme should evaluate the flexibility dimension of certificate trading across various EU trading mechanisms and what would be the potential of this flexibility, notably for the obliged companies or third parties like ESCOs.

Four main potential options for an EU scheme have been identified and discussed by experts gathered in a JRC Workshop [Bertoldi et Rezessy, 2009]:

• Status quo: Purely national white certificate scheme: EEOs and white certificates remain a national competence, the savings and modalities are set by the MS and the efficiency projects and trading of certificates occur only in the Member State.

• European white certificate market: The obliged parties can undertake energy savings measures and projects across Europe; certificates can be traded across Europe.

24Oikonomou et Patel, 2004, in the Phase II Report - Selection of Innovative Policies and Measures for Qualitative Analysis – White Certificates, from the EU SAVE Project “White and Green”. http://www.iiiee.lu.se/files/whiteandgreen/pdf/WG_WC.pdf

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http://www.iiiee.lu.se/files/whiteandgreen/pdf/WG_Phase_II_Report.pdf

http://www.iiiee.lu.se/files/whiteandgreen/pdf/WG_Phase_II_Report.pdf

http://www.iiiee.lu.se/files/whiteandgreen/pdf/WG_WC.pdf


____________________________________________________________________________________________

• European savings targets: the targets and modalities for EEOs are set at the EU level for the entire territory, while the projects and trading occur at the national level. While this would allow tackling energy efficiency and CO2 emission reduction at a global level, it is an unlikely setting.

• European savings targets and European White Certificate market: this is the most integrated option, where all the modalities of the EEO scheme, including a White Certificate Market are defined and implemented at the EU Level. It is rather unlikely as well, considering the hurdles identified above.

A summary of the four main options and their respective key characteristics is presented below:

Table 10: Options for an EU Wide energy efficiency scheme

Options EEOs Saving Targets

Certificate trading Comments

Status quo National National The Energy efficiency projects and trading are realized at national level. There is no EU dimension.

EU White Certificate Scheme

National European The obliged parties can undertake energy savings measures across Europe, certificates can be traded across Europe

EU savings target

European (apportioned to company level)

National The difficulties in harmonizing the modalities at EU level make this option rather unlikely.

EU savings targets and white certificate market

European (apportioned to company level)

European

Obliged parties can undertake energy savings measures across Europe, certificates can be traded across Europe. The potential advantages are challenged by the lack of coherence and consistency across EU MS, which hinder the development of this option.

Source: Adapted from [Bertoldi & R 2009]

Experts gathered in the JRC Workshop all stated the importance of leaving the design of the savings targets to the Member States, even if an EU white certificate scheme is created. In this configuration, the savings targets and modalities remain in the MS sphere of competence, while the modalities related to the trading and certification of savings credits are set at the EU level (harmonization and standardization of certification). [Bertoldi et Rezessy, 2009]

Towards an EU White Certificate Scheme?

While the concept of an EU white certificate scheme was previously supported in the Proposal for the ESD Directive in 200325, the likelihood of introducing a full scheme including a trading dimension seems rather unlikely in the short term [Boot, 2009]. The political and technical challenges identified above would hinder the development of a full obligations scheme at the European level.

Yet, concrete alternative solutions to a full scheme are proposed in the literature and validated by experts, notably the creation of a voluntary scheme and/or the establishment of regional schemes. Constructive solutions in favour of an EU wide scheme were discussed during the JRC workshop in 2009. The main arguments put forward were the following:

25 Commission Communication of 10 December 2003 on a “Proposal for a Directive of the European Parliament and of the Council on energy end-use efficiency and energy services” (COM 2003/739)

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• Building an EU wide scheme gradually allows the adaptation of business models and mindset towards selling less energy and more energy services

• Ensuring the coherence and additionality of different policy tools aiming at energy efficiency and energy savings

• Setting the savings targets at the national level

• Harmonizing the M&V and certification methodologies at the EU level

• Establishing regional schemes first (EEOs, including white certificate market) to test principles and mechanisms

• Testing an EU-wide white certificate scheme on a voluntary basis, with the opportunity for MS to join.

Getting back to the core parameters identified in the paragraph above, the perspective where an EU-wide White Certificate Market is created, with the savings target left at the MS level, would lead to the likely following distinction among EU and MS competences:

• Define the energy efficiency obligations: ⇒ MS level

• Define the methodologies for assessing the savings ⇒ MS level and EU level (key harmonization issues)

• Define the white certificate trading mechanisms, if any ⇒ EU level

Besides assessing the key political and technical issues related to EU harmonisation, the European Union will also need to evaluate the interaction of the obligations scheme with other policy tools, should it decide to create an EU-wide White Certificate Market.

In conclusion, EEOs and White Certificates are powerful market-policy tools, which can have a significant impact on energy end-use efficiency and act as a strong incentive mechanism, as well as create concrete opportunities for energy utilities to realise energy savings and evolve towards selling more energy services.

The national experiences demonstrate the successful impacts EEOs and White Certificates have on energy savings and the advantages they represent as a cost-effective energy efficiency policy instrument.

However, while the schemes appear to be “conceptually similar”, the multiplicity of experiences and the different designs of the key parameters of the scheme represent complex political and technical challenges for setting up an EU wide scheme for energy efficiency obligations, as seen above [Bertoldi et al, 2010].

Therefore, before engaging in creating an EU White Certificate Scheme, the European Union will need to ensure a thorough assessment of the key issues identified in the perspective of an EU harmonization. A careful evaluation of the core parameters should also be done to design an effective scheme. In addition, this evaluation should include as well the assessment of impacts that an EU scheme might have on the obligations schemes currently in operation in MS.

One way forward to overcome the major obstacles related to the creation of an EU wide white certificate scheme would be to evaluate the potential of creating a voluntary market and/or regional schemes [Bertoldi et Rezessy, 2009]. One additional suggestion would be to learn from the EU experience acquired with the Emission Trading Scheme (EU ETS).

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2.3.5. Combination of a European energy efficiency obligation system with other energy efficiency mechanisms

Addressing the interaction between an energy efficiency obligations system with other policy mechanisms is crucial to assess additionality and evaluate the potential impact on their effectiveness. Discussing this interaction at EU level is therefore important in the perspective of creating an EU wide scheme for EEOs and white certificates, regardless of the design options chosen. Indeed, while it is agreed that several policy tools are needed to reach energy efficiency, having too many policy instruments might hamper the objectives and create overlaps across the instruments.

In the scope of this study, we concentrate on the interaction between an EU tradable White Certificate scheme and other energy efficiency policy instruments, focusing on demand side management as well as smart metering and smart grid support.

Although it is not part of this study, we outline the importance of further researching the potential interaction between EEOs and the EU ETS, building on the findings of the EU projects (EuroWhiteCert project26 and the EU Save White and Green project27), as this interaction, though beyond the scope of this study, deserves more attention. Assessing the combination of energy efficiency obligations with emission reduction mechanisms, such as the EU ETS seems highly relevant, firstly to benefit from the experience acquired in this field and secondly to review the additionality and see how the tools might interact.

Smart metering, smart grid and demand side management

Smart Metering and Smart Grids are an important technological innovation for improving energy efficiency as they can provide end-users with information on a real time basis about their energy consumption. This is acknowledged by the ESD which considers smart metering and improved billing systems among the energy efficiency measures that MS can undertake to achieve substantial energy savings and promote the development of a market for energy efficiency [Article 13]. This is also confirmed by the adoption in July 2009 of the Electricity28 and Gas29 directives to liberalise the energy markets, requiring MS to “ensure the implementation of intelligent metering systems” and setting the objective of equipping 80% of consumers with smart metering systems by 2020.

The term “Smart metering” means a metering device, along with supporting systems and infrastructure for transfer and management of metered data, which register and make possible timely electricity consumption [Morch et al, 2007]. Smart grid refers to “electricity networks that can intelligently integrate the behaviour and actions of all users connected to it - generators, consumers and those that do both – in order to efficiently deliver sustainable, economic and secure electricity supplies.”30

26 EuroWhiteCert project http://www.ewc.polimi.it/ 27 EU S

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AVE Project “White and Green: a comparison of market mechanisms for energy efficiency”

rning common rules

tricity networks of the future

http://www.iiiee.lu.se/QuickPlace/whiteandgreen/Main.nsf/h_Toc/695a3dfe0be56ce1c1256eba00356cb1/!OpenDocument 28 Directive 2009/72/EC of the European Parliament and of the Council of 13 July 2009 concerning common rules for the internal market in electricity and repealing Directive 2003/54/EC 29 Directive 2009/73/EC of the European Parliament and of the Council of 13 July 2009 concefor the internal market in natural gas and repealing Directive 2003/55/EC 30 Definition from the European Technology Platform for the elec

http://www.iiiee.lu.se/QuickPlace/whiteandgreen/Main.nsf/h_Toc/695a3dfe0be56ce1c1256eba00356cb1/!OpenDocument

http://www.smartgrids.eu/?q=node/163

http://www.ieadsm.org/Home.aspx


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Demand side management (DSM) refers to “all changes that originate from the demand side of the market in order to achieve large scale energy efficiency improvements by deployment of improved technologies”31.

DSM entails actions which either focus on conservation (reducing peak demand for

cusses in detail the combination of EEOs with smart grids and smart metering. On the other

nation of White Certificates with a

In particular,

energy and supply side.

mand

Yet, we see certain opportunities for interaction between these policy instruments beyond

hanges. In particular:

ensure

rtificate trading.

umers.

tion among member states. The EU could play a significant role in stimulating and supporting the harmonised implementation of smart metering and smart grids across the EU [Morch et al, 2007], as

example) or on load management (shifting demand to off-peak periods) and includes all initiatives that can drive consumer behaviour toward more efficient outcomes [Didden et D’haeseleer, 2003].

Interaction with Smart grids, smart metering and the creation of a market for demand side management?

Having defined the concepts, we would like to draw attention to the fact that, to our knowledge, there is little or no publicly available literature, which dis

hand, experts (notably in the EuroWhiteCert project and the EU Save White and Green project mentioned above) are discussing the combitradable green certificate scheme & the EU Emission Trading Scheme (EU ETS).

Reasons for this might be found in the differences that exist across White Certificates and DSM, Smart Grids and Smart Metering.

• DSM, smart grids and smart metering are primarily focused on managing the use of energy (peak shaving) and the demand side (active demand) rather than on the saving

• Similarly, DSM, smart grids and smart metering act on the demand side (active demand), while retail obligations can be applied on both the supply and desides.

• Smart grids and smart metering only apply to the electricity sector while retail obligations have been applied to the electricity, heat and gas energy sectors.

these differences which should be further researched. Principally, smart grids and smart metering can complement retail obligations and reinforce the white certificate scheme, mostly in terms of M&V and behavioural c

• Providing real time information on energy use will support the M&V andtransparency, one of the critical issues and difficulties faced by an EEO scheme and efficient white ce

• Assessing the efficiency and inefficiency of certain energy saving measures.

• Acting on the end-use side of energy and changing the behaviour of both utilities and cons

• Ensuring transparency and increasing competition across electricity and gas companies, diminishing barriers between national power markets [Morch et al, 2007].

Smart metering and smart grids suffer from a lack of coordina

IP/A/ITRE/ST/2010-02 & 03 PE 451.482 60

31 Definition from the IEA Demand Side Management Technologies and Programmes Implementing Agreement (IEA DSM accessible via: http://www.ieadsm.org/Home.aspx)


____________________________________________________________________________________________

well as in coordinating the tools with tradable white certificates in the perspective of an EU harmonisation and standardisation of certification and trading.

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3. Energy Efficiency Policies of other Global Players Energy efficiency policies and measures are not limited to the EU but are also pursued in other industrialised countries such as the US and Japan. Among emerging economies China has reportedly surpassed the US as the world’s largest energy consumer while implementing a series of measures to reduce energy intensity. This chapter mainly focuses

for an Energy Efficient Economy (ACEEE) quoted in PCAP 2010]. His speech inspired a recent

ign to make the US the most PCAP 2010]. Commercial and

]. Japan’s energy efficiency in the power and major industrial sectors is one of the highest among IEA countries. Energy efficiency has recently improved in transport [Sakamoto 2009b]. Commercial and residential buildings account for 30% or more of final energy consumption and this consumption has significantly increased. The commercial sector such as office buildings accounts for more than half of total energy consumption in buildings and its growth in energy consumption has been more striking than that of the residential sector [Sakamoto

.

on the building and appliance sectors that account for a relatively large potential untapped in all three countries. In addition to the three major economies, standards and labelling schemes in three non-European countries are briefly sketched out. This chapter closes by identifying success factors.

3.1. Overview This section gives an overview of energy consumption both economy-wide and at sector levels in the US, Japan and China.

3.1.1. US The US was the world’s largest energy consumer until China surpassed it in 2010.32 In 2008, US energy intensity fell by more than 3% and total energy consumption fell by more than 2% attributable not only to an increase in energy efficiency but also to economic recession [Pasquier et al. 2010]. However, the current level of energy savings is not enough. In his State of the Union Address in 2010, President Obama cited UN data noting the US is only the 22nd most energy efficient country among the major economies in the world. The US economy wastes 87% of the energy it consumes [American Council

recommendation, calling for the launch of a national campaenergy-efficient industrial economy in the world by 2035 [residential building sectors accounted for 41% and transport for 28% of primary energy used in 2008 [NAS et al. 2010].

3.1.2. Japan Since the 1973 oil shock, energy efficiency has been a top priority in Japan’s national development and energy policy has been seen as a means to the goal of energy security. The country’s energy intensity is the lowest among IEA countries. Energy efficiency has improved by 37% over a period of 30 years [Sakamoto 2009a

2009b]

32 ‘China overtakes the United States to become world’s largest energy consumer’, International Energy Agency, press release on 20 July 2010, http://www.iea.org/journalists/indexsuite.asp; http://www.iea.org/journalists/files/China_overtakes_US.jpg

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3.1.3. China While China’s energy demand growth was limited to less than half of GDP growth until 2001

according to the IEA, China became the world’s largest energy

intensity over the last four years,35 the recent revision would help the country to stay on track to achieve its energy intensity target by the end of 2010.

ng the target requires additional measures: the government has already shut down small outdated coal-fired power plants and has ordered heavy industry to shut down

experienced a rise in energy intensity.

iency measures, highlights best

.g. IEA 2008a], case studies [e.g. ICC 2009;

[Zhou et al. 2010], consumer in 2010.33 Quickly dismissed by the Chinese government,34 this reaction can be explained by difficulties with meeting the energy intensity target in the final year of a five-year period.

China’s 11th Five Year Plan sets an energy intensity reduction target of 20% compared to 2005 levels for the period 2006 to 2010. This target was set because energy intensity began to rise in 2002 after nearly two decades of decline [Brandon 2009; Zhou et al. 2010]. In July 2010 the National Bureau of Statistics revised its estimate of the reduction in energy intensity achieved by the end of 2009 to 15.6% against previous estimates in March 2010 of 14.38% by the end of 2009. Given the government’s claim that China has achieved about a 16% cut in energy

Yet meeti

outdated energy-intensive factories.

The main challenge to the target of the Five Year Plan is to reverse the new trend of an increase in energy intensity. According to the official data China’s energy intensity rose 0.09% in the first half of 2010 possibly due to a construction boom driven by the stimulus package, which boosted demand for steel, cement, and other building materials.36 However, this is considered to be much slower than the 3.2% increase in energy intensity the government reported for the first quarter, April-June in 2010.37 While several sectors improved energy efficiency, 38 other sectors 39

3.2. Energy efficiency policy and measures This section describes the designs of key energy efficpractices where relevant, and identifies success factors in each country.

For a literature survey there are existing works on cross-country comparison of energy efficiency measures [Klessmann et al. 2007, Blok et al. 2008, and ICER 2010]. They can be complemented by a country review series [eWBCSD 2009] and sectoral studies [e.g. buildings in WBCSD 2009; IEA 2008b; and three papers prepared for the Asia Pacific Partnership Buildings and Appliances Task Force, Halverson et al. 2009; Shui et al. 2009; Evans et al. 2009].

33 Ibid. 34 e.g. http://english.peopledaily.com.cn/90001/90776/90883/7074373.html; http://online.wsj.com/article/SB10001424052748703720504575378243321158992.html 35 S. Oster, ‘China reports improved energy efficiency’, The Wall Street Journal, 3 August 2010; J. Bai and T. Miles, ‘China says energy efficiency higher than earlier report’, Reuters, 15 July 2010. 36 K. Chen, ‘China’s energycampaign to boost energy

IP/A/ITRE/ST/2010-02 & 03 PE 451.482 63

intensity increases’, Point Carbon, 4 August 2010; J. Mcdonald, ‘Government: China’s efficiency suffers as economy booms’, The Associated Press, 3 August 2010.

37 S. Oster, ‘China reports improved energy efficiency’, The Wall Street Journal, 3 August 2010. 38 Energy intensity reduction by 2.69% in the coal industry compared with the corresponding period last year; by 7.69% in the construction industry; 4.28% in the chemical industry; 2.42% in the textile industry; and 1.64% in the steel sector. K. Chen, ‘China’s energy intensity increases’, Point Carbon, 4 August 2010.

roleum and petrochemical sector; 8.11% in the non-ferrous metal sector; and y increases’, Point Carbon, 4 August 2010.

39 Notably by 11.35% in the pet4.19% in the electricity sector. K. Chen, ‘China’s energy intensit


____________________________________________________________________________________________

3.2.1. US

Instrument designs

The main policy instruments are mandatory energy efficiency standards for buildings and vehicles, voluntary energy labelling for office and household appliances, voluntary agreements for freight transport and combined heat and power (CHP) [Klessman et al. 2007]. In addition, state-level initiatives have become increasingly common. Some examples of energy efficiency action include the Efficiency Vermont (see chapter Barriers to ESCOs development 2.2.3), a utility providing energy efficiency services. It provides assistance and financial incentives to help households reduce their energy costs. Another example is the Massachusetts Energy Efficiency Partnership. It aims to facilitate the

t of energy efficiency technologies and tools by industrial, commercial and deploymeninstitutional energy users.

Buildings

There are important energy standards and energy codes for buildings. The first energy standard for buildings was the American Society of Heating, Refrigerating, and Air-Conditioning Engineers (ASHRAE) Standard 90-75 Energy Conservation in New Building Design in 1975. ASHRAE Standard 90.1 provides the basis for the Department of Energy (DOE) to determine energy savings for commercial buildings and high-rise residential buildings. Model codes such as the International Energy Conservation Code (IECC) 2006 were issued for commercial and residential buildings. IECC 2006 covers both commercial buildings and low-rise residential buildings [Halverson et al. 2009]. These building codes set minimum energy efficiency standards.

The ENERGY STAR labelling programme (see below) has been extended to cover new ercial buildings and plants (‘ENERGY STAR Home Improvement’, ‘ENERGY

STAR New Home’, ‘ENERGY STAR Buildings and Plants’).

In addition, Green GlobesTM U.S. provides an online assessment protocol, a rating system, 40 This system provides

market recognition of the environmental performance of buildings through third party

homes and comm

Leadership in Energy and Environmental Design (LEED) is a voluntary national rating system for sustainable buildings. The LEED addresses five key areas including energy efficiency. The current LEED rating system applies to nine building categories [for detail, see Halverson et al. 2009].

and guidance for green building design, operation and management.

verification. The National Green Building Standard (ICC-700) provides guidance for safe and sustainable building practices for residential buildings [Halverson et al. 2009].

Appliances41

The ENERGY STAR is a voluntary labelling programme jointly administered by the Environmental Protection Agency (EPA) and the DOE and originally designed to identify and promote energy-efficiency products to reduce greenhouse gas (GHG) emissions (‘ENERGY STAR Product’, see Annex). It provides technical information and tools for business, consumers, and federal agencies to identify products that can decrease GHG emissions and lower energy costs.

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40 http://www.greenglobes.com/ 41 http://clasponline.org/clasp.online.worldwide.php?rc

=262|1


____________________________________________________________________________________________

In addition the programme has been promoted through tax credits and rebates by the federal government and various states (see below, section on ’cost-effectiveness’), and federal agencies are required to purchase certain ENERGY STAR products. Local state utility companies may use the label as required for their rebate, loan and grant programmes. The ENERGY STAR’s coverage of products has been expanded in stages: computers and monitors (1992); office equipment, residential heating and cooling equipment (1995); and now major appliances such as office equipment, lighting, and home electronics. The DOE recently issued updated efficiency standards for fluorescent lamps and incandescent reflector lamps. These standards are expected to lead to the largest energy savings and emission reductions ever attained through efficiency standards [Pasquier et al. 2010].

Transport

The Corporate Average Fuel Economy (CAFÉ) standard was first introduced in 1978. This ts the fuel economy expressed in miles travelled by an automobile per gallon of

),

Best practices

ing: ICC-700, a national green building standard, addresses

in 2017-2025 closer to those of the EU and Japan is also a realistic prospect.

ergy efficiency of

standard segasoline for passenger vehicles and light trucks. As highway transport alone accounts for 75% of the energy used in transport [NAS et al. 2010], enforcement of the fuel economy standard is crucial. From 1990 to 2002 the Department of Transportation (DOT), which sets efficiency standards through the National Highway Traffic Safety Administration (NHTSAwas legally prohibited from adjusting CAFÉ standards [IEA 2007]. In October 2010 the DOT, NHTSA and the Environmental Protection Agency (EPA) announced they would begin the process of developing more stringent greenhouse gas and fuel economy standards for passenger cars and trucks built in model years 2017-2025. This will be based on the success of the 1st phase of the programme covering cars produced in model years 2012-2016. Next steps include an updated analysis of possible future standards by the end of November.42

Some examples are the followenergy performance starting at 15% above the requirements of the baseline IECC 2006 among other key aspects [Halverson et al. 2009]. Bringing US fuel economy standards for passenger cars and trucks produced

Success factors or their absence

The effectiveness of many US measures is limited because a limited number of appliances in buildings are regulated by energy consumption standards, the lack of specific energy taxes to reduce energy demand, the lack of measures to improve the enfossil-fired power generation and a heavy reliance on voluntary partnerships in certain sectors [Klessmann et al. 2007].

On the other hand, there are innovative approaches that ensure an open and transparent process and benefit from close cooperation between different levels of government, business and expert communities, as seen in buildings and appliances.

42 ‘EPA and DOT Announce Next Steps toward Tighter Tailpipe and Fuel Economy Standards for Passenger Cars

cks : Move should save consumers money, reduce dependence on oil’, released on 1 October 2010, and Truhttp://www.dot.gov/affairs/2010/nhtsa1210.html

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Buildings

While US building standards are considered to be generally good, their enforcement is the main concern [IEA 2007]. US building standards and codes have been developed through open and efficient technical reviews and development procedures through federal legislation, the DoE, state and local governments and private organisations for building codes such as ASHRAE and ICC. Equally important, the above stakeholders work closely to adopt and customise the national model codes for local conditions [Halverson et al. 2009; IEA 2008b]. Residential building codes including energy-efficiency requirements are applied at the state and local level, which means a patchwork of regulations leading to varied construction practices and equipment [WBCSD 2009]. The absence of a comprehensive mandatory national approach to energy efficiency has resulted in some states falling behind due to their lack of mandatory residential building codes [IEA 2008b].

Appliances

The National Academy of Sciences concludes that the ENERGY STAR Program has been a success. Another measure, appliance efficiency standards, lowered US electricity use by 2.5% in 2000 and are projected to reduce it by 6.9% in 2010 [NAS et al. 2010].

Despite the expanding coverage of the ENERGY STAR Program and millions of dollars allocated to promote ENERGY STAR products, the U.S. Government Accountability Office (GAO) finds that this programme is prone to fraud and abuse.43 Certification controls are ineffective. There is a lack of quality assurance and sufficient oversight. The ENERGY STAR Program relies on self-certification by manufacturers (e.g. no requirement for independent third party verification of energy saving data report; no methodology in place to verify

aims, according to the EPA). The current ENERGY STAR controls do not eet efficiency guidelines [GAO 2010].

Transport

manufacturers’ clensure products m

ENERGY STAR product labelling, building energy codes, and end-use efficiency

ing.

Fuel economy standards have been a success: national fuel economy standards for automobiles and light trucks resulted in almost a doubling of the fuel economy between 1974 and 1988 [NAS et al. 2010].

Cost-effectiveness

There is some variation in definitions of the ‘cost-effectiveness’ of energy efficiency. In the simplest form, the cost-effectiveness can be measured by comparing the benefits of an investment with the costs [NAPEE 2008]. Key criteria for cost-effectiveness may vary across sectors, e.g. buildings, transport and industry [NAS et al. 2010].

Most cost-effective energy efficiency measures for the last 30 years were efficiency standards for vehicles and appliances, regulatory reforms to promote the adoption of CHP systems, programmes by utilities and states. They have common features: periodic analysis and revision to assess the effectiveness and to account for new technologies; financial incentives structured to reward performance and stimulate further action; and integration of policies into market transformation strategies to address the full range of existing barriers [NAS et al. 2010]. Among others the combination of ENERGY STAR labelling and tax credits and rebates is particularly interest

roducts out of 20 products submitted [USGAO 43 GAO obtained ENERGY STAR certifications for 15 fictitious p

IP/A/ITRE/ST/2010-02 & 03 PE 451.482 662010].


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When purchasing an energy-efficient product a consumer may be eligible for a federal tax credit, currently 30% of the cost under certain conditions.44 Not all products qualify for a tax credit. The DOE approves the appliance rebate programmes for the states and territories.45

mplications, a focus needs to be placed on the achievable potential, the amount

ective with only two measures ― appliance incentives and standards

Instrument designs

hinery and equipment. The 2002 old, commercial and

other sectors. The 2005 amendment expanded the scope of regulation to the transport arge residential buildings. The latest amendments in 2008 strengthened

For policy iof cost-effective economic potential that would occur in response to specific policies, as well as taking into account existing barriers [Brown et al. 2010; see also EPRI 2009]. This definition is distinguished from the technical potential that is technically feasible regardless of cost-effectiveness or the economic potential that is cost-effective but includes investments that will not occur [Brown et al. 2010]. The estimated cost of realistic achievable potential amounted to $8-20 billion in 2020 and $19-47 billion in 2030. The estimated cost of maximum achievable potential amounted to $16-41 billion in 2020 and $25-63 billion in 2030 [EPRI 2009, see also McKinsey 2009, 2010].

More specifically, a recent study on the analysis of energy efficiency in the South composed of D.C. and 16 states concludes that increased investments in cost-effective measures for energy efficiency would generate jobs and reduce utility bills. Both public and private investments driven by nine energy-efficiency measures (four from the residential sector, two from the commercial sector and three from the industry sector) would deliver the above benefits to the region (380,000 new jobs and energy savings of $41 billion) and grow by $1.23 billion in 2020 [Brown et al. 2010]. Most of the nine efficiency measures are predicted to be cost-effand combined heat and power initiatives ― leading to costs greater than benefits [Brown et al. 2010].

3.2.2. Japan

The Japanese government focuses on the best policy mix based on a combination of regulations, incentives and voluntary actions. The Law concerning the Rational Use of Energy in 1979 (and amended numerous times thereafter) established a framework requiring energy management in manufacturing and commercial sectors and setting out energy efficiency standards for housing, building, macamendment reinforced the energy conservation measures for househ

sector and lregulations in the commercial and building sectors. In the manufacturing and commercial sectors the regulatory system will change from site-regulation to company-wide regulation. Business operators in factories, office buildings, hospitals or department stores are required to make efforts to improve energy intensity by 1% per year, to report annually and appoint energy management officers at the board level in factories or offices [Sakamoto 2009a, 2009b].

Japan heavily relies on voluntary measures. The Keidanren Voluntary Action Plans on the environment are best known [Nippon Keidanren 2010]. Although the IEA 2008 review points out the concern over the level of ambition or ‘stretch’ in the targets and method, the agency recognises i) the industry’s support for the government and ii) the government’s regular review of progress towards the targets [IEA 2008a].

45

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44 http://www.energystar.gov/index.cfm?c=tax_credits.tx_index http://www.energysavers.gov/financial/70022.html


____________________________________________________________________________________________

The Japanese government provides budgetary support in the form of taxation, subsidies (e.g. accelerated depreciation, deduction of income tax) and financial measures (e.g. a low interest rate) [IEA 2008a].

Buildings

Recent amendments to the Rational Use Law have increasingly focused on the building sectors, especially for reporting requirements. Since 2005 owners of large buildings have been required to submit a mandatory report on planned energy conservation measures before construction and periodic reports concerning the performances of these measures after the completion of construction or renovation [Sakamoto 2009a, 2009b]. However,

ction of on-going construction for energy efficiency provisions [Evans et al. 2009]. Since 2008 in the building sector the requirement for reporting has extended to

System for Building Environmental Efficiency (CASBEE) has been developed to reflect the life cycle of a building. It started as a voluntary

but has become a tool for developing and reviewing mandatory reports [Evans

nt to the US or EU levels but voluntary and non-binding [IEA 2008a; Komiyama and Marnay 2008].

mission Buildings (ZEB) target set in 2009 aims to make new public buildings

there is no inspe

owners of small and medium-sized buildings.

Moreover Japan has a set of building energy standards for commercial and residential buildings. In addition to mandatory reporting on energy conservation plans and measures concerning construction or renovation, building owners must report maintenance every three years. The Comprehensive Assessment

programmeet al. 2009].

The building energy codes also stipulate detailed testing, rating and labelling requirements for key building components such as windows, insulation and combustion-based equipment. Testing laboratories certify whether building materials are energy-efficient [Evans et al. 2009]. The 1999 standards for residential buildings (e.g. heat-insulation, cooling efficiency) are generally equivale

The Zero Ewith zero CO2 emission on an annual net basis by 2030 by reducing energy consumption through energy efficiency improvements and the use of renewable energy [Sakamoto 2009b]. A committee report proposes support measures to meet the target, including regulation, tax support, technical guidance, social awareness and international agreements to promote expansion of the ZEB [Pasquier et al. 2010].

Appliances46

‘Green Electronics’ has been promoted by thesuch points, equivalent to about 5%

use of ‘Eco Points’. The government issues of the purchase price of energy efficient appliances,

d can be exchanged for a variety of eco-friendly products or services [Sakamoto 2009b]. The government extended the Eco Point programme to new and

gy efficient [Pasquier et al. 2010].

i.e. Green Electronics (e.g. air conditioner, refrigerator, terrestrial digital TV). These points are accumulated an

residential buildings that are ener

The Energy Saving Labelling Programme has been introduced to inform consumers of the energy efficiency of home appliances and to promote energy efficient products. The Uniform Energy Saving Label (see Annex) provides information in a more comprehensive manner: the energy saving label; a multi-stage rating of energy efficiency performance; and the expected annual electricity bill [Sakamoto 2009b].

http://clasponline.org/clasp.online.worldwide.php?rc=252|1 46

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An Energy Efficient Product Retailer Assessment System introduced in FY 2003 recognises retailers who actively promote energy efficient products or provide appropriate information [Sakamoto 2009b].

Transport

Japan implements a series of energy efficiency measures such as mandatory reporting for vehicles, vehicle taxation, eco-driving campaigns, promotion

omotion of public transport and traffic management [IEA 2008a]. operators with large fleets of of alternative fuels, and prThe Top Runner programme is described in the context of best practices.

Best practices

The Top Runner programme introduced in 1999 sets efficiency targets at high standards which manufacturers or importers need to meet in several years’ time. The programme currently applies to appliances and automobiles on a project category basis. A ‘Housing Top Runner Standard’ will also be introduced for the construction of ready-built houses [Sakamoto 2009a, 2009b].

Appliances

Energy efficiency standards for appliances are set at a higher level than that of the best performer in each product category currently available in the market. The covered

nclude appliances, lighting, equipment and automobiles. The Top products, now 23, iRunner programme has contributed to making Japanese products more energy-efficient than those available in other countries, as illustrated by the example of air conditioners [Sakamoto 2009b].

Transport

The Top Runner programme also covers automobiles. Fuel economy standards for vehicles are set at a higher level than that of the best performer in each product category. It is important to note that this programme covers not only passenger vehicles but also heavy duty vehicles. In the latter category Japan is the only country in the world with fuel economy standards. The programme also applies to both domestically manufactured and imported vehicles [Sakamoto 2009a, 2009b]. The standards have been raised and the scope of the programme has been expanded over time.


Policies are quite effective and energy efficiency is high in all sectors [Klessmann et al. 2007; IEA 2008a].

Buildings

Compliance with mandatory reporting on energy conservation measures in buildings is high, almost 100% according to the government. If an owner is found to be in non-compliance, the authority can name and shame and charge penalties up to JP¥1,000,000 or about US$11,000 under the 2008 edition of the Energy Conservation Law. However, the government does not inspect buildings for compliance with the energy efficiency provisions during actual construction [Evans et al. 2009].

IP/A/ITRE/ST/2010-02 & 03 PE 451.482 69


____________________________________________________________________________________________

In the building sector energy efficiency is high and energy consumption is relatively low. One of the potential success factors is that the cost of electricity per unit is set higher for

SD 2009]. On the other hand, the operating lifespan of a house is larger consumers [WBCtypically short, only 30 years. Japan could further improve the overall energy performance of buildings, for example, with retrofitting and insulation [Klessmann et al. 2007; WBCSD 2009].

Appliances and transport

Japan’s achievements in this area include savings of stand-by power in appliances, the Energy Efficient Product Retailers Assessment System, the Top Runner programme, and other measures to address principal-agent problems in vending machine markets [IEA

mance varies across product categories: 5) to 99.1%

es of ‘Green Electronics’ were boosted s sold) and by 120% (calculated on the basis od in 2009. The share of ‘Green Electronics’

as increased from 55% to nearly 100% for rs [Wakuda 2010].47 This result has

the contributions of ‘Green’ appliances at both 48

d in a broader context than on close cooperation and

ould reduce transaction

e energy-efficient and targeting the production of energy- and resource-saving products [Government of Japan 2010]. For example, four organisations in the

industry reported investment in energy conservation measures (e.g. high-

of such products in other countries, possibly due to differences in the market environment and cost constraints [Government of Japan 2010].

2008a]. Under the Top Runner programme, perforenergy efficiency improvements ranged from 21.7% (diesel trucks, FY1995-200(computers, FY1997-2005) [Sakamoto 2009b]. Salby about 130% (calculated by number of unitof total turnover) compared to the same peripromoted by the use of ‘Eco Points’ hrefrigerators and from 30% to 95% for air conditioneencouraged discussion on how to assesscompany and society levels [Wakuda 2010].

Cost effectiveness

The Japanese notion of ‘cost-effectiveness’ should be understoothe American one. The Japanese approach is built upconsultation between the government and business which ccosts. Cooperation is widespread across sectors and activities such as data collection, reporting, and the dissemination of best practice. Similarly, cost-effective actions could be expected from clarity about allocation of responsibility to all levels of an organization, for example through appointment of an energy management officer.

The Japanese government encourages focused investments with a long-term perspective, and business is interested in investments in energy efficiency measures. Despite a decline in the total amount of R&D investments and capital investments by Japanese manufacturers in FY 2009, their environmental investments remained flat between FY2008 and FY 2009 with some 30% of companies even increasing such investments [Government of Japan 2010]. In particular Japanese manufacturers are making their production processes mor

electronicsefficiency machinery, management, production processes, quality control) worth ¥37.3 billion in 2008 [Nippon Keidanren 2010].

In general Japanese manufacturers expect that improvement in energy and resource savings will help them increase competitiveness. In particular they excel in technologies for energy- and resource-saving products, e.g. technologies that can reduce product weight and size or extend the life of products. On the other hand, their performance has been less successful in the sale

47 See also ‘Economy Watchers Survey April 2010’, released on 13 may 2010 (in Japanese) by the Director-

ion. General for Economic Assessment and Policy Analysis, Cabinet Office, provisional translat

IP/A/ITRE/ST/2010-02 & 03 PE 451.482 70 48 See also the Green IT Promotion Council, http://www.greenit-pc.jp/e/,


____________________________________________________________________________________________

3.2.3. China

Instrument designs

The Chinese government has shown a strong political will to keep rising energy demand under control. In 2004 the National Development and Reform Commission (NDRC) released the Medium and Long-Term Plan for Energy Conservation, setting out specific targets for industry, transport and building sectors and focusing on top ten priorities or ten key projects with a strong focus on the building sector. The energy intensity target, a 20% cut by 2010, and the ten key projects were first described in the Medium and Long Term Plan and then incorporated into the 11th Five Year Plan (2006-2010) [Zhou et al. 2010]. The ten

ation of energy systems;

• Energy efficiency and conservation in buildings;

y efficient lighting;

key projects are the following:

• Renovation of coal-fired industrial boilers;

• District combined heat and power projects;

• Waste heat and pressure utilisation;

• Oil conservation and substitution;

• Energy efficiency in electrical motor systems;

• Optimis

• Energ

• Government procurement of energy-efficient products;

• Development of a monitoring and evaluating system.

The energy intensity target in the 11th Five Year Plan means a binding target for local governments and key central government departments. The Plan then sets out specific targets for key sectors. Based on the Plan, the State Council further disaggregated the national energy intensity target into specific targets for provinces, ranging from 12% to 17%, 20% and beyond [World Bank 2008 quoted in Zhou et al. 2010]. This was followed by the revision of the 1997 Energy Conservation Law in 2007.49 It identifies the organisation of the government’s responsibility for implementing the Plan, clarifies the government’s authority for energy efficiency measures in buildings and transport, prohibits high energy-consuming products, authorises provinces to penalise companies for wasteful use of energy and provides the basis for the creation of special funds and incentives [Zhou et al. 2010].

Buildings

China is among the earliest developers of national building energy codes (1986) after the US (1975) and Japan (1985). China has developed building energy standards in different stages including three regional energy design standards for residential buildings, a standard for tourist hotels and a national energy efficient design standard for ‘public buildings’, a Chinese term referring to commercial buildings [Zhou et al. 2010]. This standard set the target of at least 50% energy savings at less than a 10% cost increase compared to pre-existing buildings.50

IP/A/ITRE/ST/2010-02 & 03 PE 451.482 71

na.lbl.gov/

49 The original 1997 law had almost no impact when introduced (Andrews-Speed 2010). 50 China Energy Group, Lawrence Berkeley Laboratory http://chi


____________________________________________________________________________________________

The 11th Five Year Plan (2006-2010) sets out a number of specific targets to realise the energy saving potential, for example by retrofitting of the existing buildings including the heat metering system in northern China. The Ministry of Housing and Urban-Rural Development (MOHURD) has worked with the Ministry of Finance to provide incentives for

MOHURD has developed a series of regulations, policies and programmes to go beyond the Green Building Evaluation Standard (GBES), China’s

2006. The standard addresses six key areas,

heat metering [Zhou 2010]. Other measures include the enforcement of building codes in new buildings, better operational management of government office buildings and large-scale public meetings, and the use of renewable energy in buildings [Cai et al. 2009; Zhou 2010]. Having met the target of energy efficiency improvement by 50% by 2010 compared with 1980 levels, China now aims to improve the energy efficiency in the building sector by 50% in the next 5 year period.51

enforcement of building codes. The first green building standard, was adopted in including energy conservation. It is a counterpart to the Leadership in Energy and Environmental Design (LEED) in the US [Shui et al. 2009]. MOHURD has verified more than 60 construction projects based on the standard52 while introducing Green Building Demonstration Projects (2007) and Green Building Evaluation Labelling (GBEL) (2008). Under the labelling scheme a building energy efficiency certification or label has five levels of efficiency based on basic assessment, code compliance and optional assessment items [Zhou 2010].

Appliances53

China has developed three major programmes for appliance standards and labelling [Zhou et al. 2010]. 23 mandatory minimum (energy) efficiency standards cover most residential

to the US ENERGY STAR programme. This programme covers 50

and commercial appliances, lighting and heating and cooling equipment. Second, the China Standards Certification Center (CSC) administers a voluntary energy efficiency labelling programme similar products in categories including home appliances, consumer electronics, office equipment, and selected industrial equipment. It requires more than 300 manufacturers to submit to an on-site audit of production facilities and undergo third party testing in certified laboratories. Third, in 2005 the Chinese government launched a mandatory energy information label with five categories of energy efficiency adapted from the EU labelling scheme (see Annex). The product coverage of the mandatory labelling has been expanded in stages. Unlike the mandatory minimum efficiency standard and the voluntary efficiency labelling, the mandatory energy information labelling allows manufacturers to self-report the energy consumption of each model [Zhou et al. 2010].

Transport

Since 2005 new passenger vehicles have been subject to fuel economy standards [Blok et The Chinese standards are based on maximum allowable fuel consumption limits al. 2008].

by weight category [An and Sauer 2004 quoted in Zhou et al. 2010]. The standards become comparatively more stringent in the heavier vehicle classes. The standards apply to passenger cars, sport utility vehicles and multi-purpose vans, not commercial vehicles or pickup trucks [Zhou et al. 2010]. While China’s fuel economy standards were more stringent than those of the US in 2004 [An 2004 quoted in Zhou et al. 2010], their enforcement has been a challenge.

IP/A/ITRE/ST/2010-02 & 03 PE 451.482 72

51 Jiang Kejun quoted in K. Chen, ‘China eyes 50% efficiency boost for buildings’, Point Carbon, 29 July 2010. 52 K. Chen, ‘China eyes 50% efficiency boost for buildings’, Point Carbon, 29 July 2010. 53 http://clasponline.org/clasp.online.worldwide.php?rc=249|1


____________________________________________________________________________________________

Standards are not sufficient on their own and need to be complemented by additional incentives. China has 24 types of vehicle taxes including sales taxes [Zhou et al. 2010]. In 2008 there was an adjustment to the vehicle sales tax: an increase for those with larger engines and a reduction for those with smaller engines.

ity (e.g. a single agency) and the subsequent

lementation has been hampered by active

energy prices ess has not been completed yet. Electricity

s

e of imported crude oil, paying the differential as subsidies to

tricity prices do not necessarily reflect the unregulated price of coal, 0]. Coal prices have been high and are predicted

potential driven by increases in electricity demand. A recent plan proposed by the National

e increasing costs of their ity d

limiting the impact on inflation as the proposed reform will affect only 54

While the government continues to invest in infrastructure such as the rapid expansion of urban highway networks, public transport development in most cities lags behind with incomplete infrastructure and poor quality of services. Travel by public transport in Chinese cities is significantly lower than in Europe, ranging from less than 5% in small cities to 10% on average in most large cities and up to 20% in a few large cities [Ma Lin quoted in CCICED 2009].


In energy policy in general China’s regulatory system has been characterised by a lack of clarity in the assignment of responsibildiffusion of authority as well as the tendency of the leadership and industries to set ambitious targets. In addition, energy policy impresistance from local governments who are not formally involved in the formulation of national policy and whose interests in energy, natural resources and the environment are often opposed to initiatives from the central government [Andrews-Speed 2010].

Although the Chinese government has significantly reduced subsidies with increasingly reflecting actual costs, the procprices and oil product prices are regulated whereas fuel costs, e.g. coal and crude oil priceare unregulated.

When energy prices on the international market were high, the government set oil product prices lower than the pricupstream industry.

Similarly regulated elecincurring costs to utilities [Zhou et al. 201to continue to rise. Electricity utilities will suffer from lower profitability due to lower electricity prices and higher production costs, despite a rise in their electricity generation

Development and Reform Commission to raise household electricity tariffs in three tiers willmainly help electricity distributors or grid operators offset thelectricity purchases by delivering extra revenue to them, but will benefit electricproducers to a limited extent. The plan is considered to be a step towards a market-basepricing system while 20 to 30% of households.

Buildings

There are building codes, but they are not effectively enforced. Enforcement of building standards has been problematic, particularly in the early years. Implemented locally, compliance with standards is much better in major cities such as Beijing and Shanghai in the north and in developed regions but less adequate in smaller cities and towns in the south and in less developed regions [Shui et al. 2009]. 54 Liu Yiyu, “Power generators report increased demand ; coal costs dent profits”, China Daily, 20 July 2010 ;” ‘Modest’ rise in China electricity price planned”, China Daily, 12 October 2010; “New electricity price policy has limited impact on commodity prices”, People’s Daily, 12 October 2010; “China mulls differentiated power

inhua quoted by China Daily, 9 October 2010. prices”, XIP/A/ITRE/ST/2010-02 & 03 PE 451.482 73


____________________________________________________________________________________________

Compliance is also better at the design stage than in the construction stage, thus stressing

regulation to force construction companies to apply efficiency standards to new buildings55 and compliance with efficiency standards is very low. Officially there are

the lack of human and financial resources especially at the local/

uilding energy codes, the following economic barriers are in evidence

ives for developers to include energy-efficient design and materials;

SD 2009; Zhou 2010]:

idespread use of highly energy-intensive building materials with little consideration for life-cycle energy use;

f systematic reporting and monitoring of programmes;

set and about the methodology for disaggregating the target.

the need for inspection. Since 2005 MOHURD has undertaken an annual inspection-based survey of energy efficiency and mitigation in buildings in key cities across the country [Shui et al. 2009].

There is no

penalties but in practice they are hardly enforced, leading to unsound and incompletemonitoring mechanisms and a culture of non-compliance. Other factors influencing the lackof compliance includemunicipality levels as well as the prioritisation of economic interests over environmental or energy efficiency issues [Richerzhagen et al. 2009].

In addition to inappropriate construction practices, weak building codes, and a lack of enforcement of b[Zhou 2010; Richerzhagen et al. 2009]:

• The heat energy pricing system (e.g. set at a fixed rate and at a lower level than actual costs of generation and delivery);

• Differences in the billing and metering systems for heating (and cooling) in northern and southern China (e.g. not billed according to consumption in the north;

• The long pay-back time due to low energy prices and the heat billing;

• Subsidies for urban heating retrofits;

• Lack of incent

• Lack of incentives for city heating suppliers to improve efficiency or install controls on their systems.

Other major barriers mainly concerned with measurement issues are the following [WBC

• Outdated heating system design;

• W

• Lack of official reports, lack o

• Absence of standardised data collection methodologies;

• Infrequent surveys on building characteristics and energy consumption patterns;

• Lack of data;

• Lack of clear definition about units of measurement and reporting;

• Lack of clarity about delineated programmatic targets (e.g. annual or cumulative savings);

• Lack of clarity about how the baseline was determined, how the target was

IP/A/ITRE/ST/2010-02 & 03 PE 451.482 7455 Ibid.


____________________________________________________________________________________________

Transport

The effectiveness of measures is limited because of the lack of incentives for energy efficiency improvement in transport, the lack of financial incentives for energy efficiency improvement and the lack of specific energy taxes to reduce energy demand [Klessmann et al. 2007].

3.3. Energy performance standards and labelling schemes in third countries

Previous sections focused on frameworks for key energy efficiency measures in three large economies, the US, Japan and China. Among other measures energy performance standards and labelling schemes have further expanded in countries such as Australia, India and Brazil.

In Australia there are Minimum Energy Performance Standards (MEPS) for the following products: household refrigerators, commercial refrigeration, freezers, electric storage water heaters, electric motors, air conditioners, transformers, converters, fluorescent lamps, incandescent lamps, external power supplies, TVs and commercial building chillers. The current Australian labelling scheme is a joint initiative by the commonwealth, state and

Brazil has an energy labelling scheme: a mandatory labelling of appliances marketed or produced in Brazil since 1985; and a voluntary efficiency label for light vehicles since 1993.58

3.4. Concluding remarks All three countries, the US, Japan, and China have developed distinct regulatory systems based on consultation with different levels of government and/or stakeholders. In the US success factors are periodic analysis and revision, financial incentives and integration of policies into market transformation strategies. In Japan success factors include business interest in energy efficiency investments, cooperation and consultation between the government and business, and clarity about the allocation of responsibility through the appointment of an energy management manager. In China (limited) success factors are the phased-in development of legislation, political will, reflected for example in the priority of the Five Year Plan, and coordination between different levels of government.

territorial government agencies although the jurisdiction in the area remains with the states. Australia adopts an energy rating label applied to household refrigerators, freezers, clothes washers, clothes dryers, dishwashers, air conditioners, TVs and swimming pool pumps (see Annex). The government also implements an ENERGY STAR programme for office equipment.56

India launched a standards and labelling programme for appliances in 2006. It sets minimum energy performance standards (MEPS) for energy-intensive equipment and appliances. The energy efficiency star labelled equipment includes refrigerators, fluorescent lamps, air conditioners, transformers, motors, pump sets, fans, LPG stoves, and TVs.57

56 Detail about technical standards and labelling programmes in Australia can be found, http://clasponline.org/clasp.online.worldwide.php?rc=61|1; 57 Detail about technical standards and labelling programmes in India can be found, http://clasponline.org/clasp.online.worldwide.php?rc=93|1; 58 Detail about technical standards and labelling programmes in Brazil can be found, http://clasponline.org/clasp.online.worldwide.php?rc=212|1 IP/A/ITRE/ST/2010-02 & 03 PE 451.482 75


____________________________________________________________________________________________

If the US and Japan share a common preference for voluntary approaches and public-oncerns with a patchwork of

regulations at different levels of government. All countries favour progressive expansion of d Japan’s

2

erformance standards and labelling schemes. However,

the US and Japan focus on fuel economy standards while the EU targets CO

uildings

ility of alternative transport modes, lessons from other countries may not be automatically applicable to Europe. On the other hand, there remains large potential for energy savings through closer coordination in regulations and guidance on appliances across countries, and as a major exporter China could play an important role.

private consultation, the US and China have common c

legislation in different phases. Among specific measures, the US ENERGY STAR anTop Runner programme deserve further analysis.

Some comparisons between the EU and third countries can be made in each sector. Neither the US nor Japan have introduced a comprehensive mandatory nation-wide approach to energy efficiency measures in the building sector comparable to the EU’s requirement for MS implementation and amendment of the Energy Performance of Buildings Directive (Directive 2010/31/EU). At present Japan is the only country setting a Zero Emissions target on CO emissions from new public buildings in 2030. In appliances both the EU and the US have developed energy ptheir standards are not as ambitious as Japan’s Top Runner programme and their labelling schemes are not as comprehensive as Japan’s Uniform Energy Saving Labels respectively. Based on the recast of the energy labelling directive (Directive 2010/30/EC) the EU’s proposed regulations for new labelling for four household appliances (washing machines, dishwashers, TVs and refrigerators) represent a step forward providing consumers with more information about the energy consumption levels associated with specific products.

In transport 2

emissions levels from new passenger cars. While Japan has adopted the Top Runner programme not only for light-duty vehicles but also for heavy-duty ones and the US now proposes to expand its fuel economy standards to the latter category, the EU does not appear to take a targeted approach to this segment. Given that measures in bdepend on local climatic conditions and those in transport on local infrastructures for vehicle use and the availab

IP/A/ITRE/ST/2010-02 & 03 PE 451.482 76


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4. Policy Options for Energy Efficiency

4.1. Successes and gaps of the current EU legal framework The European energy efficiency target, a 20% reduction by 2020, is neither binding nor is there a precise definition of the target. Nonetheless, it is generally agreed that the 20% reduction is to be understood relative to a business-as-usual development. The target is part of the so-called 20-20-20 target including a 20% renewable energies target and a 20% greenhouse gas reduction target for 2020. The latter targets have been made binding through European legislation, whereas the energy savings target is of a non-binding character.

The EU Energy Efficiency Action Plan for the timeframe 2007-2012 (see chapter 1.2) has triggered significant regulatory action on the European level with related action on Member State level. Nonetheless, there is a general consensus among experts and stakeholders that the current EU legal framework is insufficient to achieve the energy savings target. The economic downturn since 2008 has contributed to a reduction in energy consumption, but still energy savings will not be large enough to achieve the target.

Quantitative estimates of the identified gap, however, differ. The European Commission estimated in 2008 that the current level of implementation of measures will achieve energy savings of about 13% by 2020. An independent study commissioned by the European Climate Foundation in 2010 comes to the conclusion that the gap is twice as large.

Figure 13: Gap between energy savings based on current regulatory frameworks and the 20% EU target

Energy Savings Gap to 20% EU Target

Source: [European Climate Foundation, 2010b]; [European Commission, 2008]

The Directive on Energy End-Use Efficiency and Energy Services (Energy Services Directive – ESD) requires Member States to provide National Energy Efficiency Action Plans (NEEAP) in 2007, 2011 and 2014. The 2007 NEEAPs have been analysed by the European Commission and by independent experts. Together with further research, this has led to the above-mentioned conclusions on the gap towards target achievement.

IP/A/ITRE/ST/2010-02 & 03 PE 451.482 77


____________________________________________________________________________________________

A key difficulty in assessing the level of achievement is the fact that the NEEAPs are very heterogeneous in design, calculation method, content and level of information provided. In

or bundles thereof. There is a general agreement in the scientific literature that the gh for the EU target to be achieved, while fficient for target achievement. What is

efits in order to allow all stakeholders involved to have a net benefit. A vests in energy savings while

ysis, it is of interest to qualitatively assess current The EU Energy Efficiency Action Plan has defined 85

en within the timeframe of 2007-2012. emented by mid-2010. Most other actions are few have not (yet) been realised at all. Most

north and cooling

vings as people in critical social situations in general benefit most from energy savings, but are most limited in opportunities.

The large number of actions and measures defined in the Energy Efficiency Action Plan demonstrates the diversity and breadth of the field. Large potentials of very few areas such as buildings are complemented by very many areas with small contributions. Also, individual energy savings projects are often relatively small and thus a large number of individual actors is required for tapping the full potential. This diversity and distribution of potentials is a major challenge in achieving energy savings. On the other hand this demonstrates that energy efficiency is an issue cutting across many policy areas and that consequently energy savings require mainstreaming in other policy lines.

addition, both new measures and measures already taken before the transposition of the ESD are included. A number of NEEAPs reveal a significant gap between the political commitments to energy efficiency defined by the individual national targets and planned or adopted measures.

The scientific basis for the assessment of the savings potentials of the individual measures is sound and allows for a reliable estimate of the impact of individual actions and measures

energy savings potentials are large enouthe European policy framework is insumore, to a large extent the target can be achieved by measures with a net positive economic impact for the user. This positive economic effect both for the individuals and for the economy as a whole deserves more attention in the political debate and in the implementing sectors in order to reduce barriers and the reluctance to implement action. In specific situations, however, split incentives require political action in order to balance burdens and bentypical example is in rented building space where the owner inthe tenant benefits from lower energy bills.

In addition to the quantitative gap analachievements and perspectives.actions and measures within six key areas to be takAbout 40% of the actions had been fully implongoing or ongoing with delay and only veryattention has been paid to the key area of energy performance requirements for products, buildings and services, which has been most successfully implemented. The single largest energy savings potential is in buildings (both the private and commercial sectors), which account for 40% of the total savings potential in all Member States. Significant geographical differences exist in Europe with heating requirements in therequirements in the south. It needs to be emphasized that in addition to climate protection and economic benefits, very energy efficient buildings in general also provide enhanced user comfort.

Energy savings also have a consumer protection aspect by allowing consumers to make informed choices, e.g. through energy labelling of appliances, and by allowing consumers to benefit in areas where they have no opportunities to act, notably in rented living space. These examples also demonstrate the social dimension of energy sa

IP/A/ITRE/ST/2010-02 & 03 PE 451.482 78


____________________________________________________________________________________________

4.2. Policy options for the EU Energy Efficiency Action Plan and the possible recast of the Energy Services Directive

It is not the objectiv his study to be comprehensive in iden g policy options in energy efficiency at EU level. The following section will provide selected elements for

2011-

pte ful tes a

et s energy

s ergy savings d as on the other ieve

the target, there is a need to increase cy is a feasib y

a binding energy sa

• an EU-level economy-wide target,

• EU-level sectoral targets,

These options are comprehensively discussed in [ECF, 2010]. Major criteria on which to evaluate the differen e the share of the identified energy gs potential that is covered by an option, the flexibility that the options provide to Member States and the

be gn opti

et. In wable inding

leave m ropean uld ensure coherence of certain

ng e ensured unt for national or regional differences.

e of t tifyin

consideration in coming policy lines, notably th2020 and the possible recast of the Energybased on the analyses provided in chameasures and actions in EU Member Sta

e EU Energy Efficiency Action Plan for Services Directive. The selection has been made

rs 1 to 3, which try to identify successnd other global players.

about a possible binding nature of the are inadequate to achieve the en

4.2.1. Binding energy savings targThe first and foremost decision to be made isavings target. As current policy measuretarget of 20% by 2020 an hand the EU has sufficient potential to ach

the policy impact and to create polile option and it is seen as desirable bincentives. A binding target

many experts.

Four design options for vings target exist:

• a Member-State-level economy-wide target,

• Member-State-level sectoral targets.

t options ar savin

interaction with existing EU-policies. Cominterpreted as the ‘coherence’ of a desi

Table 11 summarizes the pros and cons ofcontrast to a Member-State-level binding tarEnergy Directive for achieving the 20% renetarget for energy efficiency would institutions. This wo

bined, the latter two criteria can more broadlyon with existing EU policy.

a binding EU-level economy-wide targget, as for example defined by the Renewable energy target, a European-level b

ost of the design power to the Eu measures across Europe, which forof energy using products. It must bmeasures is indispensable, e.g. for labelli

that measures are flexible enough to acco

IP/A/ITRE/ST/2010-02 & 03 PE 451.482 79


____________________________________________________________________________________________

Table 11: Pros and cons of a binding EU-level economy-wide energy savings target

Pro Con

• Master ‘frame’ for a new set of energy policies under the new

level, e.g. EU-ETS etc.

set of energy nergy

chapter of the Lisbon Treaty); no comparable examples in other EU policy areas

• Target would be disconnected

energy chapter of the Lisbon Treaty

• Would create new ‘boundary condition’ for EU legislation that already set targets at EU

• Innovative policy making required; (incorporation in new legal instrument, e.g. as master ‘frame’ for newpolicies under the new e

• Would incentivise the introduction of new policies like CO2 standards

from EU policies like EPBD, CHP Directive, ESD

• Obliged parties to implement the target unclear

• Limited target compliance

Table 12 summarizes the pros and cons of a binding EU-level economy-wide target.

Table 12: Pros and cons of binding EU-level sectorial energy savings targets

Pro Con

• Energy savings target for ETS-sectors would create a new

• Disconnected from framework Directives like EPBD, ESD

incentive in combination with the ure ETS • An absolute energy savings greenhouse gas cap; fut

cap and allocation would need to integrate energy and GHG constraints

• Energy savings target for ‘end-users’, excluding ETS, would create new incentive for existing EU legislation, e.g. emissions performance of passenger cars, Eco-design implementation measures; would encourage

target for renewable energy supply would hamper accelerated deployment of renewable energy

introduction of new policies, e.g. CO standards for trucks 2

A binding Member-State-level economy-wide target is specifically discussed in the political arena at present. It has a number of pros and cons which are summarized in Table 13.

IP/A/ITRE/ST/2010-02 & 03 PE 451.482 80


____________________________________________________________________________________________

Table saving

13: Pros and cons of a binding Member-State-level economy-wide energy s target

Pro Con

• Need to increase and accelerate energy savings

• Loss of control on European level

• Strong international message

• Logical next step in climate policy

• Ensures political accountability and provides flexibility

lacking

• Danger of incoherence

• Member State commitment partly

T option is to introduce one or more binding national targets, that each cover a part of the economy. Here, as discussed earlier, the renewable energy supply sector may be excluded.

Many experts emphasize that the energy savings target should be binding as this would

e ESD should define clear and consistent

ink between the savings targets and the proposed

Energy Service Companies (ESCOs) play an important facilitating role in realising cost ergy utilities acting under energy efficiency

s.

For the power sector under ETS [ECF, 2010] provides evidence of substantial efficiency improvement in the baseline. To avoid incoherences with ETS, a partial national target could exclude the fuel use of ETS. A national sub-target would then focus on ‘end-users’ excluding fuel use for ETS industry. Such a target would still cover 79% of the economywide HPI primary energy savings potential identified by [ECF, 2010]. If the electricity use from installations that participate in ETS was also excluded, the target would cover 72% of the HPI potential. This last target definition resembles the current scope of the Energy Services Directive’s non-binding target.

significantly increase the chances of achieving it.

Irrespective of the concrete design option chosen, a binding target is recommended and would need to be clearly defined, transparent in its methodology and easy to monitor.

4.2.2. Harmonised NEEAPs The National Energy Efficiency Action Plans (NEEAP) required from the Member States by the ESD are very heterogeneous in design, calculation method, content and level of information provided. A possible recast of thspecifications for forthcoming NEEAPs in an EU-wide reporting format in order to improve the comparability and transparency of the reports, particularly with regard to the overall reporting format, description and parameterisation of single measures and the methods of calculation of actual and expected energy savings. In this way the NEEAPs would provide a better opportunity to examine the lmeasures. The NEEAPs could also allow for their integration with other Member States’ reporting obligations in order to reduce the total reporting effort.

4.2.3. Energy Service Companies

effective energy savings. ESCOs and enobligation schemes (see next section) are complementary actors in the market. Based on the assessment made in section 2.2, the following policy options seem worth considering:

• Make good on the exemplary role of the public sector across the EU by making EPC mandatory in all renovation work on public building

IP/A/ITRE/ST/2010-02 & 03 PE 451.482 81


____________________________________________________________________________________________

This has the potential to literally kick start the ESCO market. In this regard, we recommend paying particular attention to innovative models such as CR-EPC and IEC.

• Remove the legislative barriers existing at the national level by ensuring

e, it is very important to create a level-playing field by

• Intensify awareness raising, training and capacity building to improve trust ergy efficiency and the ESCO concept and advantages.

al level, the network of energy agencies may be a very powerful tool in order

r in order to help financing institutions understand the ESCO

s (such as EPC level with all

pling of electricity consumption mic growth over the past decades to a significant extent to EEOs.

full enforcement of the ESD. It also seems necessary to define clear guidelines at the EU level to assist MSs in adapting their tendering and procurement rules to the specificities of EPC.

• Ensure that the obligation to certify the energy performance of all (constructed, rented or sold) buildings as introduced by the Energy Performance of Buildings Directive is efficiently enforced at the MS level. At the same timdiscouraging the offering of free audits from public agencies which potentially kills the business of ESCOs. Public money would be much better spent with subsidies provided directly to the customers usable either with an ESCO or a public agency.

and knowledge on enIt is recommended to adopt a targeted and specific approach for each group of customers and stakeholders (financers, developers, designers, builders, suppliers). This can be coordinated both at the EU and the national levels. At the locto reach local players (SMEs, local authorities and administration, individuals, etc.). The use of advertising could be considered a potentially efficient way of convincing more individuals.

• Pay particular attention to raising awareness and building capacity in the banking sectobusiness model and provide adequate financing solutions for the sector. Off-balance sheet and “pay as you save” solutions should be favoured. Other innovative approaches such as pure-forfeiting and leasing financing should be explored.

• Evaluate the possibility of setting up EU or government financing facilities able to provide cheap loans or financial guarantees to ESCOs and their clients. One of the primary target groups could be for instance the residential sector where transaction costs are particularly high.

• Remove the barriers related to small project size especially in the residential sector and for SMEs: the pooling approach should be supported and promoted. Mandatory audits and the availability of state funds would also be a key success factor in this regard.

• Promote European standard M&V procedures and documentcontracts). In addition it is highly advisable to work at the EUstakeholders with the goal of introducing the appropriate quality insuring instruments allowing the accreditation and certification of ESCOs.

4.2.4. Energy efficiency obligations Energy efficiency obligations (EEOs) for energy utilities have proven to be an effective tool for increasing energy savings both in several Member States and in the US, notably California and Vermont. Experts assign the successful decouand econo

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EEOs transform the classical business model of utilities from selling energy to selling services, i.e. from selling megawatts to selling negawatts. Energy utilities will continue to earn money by selling energy, but EEOs also allow them to earn money by not selling energy.

Four Member States and the Belgian Region of Flanders have established EEO systems, which differ significantly in many aspects. National experiences have clearly demonstrated the effectiveness and impact of EEO systems on energy savings. Certain measures developed by the Member States are identified as best practices, notably the strong link between the EEO and the GHG emissions reduction, the inclusion of a social dimension in

O scheme. Therefore, Member States should retain high

y

e results of a public consultation on the EEAP. Alternative solutions to a Community-wide scheme are proposed in the literature and validated by experts, notably

ntary scheme and/or the establishment of regional schemes.

2010.

the scheme ensuring that low income households benefit from the energy efficiency or the promotion of ESCO.

The multiplicity of experiences and the differences between modalities in the Member States represent a concrete challenge for harmonizing the rules and setting up an EU-wide EEdesign flexibility in terms of EEOs modalities and savings targets related to the obligations.

4.2.5. White certificates Energy efficiency obligations are economically more efficient if there is a tradingmechanism allowing to fulfil the obligation either by own actions or by buying White Certificates. White Certificates would ensure that the most economical energy savings are realised.

A trading scheme for White Certificates would also facilitate other players such as EnergService Companies (ESCOs) becoming active. ESCOs, which are established market players, could sell White Certificates for their energy savings projects. White Certificates would therefore represent an additional source of income for ESCOs making the business case more attractive.

In combination with EEOs, White Certificates would be a powerful and efficient tool for energy savings and their introduction is highly recommended. The trading of White Certificates at national level is regarded as feasible, while trading at EU level represents complex challenges even though it would bring added value. A European Commission study thus concluded in 2008 that a Community-wide White Certificate scheme was not advisable even though national schemes were considered useful. This is in line with independent expert opinions and th

the creation of a voluOne additional suggestion is to learn from the experiences acquired with the European Emission Trading Scheme (ETS) regarding issues linked to a European harmonisation.

4.2.6. Energy labelling and minimum performance requirements Energy labelling of household appliances has in principle been extended to all energy consuming products and to products having a significant impact on energy consumption, e.g. windows, through the recast of the labelling directive. Furthermore, it has closed a major loophole by requiring the label to be displayed in all sales channels including distance selling by mail order or Internet. Delegated acts to the recast of the labelling directive to be adopted are conferred on the Commission for a period of five years beginning on 19 June All products to be required to be labelled shall have a significant potential for saving energy and shall have a wide disparity in the relevant performance levels.

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An issue constantly confusing consumers is the introduction of additional grades. Notably

t A is the

” and “A++” the introduction of a new labelling system without “+”

be regularly rescaled.

uns into trouble when further efficiency

eliminated inefficient incandescent light bulbs (energy timeline from 2009 to 2012. This approach of

m2 TVs. For both technical and energy

eality of alternative fuels in transport. Biofuels currently represent the largest share of alternative fuels, with electricity

Nonetheless, the European Commission strategy includes the notion of using less energy in mobility for example through fostering Integrated Transport Systems, which reduces

for refrigerators, additional grades (“A+”, “A++”) have been introduced in 2003 as evermore efficient appliances have come on the market. The recast goes along with a redesign of the label including the new grades up to “A+++”. Consumers having learnt thabest grade will think they buy an energy efficient product if they chose grade “A”. However, this is not true, as “A” now represents only the fourth best grade. After many years of established grades “A+extensions would require additional communication efforts, but would be more effective in leading consumers to buy energy efficient products [forsa, 2009].

Instead of introducing additional grades, the grades should thusThis would ensure that grade “A” always represents the most energy efficient product group on the market. Systematic rescaling would allow for a continuous improvement of products, while the current approach rimprovements are achieved.

The Japanese Top Runner Programme introduced in 1999 sets efficiency targets at high standards, notably best available technology or better, which manufacturers or importers need to meet in several years’ time. This scheme has an inherent dynamic of further improvements, which could serve as a role model for Europe.

As a first example, Europe has labelling grades E, F, and G) over a staged legally phasing out inefficient products should be repeated if market forces are not strong enough to eliminate products in the low grade energy efficiency categories.

Another issue highlighted by energy efficiency expert Alan Meier of California (see his detailed contribution in the Annex) relates to the fact that even efficient products may consume large amounts of energy in absolute terms because they are very large. Examples include 400 m2 homes, 600 liter refrigerators, and 2 saving reasons, large products should be required to achieve higher efficiencies. Refrigerators for example have less energy consumption per liter of volume the larger they are. Thus, stricter energy efficiency requirements for larger refrigerators would be a natural choice as this corresponds with the laws of physics. The same requirements for all sizes give an unfair legal advantage to large appliances and promote the rebound effect. For all products displaying such characteristics, so-called progressive energy efficiency standards should be applied.

4.2.7. Transport Although transport is seen as an integral part of energy efficiency in all energy efficiency related scientific publications and political discussions, this is not necessarily the case in transport related documents and discussions. Here, the emphasis is rather on improving mobility and reducing emissions. The upcoming European Commission White Paper on sustainable mobility [EurActiv, 2010] is expected to be focussing on reducing greenhouse gas emissions from transport arguing that transport is largely dependent on oil, which has a one-to-one relation between energy consumption and emissions. This does not fully take into account the political will and increasing commercial r

and hydrogen being in the demonstration and early market stages [Borthwick, 2010].

energy consumption by exploiting the strengths of each mode [Borthwick, 2010]:

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• Eliminating residual obstacles through the effective market opening in all modes

• Enhancing interoperability through technical standards, single transport documents

nd shaping behaviour through integrated ticketing, soft incentives,

of customer-friendly services in public transport is the fact that it is practically impossible to find door-to-door mobility solutions or to at least buy

rough the Internet for public transport the destination city of a trip. nowledged as an important barrier to the increasing use of public

nt ships in order to limit transport costs. According to the

r the Safety of Air Navigation [Allianz, 2009].

As indicated for maritime transport above, air quality and energy savings have synergies air quality improvements as required by the EU

• Getting prices right through the internalisation of external costs, subsidies

• Informing users alabels.

In order to clearly establish energy savings as an integrated policy goal in transport it is recommended that a link is established between the upcoming White Paper on sustainable mobility and the revised EEAP.

Measures proposed in the Energy Efficiency Action Plan focus strongly on fostering technical solutions, while innovative mobility solutions and improvements of energy efficient public transport modes are less strongly targeted.

A simple example of the lack

tickets in advance thThis is generally acktransport modes [Borthwick, 2010]. As a solution, all operators of public transport could be legally required to sell tickets through independent Internet sales platforms as is common business practice in air transport.

Mobility patterns are shifting. Surveys have shown that the aspiration especially of young people to own a car has decreased significantly. New car sharing concepts such as Daimler’s Car2Go have been unexpectedly successful and are spreading rapidly internationally. Similar concepts for bikes such as Call a Bike by Deutsche Bahn in Germany have been successfully established in recent years. These developments need to be taken into account in policy making.

For maritime and air transport it could be interesting to establish speed limits. For road transport this is established in many Member States, while in Germany this has been discussed for decades without implementation. Early assessments of greenhouse gas emission reductions by speed limits on motorways in Germany conclude that a limit of 120 km/h would entail a 9% emission reduction [UBA, 1999]. Based on a simulation by ADEME for France [JRC-IPTS, 2008], reports that a further reduction of existing motoway speed limits in France from 130 km/h to 120 km/h would reduce fuel consumption by 14%. For martitime and air transport, this is not yet an element of political discussions.59 Increasing a ship’s speed by about 4 percent entails a 13 percent increase in CO2 emissions. During peak oil prices in 2008/09 international maritme transport companies reduced the speed of their merchaCoalition for Clean Air, the California Clean Air Resources Board is evaluating the possibility of speed limits for ships off the Californian coast in order to reduce greenhouse gas emissions, improve air quality and protect whales. Similarly, increasing speeds entails disproportionate increases in energy consumption in air transport. In addition, ensuring that aircrafts fly at their optimum flight level and over the shortest distance between airports could reduce emissions by 10 percent according to Eurocontrol, the European Organisation fo

also in road transport. Necessary local

59 Options to reduce CO2 emissions from maritime transport including a speed limit are analysed in detail in a European Commission funded study by [EC Delft et al., 2009].

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directive on ambient air quality and cleaner air for Europe are achieved by various measures including driving bans in restricted areas of cities, congestion charges etc.

Here, public transport offers mobility solutions significantly reducing air pollution and

while focusing on technical solutions. The latest TERM report

ission from the transport sector but if ambitious targets are to be achieved the policymaker will need to

t 'picking the best ones.'” In this sense, it is

efurbished every 40 years. Energy refurbishment cycles on the other hand are

o achieve our long-term climate protection goals, this is much too slow.

the building stock would use 86% of the 2010 energy use

lding stock would consume just 28% of the 2010 level. Were such a rate and depth of renovation to be

on of the energy supply the overall emissions

sed by ESCOs such as the comprehensive refurbishment of buildings through an Energy

Contracting appear to be effective and very

planning stage, which may or may not include checking the energetic performance. In the

energy consumption alike. In general, collateral improvements include noise reduction and enhanced quality of life.

The Energy Efficiency Action Plan includes certain measures in this direction such as changing transportation behaviour, co-modality enhancing measures etc., but does not tap the full potential of this areaby the European Environment Agency concludes [European Environment Agency, 2010]: “There are many different policies that can reduce the greenhouse em

employ all measures rather than jusrecommended that energy savings policies should put a stronger emphasis on non-technical approaches.

4.2.8. Buildings The single largest energy savings potential is in buildings (both the private and commercial sectors), which account for 40% of the total savings potential in all Member States. Thus, buildings deserve specific attention. Buildings have a long technical lifetime on the order of 100 years. Also, buildings in general have a 40 year renovation cycle, i.e. buildings on average are rmuch lower at present with around 1.4% of all buildings energetically refurbished every year. This means that it takes around 70 years to improve the energy consumption of all buildings. In order t

Building efficiency expert Paul Waide explains in his detailed contribution in the Annex:

“If only 1.4% of the building stock is renovated each year and the efficiency improvements from each renovation are modestby 2050. If the renovation rate is increased to 3% the consumption in 2050 would be 62% of 2010 levels but would be rising again. However, if the renovation rate is increased to 3% per annum and current best practice renovation is applied the bui

coupled with a modest decarbonisatiassociated with the building sector would be reduced by over 80%. Thus the policy message is clear: the rate and depth of energy performance renovations of existing buildings is the largest single factor which will determine whether the EU reaches, or misses, its 2050 climate targets.”

Refurbishment of existing buildings needs to be in the central focus of political action as on the one hand the requirements set in the EPBD for new construction are sufficiently strict, and as on the other hand existing buildings represent by far the largest share of the energy savings potential. In this regard, innovative solutions propo

Performance Contract or Integrated Energy cost efficient.

4.2.9. Enforcement of regulations A major issue notably in buildings is the need for enforcement of the regulations. In Germany for example, compliance with building codes is checked by authorities in the

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construction stage, there is no monitoring by authorities, neither systematically nor by

ut is often not done as there is no monitoring and enforcement by authorities.

rkets, energy prices for final consumers should be

In which form such a structure could be introduced at EU or Member State level needs to

Emerging and developing economies such as for example Morocco or South Africa have onsumers.

nal climate protection negotiations, energy savings could play an important complementary

ause of the net economic benefits. Creating new momentum for

random sampling. It is the duty of the architect in charge to monitor compliance with the plans.

Once construction is finalised, it is very laborious, both technically and legally, to check compliance and to prove non-compliance. In addition, experts in Germany frequently criticise the fact that energetic refurbishment required by German building codes in cases where a major refurbishment is carried o

Thus, enforcement of regulations needs to be ensured at all levels. It is a major shortcoming of the EPBD that such provisions are not explicitely included.

4.2.10. Progressive energy prices In the liberalised European energy madefined by market forces and regulated tariffs abolished, which is not (yet) the case for all Member States. Nonetheless, it may be interesting for Europe to follow the Japanese example of setting the cost of electricity per unit higher for larger consumers (see section 3.2.2). Progressive tariffs or prices which increase the price per kilowatt hour for each additional kWh sold would give the consumer an additional incentive to save energy. This measure is directed towards behavioural changes ( switching off the light when leaving the room or the house) as well as towards technical changes ( efficient appliances).

be analysed.

Such a price structure would also have a positive social dimension. Low income households with relatively few appliances and high cost awareness would have low prices for the limited electricity consumption, whereas high income households would pay disproportionately higher prices.

established progressive electricity prices for private c

4.2.11. International cooperation International cooperation in energy efficiency is important both in end use sectors such as tradable goods, and in energy transformation. The EU policy initiatives for international partnerships in energy efficiency kick-started within the framework of the Energy Efficiency Action Plan in 2007 have lost momentum. Energy savings are not in the focus of international energy discussions and cooperation. In the framework of the internatio

and facilitating role becenergy savings policies in international collaboration is highly recommended.

4.2.12. Combinations of measures No single measure can deliver the full potential of energy savings, nor can a focus on a single sector or target group. Intelligent packages of measures combining for example economic incentives, normative and regulatory action, information and dissemination efforts as well as innovative market solutions have proven to be very effective. Also, it is useful to tailor measures to specific target groups in combination with the relevant actors.

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4.2.13. General aspects Energy savings have a vast and economically interesting potential. Barriers to tapping that potential on the other hand are manifold.

nefits of energy savings both for the individual

onomics of energy savings will further improve and will

e broader context of the resource efficiency flagship initiative of the European Commission in its “Europe 2020”

the aim is “to help decouple economic

ive analyses of status quo and options. In the following, general lines of thought for further assessment are presented.

e aim is “to help decouple economic growth from the use of resources, support the shift towards a low carbon economy, increase the use of renewable

ansport sector and promote energy efficiency”. Against policies are just one aspect of this broader strategy.

is a finite natural resource extracted in very few countries that starts to become scarce at global level. Substitutes do not exist for

re. Organic farming and energy or infrastructure intensive recycling aste waters are the only options that start to be analysed in the

gricultural policies to increase the share of organic farming are thus a

Because of this, the economic beconsumer and the economy as a whole should be highlighted far more strongly in the political debate and in public communications. This includes the job creation potential of energy savings efforts.

The estimates demonstrating large economic energy savings potentials are based on primary energy prices which are lower than the actual prices today and assume practically no increases until 2030. It is highly probable given increasing global resource constraints that actual energy prices will be significantly higher than those estimated. Consequently, chances are high that the ecfurther enhance potential savings.

Energy efficiency is an important aspect of the wider issue of resource efficiency. The material resources needed in the industrialized economies are too high to be kept up in the mid-term. Thus, energy efficiency policy needs to be seen in th

strategy for economic growth. Within this context, growth from the use of resources, support the shift towards a low carbon economy, increase the use of renewable energy sources, modernise our transport sector and promote energy efficiency”.

4.3. Options for other EU sectoral instruments and legislation Energy efficiency is an issue cutting across many policy areas and consequently, energy savings require mainstreaming in other policy lines. This is a new concept in the scientific and political debate that needs comprehens

4.3.1. A broader view on resource efficiency As discussed in section 1.3.5, it is necessary to incorporate energy efficiency policies in a broader strategy aimed at increasing resource efficiency, which is one of the seven flagship initiatives of the European Commission in its “Europe 2020” strategy for economic growth. Within this context, th

energy sources, modernise our trthis background, energy efficiency

4.3.2. Agriculture Agriculture is partly included in energy savings analyses, but is not in the focus because it represents only a small share of direct energy consumption. In the broader view of resource efficiency, fertilizer use is an issue that relates both to climate protection and to resource sustainability. Nitrogen fertilizers are manufactured mainly from fossil energies and cause nitrous oxide emissions from agricultural land that have a very high greenhouse gas effect. On the other hand, phosphate fertilizer

conventional agricultuof phosphates from wscientific domain. A

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major option to increase resource efficiency. Also, enhanced research into phosphate

ntilation replacing window ventilation in moderate and cold climates.

ugh awareness raising activities, at schools etc. is also of high y savings. Experience shows that the technical potential of energy

savings technologies is often not exploited to its full extent due to lacking awareness, tion of private users and professional staff.

ligations of energy utilities in Flanders and the UK, which require certain shares of energy savings to be realized in low income households (see section 2.3).

municipal utility which has a voluntary scheme d on low-income households. In addition, public budgets

reducing energy bills of low-income households, which are paid under certain circumstances by public authorities.

se and industry Encouraging sustainable production is part of the European Commission objectives in creating a friendly environment for businesses. Cutting net costs through energy savings enhances European industrial competitiveness. Nonetheless, a number of barriers need to be overcome in order to tap the full potential of energy savings with net economic benefits in the industrial sector.

4.3.6. Environmental policy Avoiding, reducing, reusing and recycling waste streams is an indirect way of reducing energy consumption. This is notably the case for energy intensive materials such as e.g. iron and steel, aluminium and paper, but also for food. The associated energy savings may occur within the European Union, but may also occur outside of its territory. On the other hand, the relocation of energy intensive industries such as aluminium production to countries outside Europe could significantly reduce energy consumption in Europe while at a global scale energy consumption does not change. Policies reducing the consumption of energy intensive products by way of substitutes or by increasing recycling rates will reduce energy consumption at European and global levels.

4.3.7. Transport See section 4.2.7.

recycling is an important element of resource efficiency policies.

4.3.3. Education and training Creating jobs in energy savings, e.g. in the buildings sector, requires the development of human capital. Skills and competences need to be developed on a broad scale. The construction sector, which accounts for some 7.1% of all employment in Europe, will have to grow substantially in order to perform the necessary renovations of existing buildings (see section 4.2.8). In addition, many of the existing staff needs to be qualified for deep energetic renovations, and qualifications and competencies need to be developed which only exist in niches today such as technical ve

Education of consumers throrelevance for energ

information or motiva

4.3.4. Social protection and social inclusion Energy inefficiency is wasting money, which is most critical for low-income households. These in general benefit most from energy savings, but are most limited in opportunities. Examples of successful energy savings instruments with social components include Energy Efficiency Ob

Another example is the Munich, Germany, for energy advisory services focusecan be relieved by

4.3.5. Enterpri

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4.3.8. Information society and media o-called information society have a high speed of development and

change many aspects of modern life. This includes issues of energy consumption and thus

application. Another example is “virtual mobility” as a means to substitute actual transport. While many studies have come to diverse results on the

is still high and may change the situation. Just recently, US networking giant Cisco Systems reported having saved US-$601 million last year through

in all non-technical disciplines of science.

nd more concretely increased energy efficiency of buildings.

operation

New media and the s

of energy savings. One example is the more technical aspects covered by the term “green IT”. The issue of “green IT” is to try and increase the efficiency of IT systems faster than the growth of their

question of actual reductions of transport efforts by means of electronic communication instruments technical progress

the use of virtual meetings and similar concepts.

4.3.9. Regional policy See section 1.2.1.

4.3.10. Research Research policy plays a major role in energy savings. This includes technical advances as well as research

Creating a resource efficient Europe is one of the seven flagship initiatives of the European Commission in its “Europe 2020” strategy for economic growth. “Innovation Union” is another, which includes energy efficiency a

4.3.11. Financing and Pricing See section 1.2.1.

4.3.12. Development and international coSee section 1.2.1.

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____________________________________________________________________________________________

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http://www.ieadsm.org/Home.aspx

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____________________________________________________________________________________________

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____________________________________________________________________________________________

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____________________________________________________________________________________________

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mwe und usw

covert testing shows the Energy

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____________________________________________________________________________________________

ANNEX I: EXAMPLES OF ENERGY LABELLING

US ENERGY STAR Program

Japan: the Uniform Energy Label

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____________________________________________________________________________________________

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101

China

Australia

ANNEX II:WORKSHOP PROCEEDINGS

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ITRE WORKSHOP

EU Energy Efficiency Policy best practices and options for EU policy

Programme

Thusday 16 September - 2010, 15:00 – 18:30 Venue: European Parliament, Brussels

Room: ASP 5G3

In the context of the adoption of the EP own-initiative report on the revision of the EU Energy Efficiency Action Plan, a study is being carried out at the request of the ITRE Committee aiming at providing background information and advice for the Members of the ITRE Committee on priority measures and actions to be undertaken in this field.

As part of the study, the present workshop aims at:

• Presenting the state of play of the study and preliminary findings, as well as gathering further expert's contributions for the conduction of the study

• Having an exchange of views and discussion with MEPs, Commission and Council respresentatives and stakeholders on the different policy aspects presented in view of the upcoming revision of the EU Energy Efficiency Action Plan

The experts contributing will provide written briefing notes addressing main questions discussed during the workshop. The final publication including the study and briefing notes will be delivered end October 2010.

The workshop is held in English and is open to any interested party. Interpretation in German and French is available. The workshop is organised by the Policy Department A and the ITRE Secretariat (DG IPOL)

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15:00 Welcome and opening: MEP Bendt Bendtsen (PPE/DK) (INI Rapporteur) 15:05 Session 1 - EP study on energy efficiency preliminary findings

State of play of the EU Action Plan for Energy Efficiency - State of implementation of the EC Energy Services Directive and options for revision - How do EU’s policies compare with those of global players (US, Japan, China) - Lessons learned within EU and third countries - Policy options to be considered for the EU in the revision of the EEAP and EU energy efficiency measures.

15:05 Mr. Matthias Altmann, Senior Consultant LBST

Mr. Anthony Brenninkmeijer, Hinicio

Ms. Noriko Fujiwara, CEPS

15:45 Questions & answers session

16:00 Session 2 - Member States experience with energy efficiency measures

National experts reporting on successful measures introduced in EU Member States and discussing possible EU level measures that could contribute to improve energy efficiency and help realise savings.

16:00 Mr. Peter Bach, Chief Adviser at the Danish Energy Agency Experiences in the energy utilities and industry sector

16:20 Mr Paul Waide, Navigant Consulting, former Senior Analyst at IEA Experiences in the buildings sector

16:40 Questions & answers session

16:55 Session 3 - Comparison between EU and other industrialised countries

energy efficiency/saving policies International experts reporting on successful and less successful measures introduced in their country and what lessons could be learned for EU policy

16:55 Mr. Hajime Wakuda, Deputy Exectutive Director, Japan Machinery Centre Experiences in the equipment and appliances sector

17:15 Prof. Alan Meier, Senior Scientist, Lawrence Berkeley National Laboratory Selected developments in energy efficiency from California, Florida, and Lance Armstrong

17:35 Questions & answers session 17:50 Closing session: interventions and general discussion

Including intervenation from Commission representative on ideas for the revisions of the Energy Efficiency Action Plan

Mr Philip Lowe, European Commission - Director General DG ENER Other interventions and discussion. Closing remarks from the Rapporteur.

18:30 End workshops

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EU Energy Efficiency Policy –Achievements and Outlook

Matthias Altmann, Ludwig-Bölkow-SystemtechnikAnthony Brenninkmeijer, Hinicio

Noriko Fujiwara, Centre for European Policy Studies CEPS

European Parliament, ITRE Committee, Brussels, 16 September 2010

Content

1. Energy Savings 2. The role of ESCOs : the energy services sector3. The role of electricity and gas companies 4. Lessons from around the globe5. EU Policy options6. Preliminary Recommendations

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Confidential and Proprietary, ©2009 Navigant Consulting, Inc.Do not distribute or copy

Experiences in the buildings sector

Paul WaideDirector

European Energy PracticeNavigant Consulting

[email protected]

The building stock is the biggest factor in EU energy use and energy security

It accounts for about 40% of all energy use in the EU and is the greatest consumer of gas (41%) and electricity (57%)Energy is a major component of building operating costs and of the total building life-cycle costsBuilding energy costs as a share of income are particularly high for the poorest members of society who have least income and the most inefficient properties The building sector is Europe’s largest industry and greatest employer (turnover of €1.2 trillion in 2009, providing 7.1% of all employment) – stimulating demand for greater energy efficiency stimulates economic activity and employment in the sector

©2009 Navigant Consulting, Inc.

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87%

High savings potential for existing buildings e.g. Frankfurt refurbishment using passive house technology


Slide contents courtesy of the IEA

Low and zero-net energy buildings already exist but are not widespread

Slide contents courtesy of the IEA


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Overall efficiency of an incandescent lamp = 2%

© OECD/IEA -2008

Example of energy lost during conversion and transmission. Imagine that the coal needed to illuminate an incandescent light bulb contains 100 units of energy when it enters the power plant. Only two units of energy eventually light the bulb. The remaining 98 units are lost along the way, primarily as heat.

IRR of a CFL > 180%


Slide contents courtesy of the IEA Source: Sebastian Moffatt, CONSENSUS Institute

Passive houses are not more costly overall

Source: IEA, 2010

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Building efficiency needs to make the largest contribution to CO2 targets

Source: International Energy Agency, WEO 2007 and ETP 2008

Business‐as‐usual

IEA “Blue Map”

Primary Energy

CO2 Emissions (BAU)2005 2050(e)

8.8Gt 20.1Gt

8.6Gt 23.2Gt

6.6Gt 18.0Gt

CO2Reductions

Courtesy: C. Kornevall WBCSD

• New capital infrastructure needs to have a radically lower carbon footprint to avoid carbon-lock-in and minimise accelerated retirement costs

• This is especially true of long-life capital stock, such as: buildings, power plants & transportation infrastructure

Transformational change is needed

60 to 80%

Con

tribution from Buildings

Now 2050

550ppm4°C

>750ppm6°C

450ppm< 2°C

Relation to IPCC scenario families

Relation to Building Energy & CO2


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‐50%

0%

50%

100%

150%

200%

250%

300%

0 2 4 6 8 10 12 14 16 18 20

Dis

coun

ted

rate

of

retu

rn

Annual CO2 abated in 2050 (Gt)IEA 2050 CO2 from Buildings

IEA 77% Target

WBCSD 72% Reduction

5 year discounted payback

10 yeardiscounted payback

(

office heating

multifamily controls

single family /small office heating insulation

multifamily water heating

single family/small office windows

single family/small office

PV

office lightingsingle family /small office water heating

office cooling

multifamily heating

single family/small office

lighting

multifamily lighting

Efficiency in buildings is the largest and net-cheapest abatement option:IRR vs. CO2 abatement (source: WBCSD)

8Source: Modeled analysis from WBCSD Energy Efficiency in Buildings “Transforming the Market” (2009)

Global average values


Efficiency may be cheap but its very hard to see...


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Policy is needed: the market doesn’tdeliver all cost-effective savingsMissing or partial information on energy efficiency –it is not visible to end users (codes & labels help)Split incentives: landlords & tenants; division of capital acquisition vs. operation & maintenance budgets; energy capital lifespan often longer than ownership period, etc.Fragmented supply chains and low awareness among service procurers of savings potentials from the use of more efficient buildings and equipmentEnergy budgets have low priority: EE is bundled-in with more important capital decision factorsAll result in emphasis on 1st not Life-cycle costs


Happily building energy policy is rapidly strengthening

Building energy/carbon codes: moving from just prescriptive for heat transfer components to whole building energy consumption approaches sometimes with prescriptive underpinningsfrom just residential to include commercialfrom just new-build to also include retrofitfrom weak toward net-zerofrom final energy to primary energy to carbon

Energy performance certification (making it visible):From voluntary to mandatoryEnforced disclosure and labellingfrom energy to carbon


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Labelling is now being used for buildings

B

All EU member states and accession countries are implementing mandatory energy certification of buildings

F

D

EU legislation to date: the Recast EPBD for New buildings

• All new buildings shall be ”nearly zero energy buildings” (NZEB) by 2021(2019 public sector) (Generic definition. VHEP, with remaining energy need met by renewables) {allows for off-site, courtelage} –demand management committee

• For all new buildings, renewables-based energy supply considered

• MS to set intermediate targets for 2015 for improving the energyperformance of new buildings to achieve NZEB by 2021

• Cost-optimal methodology to be established by Commission by July 2011 & reported by MS by 30 June 2012 & every 5 years thereafter(incl. renewables) – see Annex 3 of EPBD, benchmarking – common calc method NPV, LCC, annualised cost, reference buildings, etc.

• MS to inform on training & accreditation of certifiers & inspectors. Establish registers.

• Compliance control systems & penalties for non-compliance communicated to COM by 2013

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• Minimum energy performance requirements for all¹ existing buildings, building units and building elements that are subject to major renovation

• Minimum requirements for building elements (e.g. wall, roof, floor, foundation) when retrofitted or replaced

• Minimum requirements to be set for building elements with a view to achieving cost-optimal level; renewables encouraged

• Improved quality and promotion of Energy Performance Certificates (EPC)(but still need to ensure ambitious implementation)

• Control system for EPC and boiler inspection; Penalties for non-compliance

EU legislation to date: the Recast EPBD for Existing buildings

¹Removal of 1000 m² threshold increased scope from 29% →100%

Building energy use cut 50% to 85% by 2050? Not without large-scale deep renovations

beginning now

• Action needed in existing buildings: New buildings only 1% - 1.3% of stock annually, even if they are nearly zero-energy buildings

• Poor renovation rate: current rate 1.2% - 1.4% annually – would need to increase by a factor of 3 to meet climate targets

• Poor renovations: current energy performance improvement of 15% - 20% per energy renovation but long-term cost optimal level is 60% - 90% (“deep renovation”)

• Missed opportunities: sub-optimal renovations “lock in” large missed savings potential

• Yes, we can pay it: financing can be raised if public funds leverage private funds and if demand- and supply-side energy markets are better linked

• Additional measures are needed: recast EPBD doesn't address deep renovations

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Depth and rate of renovation has a huge impact on outcomes

Source : Central European University, 2010 (draft)

Compliance The EPBD’s Achilles Heal?

Compliance with codes has traditionally been weak:Investment in compliance infrastructure is lowPenalties are small and prosecutions rarePragmatic attention to the interface between nominal policy requirements and their enforceability is sometimes overlookedYet increasingly the focus needs to shift from the objective (which is now widely shared) to the delivery of real energy and carbon savings at least cost


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Ambitious policies targeting existing buildings need to be countenancedPolicies are needed to increase the rate of renovation by paying for or greatly reducing the upfront costs e.g.

- utility energy efficiency programmes – especially obligation schemes – create a market for EE services (EE renovations for buildings) by passing the up-front costs to energy tariffs but lower overall energy bills

- cheap finance or grants + pay as you save- tax credits and reduced VAT on efficient components- strengthening the price signal (energy taxes, cap &

trade; however, these are often the least effective)All aim to overcome the split incentive problem and especially the temporal split incentive

Yet much more scale is needed across the EU©2009 Navigant Consulting, Inc.

Can old dogs learn new tricks?

Skills need to be dramatically enhanced across the whole sectorFinanciers need to develop enhanced project financing and risk assessment skills Developers will be subject to new planning risk and market demands and will need to demand greater integration of service provision with clear lines of responsibilityDesigners will need to deepen understanding of how to optimise the energy performance of integrated designs and the complex interactions between fabric, building services, functionality, occupants and the larger site Builders will need to partner and work more closely with building service engineers and each will need to learn how to deliver lowenergy/carbon outcomesSuppliers will need to offer efficient & low carbon products


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A huge increase in effort & assistance is required

Technical support and stronger mandates are required by policy makers dealing with building efficiencyProgrammatic support is needed to help cover upfront investment costs and to create funding instruments that are replenished through downstream energy savingsCapacity-building efforts in the construction industry are urgently neededEffective compliance infrastructure is essentialThis implies a level of dedicated effort, at both the EU and MS level, beyond that currently in place


Some areas a revised EEAP might address

Increase administrative resources in Commission & MS Promote/require large-scale deep renovation of existing buildings Creation of funding streams (EE obligations, fiscal incentives, transferable loans, revolving funds, etc.)Large scale technical capacity support for designers, builders and financiers for ZNE new build and low energy retrofitsStrengthen compliance and integrity of codes and EPCs Strengthen EE of building components including electrical end-uses and systemsSupport R&D + large pilot and demonstration schemes©2009 Navigant Consulting, Inc.

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Not easy, but the best way to reach energy security & climate goals

Investing in energy efficient buildings brings: major abatement at least-cost (far cheaper than supply-side options and on a large scale)economic savings (by saving energy more cheaply than it costs to supply; up to 270 billion Euros/year in saved bills) employment benefits (far more people are employed per unit GDP than for energy supply; up to 0.5m green-collar jobs could be created)better buildings (improved thermal comfort, better indoor air quality, more daylight) social benefits – aids energy poorIt’s the part of mitigation where everyone benefits but it will not happen without major effort


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Energy Savings

• Why Energy Savings matter• Energy Savings – Past and Potentials • Barriers to Increased Energy Savings • Energy Services Directive

Why Energy Savings matter• Essential to achieve Climate Policy Goals• Improve Energy Security• Save Costs, Improve Competitiveness• Decelerate Energy Price Increases • Increase economic sustainability of our social welfare economies

• Efficient productivity• Resource efficiency

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Energy Savings since 1971

Improvement of energy intensity (energy per GDP)

Annual Energy Efficiency Improvements of Households by Country (1997-2007)

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Energy Savings Potentials

Source: Study on the Energy Savings Potentials in EU Member States, Candidate Countries and EEA Countries, 2009,www.eepotential.eu/esd.php

At oil prices of 61$2005 in 2020 and 63$2005 in 2030 (real prices)

2020 2030

LPI HPI Technical LPI HPI Technical

Industry 6.7% 7.6% 9.4% 9.4% 10.4% 13.3%

Transportation 14.4% 19.2% 22.9% 15.3% 24.3% 30.2%

Households 7.2% 18.6% 28.9% 17.5% 42.3% 66.0%

Tertiary 13.7% 16.7% 24.9% 21.8% 28.7% 36.8%

Energy Savings Potentials

Source: Energy Savings 2020, 2010

The EU’s 20% Energy Savings Target can be met largely through Cost-Effective Measures

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Energy Savings Gap to 20% EU Target

Source: Energy Savings 2020, 2010European Commission, “Energy efficiency: delivering the 20% target”, (COM(2008) 772 final), 2008

European Commission (2008): The current level of implementation of measures will only achieve energy savings of about 13% by 2020.

Barriers to Increased Energy SavingsEnergy Prices

• Low energy prices make energy efficiency a low priority for consumersStandard business model of utilities

• Revenue / profit maximization by energy salesInformation failure

• Lack of information, lack of awarenessInstitutional and legal

• Deficits in implementation of EEAP initiatives in Member StatesTechnical

• Deficits in the educational systemFinancial

• Capital market failures, high capital requirements, expected high rates of return, investor-beneficiary-dilemma

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Energy Services Directive

The first National Energy Efficiency Action Plan (NEEAP) was due on 30th June 2007 and should include the following elements:

• an overall national indicative energy savings target of 9% for the ninth year of application of this Directive calculated in accordance with the provisions and methodology set out in Annex I (as specified by Art. 4.1),

• an intermediate national indicative energy savings target for the third year of application of this Directive (as specified by Art. 4.2),

• provisions on the exemplary role of the public sector using at least two measures listed in the Annex VI (as specified by Art. 5.1) and

• provision of information and advice to final customers (as specified by Art. 7.1).

•Belgium is the only Member State without a national target

•Most Member States set a national target of 9% or more

•Eight Member States did not provide any intermediate savings target or the calculation of the target was not clear or contradictory

•Most Member States set a comparatively low intermediate of 2% and more

•The Czech Republic is the only Members State without provisions on the exemplary role of the public sector

•Most Member States have an adequate approach

•Provision of information and advice to final customers is provided in all NEEAPs

•The scope in 9 NEEAPs is incomplete as they do not go into detail about the information to final customers.

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Overview of the type of measures

The best overview of the type of measures adopted under the NEEAPs can be conducted according to the sectoral coverage: •Most instruments reported in the NEEAPs are related either to the residential or transport or industry sector• Less attention has been paid to the tertiary sector• Almost no attention has been paid to the agriculture sector

Impact and Efficiency Increase of Adopted Measures

Impact:•Major impact of the residential and transport sectors

•Minor impact of tertiary and industry sector

Efficiency Increase:•Short-term: highest efficiency increases in the residential and transport sector (<15%)

•Long-term: major efficiency increases in the residential sector (<60%), tertiary sector (<40%)

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Expected Savings Potential and Specific Costs

Measures category

Energy Savings Potential

Energy Efficiency Increase

Specific Savings

Specific Costs

Residential Sector +++ +++ ++ - -

Transport Sector +++ +++ +++ - - -

Industry Sector ++ + ++ -

Tertiary Sector + ++ +++ -

Highest Potentials:

• Buildings (notably existing) and Appliances• Transport Sector

Weaknesses of the ESD and the NEEAPs

• Heterogeneous designs, calculation methods and levels of information making comparisons difficult.

• Inconsistency of intermediate and overall targets as well as between the national targets.

• Mixture of old and new measures. • For some Member States there is a considerable gap between the political

commitment to energy efficiency and the measures adopted or planned, as reported in the NEEAPs, and the resources attributed.

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The role of ESCOs

• Definitions• Market outlook• Barriers• Policy mix and national strategy• Successful projects business models ideas

ESCOs – Definitions

Energy Service Company (ESCO): “a natural or legal person that delivers energy services and/or other energy efficiency improvement measures in a user's facility or premises, and accepts some degree of financial risk in so doing. The payment for the services delivered is based (either wholly or in part) on the achievement of energy efficiency improvements and on the meeting of the other agreed performance criteria.”

Energy Performance Contracting (EPC): “a contractual arrangement between the beneficiary and the provider (normally an ESCO) of an energy efficiency improvement measure, where investments in that measure are paid for in relation to a contractually agreed level of energy efficiency improvement”

(from the ESD)

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ESCOs – Quick EU market outlook

• The ESCO market started in the late 80s-early 90s • It is still an emerging market

− Germany is the leading country: ~500 ESCOs−Other MS with a relatively well developed market: Austria (pioneer country with Germany), France, Italy, UK, Sweden, and also The Czech Republic.−Denmark, the Netherlands and Lithuania: successful energy efficiency policy but no or few contributions by ESCOs.

•Customer segments: local administration, the industry sector and hospital are the most developed; public housing sector, the retail sector and residential sector are the least developed.

ESCOs – Barriers to development

1. Common barriers: low energy price, lack of support from policy makers, lack of awareness and information, mistrust and skepticism, lack of standard procedure (M&V) and documents (contract), pay back time (5-10 years), lack of appropriate form of financing.

2. Public sector barrier: inadequate procurement and tendering rules, split incentives, administrative complexity and transaction costs.

3. Industry sector barriers: organizational structure, level of energy intensity.

4. Commercial sector barriers: reluctance to enter a multiyear contract, large players often have the financial capacity to carry out the project themselves.

5. Residential sector barriers: financial costs, split incentive (renter-owner division), fear of commitment and disturbance, complex negotiation in multi-apartment buildings.

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ESCOs – Best practices: Successful policy mix and national strategy

GermanyStrong support of policy makers at all level, governmental, regional and municipal. Key success factors:

Overarching policies: German NEEAP, Integrated Energy and Climate Plan

Demonstration projects in public buildingsRise of the energy price (establishment of an energy tax)Project-support by energy agenciesDevelopment of standard documents and procedures.

ESCOs – Best practices: Successful policy mix and national strategy

SwedenDevelopment and implementation of a coherent and targeted national strategy

Creation of a Forum for Energy ServicesGround studies and market studiesGuidelines for procurement and model contractsPilot projectsTargeted and neutral information on EPC was provided to

potential clientsDissemination and capacity buildingSubsidies for energy efficiency investments in public buildingsEvaluation studies

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ESCOs – Best practices: successful projects and business models

Energy Saving Partnership (Berlin, Germany) : Established in 19924 shareholders: Federal State of Berlin, Vattenfall Europe,

GASAG and KfW Banking Group€ 2.5 million of capital stock for an annual turnover of € 6.0 millionEnergy Performance Contracting with Third-Party FinancingBundling of small projects to push down transaction costsMain results: 21 pools of buildings for a total of 1300 buildings,

€10.5 million of guaranteed saving, € 44.43 million of net investment, 63,844 t of CO2 emission reduction per year.

ESCOs – Best practices: successful projects and business models

Integrated Energy Contracting: – Innovative ESCO model that allows the combination of energy

efficiency improvement (EPC) and efficient supply of renewable energy (Energy Supply Contracting, ESC).

– Higher energy saving potential than EPC (15%-20%) or ESC (10%) alone.

Comprehensive refurbishment of buildings through an Energy Performance Contract (CR-EPC):

– Combining construction measures (e.g. thermal insulation of the building envelope) with standard EPC measures

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The role of electricity and gas companies

• Energy Efficiency Obligations and White Certificate• Key learning from existing experiences• Towards an EU Wide White Certificate Scheme

Energy Efficiency Obligations and White Certificate

Energy utilities have a critical role to play with energy savings: • From Megawatts to negawatts • Selling less energy and more energy servicesEnergy efficiency obligations (EEOs) • Are legal obligations set on energy utilities to realize energy

efficiency measures and achieve substantial energy savings. • The savings can be certified and traded (White Certificate).• EEOs are currently successfully operated in several MS (Notably:

Denmark, Flanders-Belgium, France, Italy, UK) and similar experience occurs in the USA.

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Key learning from existing experiences

EEOs are a successful market-based policy instrument to achieve energy savings:

– cost-effective– over compliance with the savings target,– many design modalities: supply/distribution; monopoly or fully

liberalised, one or more energy sector (gas and oil, electricityand district heating) and one or more end-use sector (residential, commercial, industrial, transport)

Key learning from existing experiences

National experiences provide valuable best practices for the European Union:

– Define clear targets ‘saving, obliged parties, beneficiaries– EEOs are best suited for sectors with low individual energy

demand (residential sector) – Set clear Measurement and Verification methodologies– Integrate a certification and trading dimension– Consider the technological innovation as well and behavioral

change

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Towards an EU Wide White Certificate Scheme: opportunities and threats

Opportunities– The tool is market-based– Successful results at national level

Threats lie in the political and technical hurdles created by a potential European harmonization, notably: – Multiplicity of experiences and different design of key parameters

for setting the obligations, assessing the savings and developing the certification and trading

– The need to harmonize M&V methodologies– The lack of mature cross-border energy markets– The differences between MS in terms of energy taxation and

energy efficiency policies

Towards an EU Wide White Certificate Scheme: perspective?

Obstacles related to the EU Harmonization.Differences at MS level (tax, incumbent systems)

If a scheme is created, the saving targets should remain at the level of the MS:

The EU would act on the harmonization and standardization of the certification and trading of the savings. The obliged parties could undertake savings measures across Europe and the certificates could be traded across Europe

Other alternatives: voluntary schemes, regional schemes, integration with EU ETS

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The role for of electricity and gas companies

Technical investments• Smart grid • Smart metering

Economic business model• Higher future energy prices• Investment pay back times

DSM• Aggregators business models• SME’s

Value of Energy Storage

Lessons from around the globe

• Summary• US• Japan• China• Energy Labels

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Summary• US, Japan, China have distinct regulatory systems• Success factors • Lessons from the ENERGY STAR (US) and the Top

Runner programme (JP)

Lessons from the US- Periodic analysis and revision- Financial incentives (e.g. ENERGY STAR & tax credits and rebates)- Integration of policy to market strategies→National Academy of Sciences & National Academy of Engineering, ‘most cost-effective energy efficiency measures’- Increased investments in cost-effective measures for EE would create jobs and reduce utility bills

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Lessons from Japan- Business interest in energy efficiency investment- Cooperation and consultation between the government and business- Clarity about allocation of responsibility

(e.g. appointment of an energy management officer)- Best practices: e.g. the Top Runner Programme (appliances, vehicles)- Incentives: e.g. Eco-points

Lessons from China- Phase-in legislative development- Political will (e.g. Five Year Plans)11th Five Year PlanEnergy intensity reduction by 20% in 2006-201010 key projectsSpecific targets for local governments and sectors

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Energy labels (1)US ENERGY STAR, Japan

Energy labels (2)Australia China Energy Label

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EU policy options

• Binding targets would seem to be preferred• Design Options for Binding Energy Savings Targets• Pro’s and Con’s of binding targets• Potential effects of binding targets on ESCO’s and EEO /

white certificates

Binding or not?

• The current level of implementation of measures will only achieve energy savings of about 13% by 2020.

• EU has sufficient potential to realise the overall 20% energy savings target in 2020.

Need to increase policy impact and policy incentives to retrieve this potentialEU Binding target as a feasible optionEU Binding target seen as desirable by many experts to achieve overall EU EE goals

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Design Options

Design Options for Binding Energy Savings Targets• EU-level Economy-wide Target• EU-level Sectorial Targets• Member-State-level Economy-wide Target• Member-State-level Sectorial Targets

Binding Member-State-level Economy-wide Target

Pro Con• Need to increase and accelerate

energy savings• Strong international message• Logical next step in climate

policy• Ensures political accountability

and provides flexibility

• Loss of control by the European Commission

• Member State committment partly lacking

• Danger of incoherence

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Potential impacts on ESCO’s and EEO / WC

Realising cost effective end-use savings through ESCO’s and EEO / WC could benefit from EU binding targets in different ways:•Widened market opportunities and larger scale of actions for ESCOS

=> Promotion of ESCOs•Widened market opportunities for trading White Certificates

=> Promotion of Energy Efficiency Obligations on Energy Utilities=> Improved liquidity for Efficiency projects

•Coherent interaction with EU-ETS and RES policies•Faster EU wide achievement of energy efficiency targets

Preliminary RecommendationsNEEAPS

• Define coherent measurement methodology of energy savings• Define coherent reporting format including

Policy• Increase policy effort in order to achieve 20% target• Introduce Binding Energy Savings Target• Strong focus on buildings (notably existing), appliances and transport• Promote ESCOs models• Promote Energy Efficiency Obligations and White Certificate schemes

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Thank you for your attention

Matthias AltmannSenior ConsultantLudwigBölkowSystemtechnik GmbHDaimlerstr. 1585521 Munich/OttobrunnGermanyp: +49/89/60811038f: +49/89/6099731E-mail: [email protected]: www.lbst.de

Anthony BrenninkmeijerPartnerHinicio SprlRue des Palais, 44 - Bte 71B-1030 BrusselsBelgiumMobile: +32 477 559711Tel: +32 2 211 34 14E-mail: [email protected]: www.hinicio.com

Noriko Fujiwara Centre for European Policy studies CEPSCongresplein 11000 Brussel, BelgiumMobile: +32 485 318948Tel: +32 2 229 39 11 E-mail: [email protected]: www.ceps.eu

Back-up Slides

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Best practices in the public sectors

Best practices in the public sector which can be observed in different Member States cover one or several of the following aspects:

• Setting quantitative targets for energy use within the public sector

• Development of enhanced public procurement strategies and obligations

• Mandatory implementation of energy saving projects

• Development of ambitious standards for the public buildings sector

• Use of financial instruments for energy efficiency improvements in the public sector

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ExperiencesWhat can deliver?

Peter BachSenior adviser Danish Energy Agency

President eceee

ITRE Workshop 16 September 2010

Framework for measures

The market will not by itself deliver enough• Policies and measures are needed

Measures shall have:• Substantial effect – actual reduction of

consumption• Have focus on the long-term challenges

• Not only the cheapest short-term solutions• Deep renovations instead of cream-skimming

• Be cost-effective over the life cycle

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Combinations of measures is needed• Economic incentives

• Taxes on energy and CO2, subsidies, cheap loans, etc.

• Normative –regulation• Standards, norms, etc. International and national• Especially products and buildings• Secure compliance

• Information• Campaigns, awareness, market transformation, etc.• Make implementation easy and secure

• Develop new solutions• Research, development and demonstration, • Innovation, learning curves, and scaling up, etc.

Combinations of target groups and actors• Target groups

• Consumers: Information, Help to implement,especially existing buildings and private enterprises

• Producers : Set standards and long-term goals• Installers, developers, etc.: Training, education, etc.

• Actors• EU, national governments, regional and local authorities• Energy utilities• Producers and installers• NGOs, etc.

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Example: Heating of households • 30 pct. reduction from

1979 to 1984:• Higher oil prices• Subsidies• Information, awareness

• Also decrease since 1984• High taxes from

1985/86• Strong regulation,

especially for new buildings

• Still a big potential

0

0,2

0,4

0,6

0,8

1

1,2

0,0

50,0

100,0

150,0

200,0

250,0

1975 1979 1983 1987 1991 1995 1999 2003 2007

GJ/

m2

PJ

Heating of households

Final Energy

Final energy per m2

Example: Energy efficiency industry• High oil prices from

1979 had effect• Change in 1993:

• CO2-packets• Tax on CO2• Subsidy scheme• Voluntary agreements

• First involvement of energy utilities

• DSM, energy audits, etc.

• Still a lot of cheap savings

• Constant energy consumption• 55 % increase in production • Decrease in intensity: • 1975-2008: 1,2 % p.a.• 1994-2008: 1,9 % p.a.

0,00

0,20

0,40

0,60

0,80

1,00

1,20

0

20

40

60

80

100

120

140

1975 1978 1981 1984 1987 1990 1993 1996 1999 2002 2005 2008

PJ/m

ia. k

r.

PJ

Final energy, PJ

Intensity, PJ/bill. DKK.

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Example:More efficient appliances

• What has delivered?• Energy labelling with

control and testing• Information• Campaigns/market

transformation• Training of sellers• Standards and

norms – very important in the future

Specifc consumption

0

100

200

300

400

500

600

700

800

TV Sets Refrigerators Freezers Dishwashers Washing Machines Dryers

KW

h/ye

ar

1980199020002008

Energy saving targets

• Targets – why?• To reduce consumption – to increase activities• Clear obligations for countries, utilities, etc.• Guidelines for actors at all level

• Design of targets• Primary energy or final energy? Both?• For the whole economy ore for each sector?• Easy to understand and to measure/follow

• Comparing to a baseline/BAU-development are complicated

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EU target• A binding target shall be set for each

member state• A target for the absolute consumption

seems to be the best solution• Binding targets are not realistic at a sector

level• But clear guidelines and roadmaps for

renovation of existing buildings can be a possibility

• What is the relation between targets and common policies and measures?

Involvement of energy utilities

• First DSM activities started in 1993• Mandatory since 2000

• Information and campaigns• Energy consulting and energy audits

• Energy saving obligations from 2006• Distribution companies: Electricity, natural

gas, district heating and oil• Target for annual savings• All sectors except transport

• From 2010 the target has been increased with more then 100 %

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Why should utilities be involved?

• Establishing of a stable system with secured financing• They collect the money by the tariffs – it is not

a part of the state budget

• Help to actual implementation is needed• Especially existing buildings and private

enterprises

• They have an organisation and a presence in the whole country• But they have to build up new expertise

The actual experiences

• The utilities have fulfilled their targets• They do savings in all sectors

• A lot of cheap savings still in big industries

• The system more market based• They buy savings/give subsidies• Increased involvement of external actors

• Problems?• Additionallity?• Only cheapest solution? Not long-term perspective • Avoid short-term, quick-and-dirty solutions

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Conclusion• Energy efficiency first!• New policies and measures are needed

• Combinations are necessary• Binding target for member states can be a part

of a comprehensive strategy

• Involvement of energy utilities is a way to secure money to important activities• Clear rules for measurement are needed

• Thanks • [email protected]

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Building energy efficiency in Europe: Issues and Opportunities Dr Paul Waide, Director of European Energy Practice, Navigant Consulting

Why buildings need to be at the heart of EU energy policy As is true of other economies the EU faces the twin challenges of improving energy security while drastically reducing greenhouse gas emissions yet managing both in an economically efficient manner. Attainment of these goals is necessary to ensure a secure environment and sound economy and much policy making effort is being directed towards them. However, the traditional approach, wherein supply-side options are considered a priori and demand-side ones as an afterthought, is in need of revision because the most attractive, stable and affordable solutions reside in enhanced energy efficiency, especially of the building stock.

The EU building stock is the largest single energy consumption sector and the greatest cause of greenhouse gas emissions in the EU economy. Some 40% of Europe’s final energy consumption occurs in buildings and almost the same proportion of energy-sector CO2 emissions are attributed to them. The vast majority of these are from energy consumption during the use of buildings and are not due to energy and other emissions associated with the construction phase. Furthermore, the principal energy security concerns the Union faces are in the gas and electricity sectors. It is a little known fact that building-related energy services account for 57% of all EU electricity consumption and that this share is set to increase as structural changes in the economy continue. Furthermore, some 40% of all gas consumed in the EU is consumed directly in buildings and another 12% is used to generate power that is consumed in buildings, thus buildings are comfortably the largest end-user of both electricity and gas in Europe. Yet most buildings are chronically wasteful of both and there remains a huge technical potential to improve their energy performance and thereby substantially lower Europe’s gas and electricity demand. To do so would greatly facilitate attainment of the Union’s 20/20/20 targets for renewable energy, greenhouse gas emissions and energy efficiency in the process while over the longer term it is practically impossible for the EU to meet its goals to reduce CO2 emissions by over 80% in 20501 without making massive improvements in the energy efficiency of the building stock. Furthermore, the building sector is one of Europe’s largest industries and greatest employers. In 2009 it had a turnover of €1.2 trillion and accounted for 7.1% of all employment2. Stimulating demand for greater energy efficiency stimulates economic activity and employment in the sector and ensures that capital that would otherwise be exported to pay for energy imports is recycled in the domestic economy to the direct advantage of its citizens.

1http://ec.europa.eu/energy/strategies/consultations/doc/2010_07_02/2010_07_02_energy_strategy.pdf 2 http://www.ace‐cae.eu/public/contents/getdocument/content_id/868

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http://www.ace-cae.eu/public/contents/getdocument/content_id/868

This paper sets out the issues involved, the size of the opportunity and the measures that will be needed to realise an optimised approach. It illustrates that while recent policy measures such as the recast Energy Performance in Buildings Directive3 are moving in the right direction they will need to be complemented by some major additional measures if the optimal savings outcome is to be attained. A number of new policy measures need to be developed and incorporated into the Union’s revised Energy Efficiency Action Plan (EEAP) and additional resources leveraged to bring the necessary transition about. If this is implemented successfully; however, it promises to reduce emissions at least cost, substantially improve energy security, stimulate employment and generate green jobs while also including the quality of life, especially for some of the most disadvantaged people in society. The energy efficiency of the building stock is a bellwether for the health of tomorrow’s economy and the challenge for Europe is to take and enhance its leadership in this domain to the benefit of its citizens and the international community at large.

What is the potential? Although buildings currently account for 40% of Europe’s energy use it is technically possible to reduce their consumption by about 80% through a mixture of ultra efficient new build and deep energy efficient retrofit of the existing building stock. A significant number of very low and zero net energy buildings (ZNEB) serving diverse functions have been built across Europe in a variety of locations and environments. These have helped to demonstrate the technical viability of such designs although more work is still needed to demonstrate viable ZNEB across all practical building needs and issues remain to be resolved regarding the most appropriate boundaries and performance limits to be applied in each specific circumstance. In the case of existing buildings numerous energy efficiency renovations have been carried out across the EU and which demonstrate the feasibility of deep energy savings, often of over 80% compared with the baseline, from the application of state of the art techniques. Across Europe as a whole a variety of studies have projected that mean retrofit energy savings potentials in excess of 50% of the baseline are achievable and while some uncertainties remain regarding the extent of additional savings that it may be feasible to achieve it is clear that there is a huge opportunity to increase the energy efficiency of existing buildings.

Making such deep renovations is essential if the EU’s broader policy goals to 2050 are to be achieved. Like power plants and transportation systems buildings have a long life and are an enduring part of the energy-related capital stock. New buildings are only added at a rate of about 1% of the total stock each year and thus it will not be possible to meet the EU’s 2050 CO2 targets unless the existing building stock has been renovated to very high efficiency levels. Initial results from a pending study by the Central European University illustrates the importance of both the rate of building energy performance renovation and the depth of energy savings per renovation on the energy consumption of the final stock. If only 1.4% of the building stock is renovated each year and the efficiency improvements from each renovation are modest the building stock would use 86% of the 2010 energy use by 2050.

If the renovation rate is increased to 3% the consumption in 2050 would be 62% of 2010 levels but would be rising again. However, if the renovation rate is increased to 3% per annum and current best practice renovation is applied the building stock would consume just 28% of the 2010 level. Were such a rate and depth of renovation to be coupled with a modest decarbonisation of the energy supply the overall emissions associated with the building sector would be reduced by over 80%.

3 DIRECTIVE 2010/31/EU OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL of 19 May 2010 on the energy performance of buildings

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Thus the policy message is clear: the rate and depth of energy performance renovations of existing buildings is the largest single factor which will determine whether the EU reaches, or misses, its 2050 climate targets.

Figure 1. Projections of building stock energy use under different renovation rates and depth scenarios

How much renovation is needed? Given this it’s appropriate to ask what is the scale of the challenge in terms of the total building floor area and the total number of buildings in need of renovation? There are roughly 210 million buildings in the EU providing about 53 billion square metres of useable indoor space. About a third of these are individual private residences, 14% are private apartments, 12% social housing, 30% commercial buildings, 8% public buildings and 2% industrial and other buildings. Roughly half were constructed before the first energy crisis in 1973 and generally have very low levels of insulation and energy performance.

Those constructed since then are more likely to have energy savings features but in the majority of economies new building thermal performance requirements did not reach advanced levels until much more recently and in many cases they still have not attained ambitious levels, so it is safe to conclude that while the pre-1973 stock has the greatest energy savings opportunities, the post 1973 stock also has a very substantial energy savings potential from retrofit.

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If new-build is added at the current rate of 2.1 million buildings per year and retirements continue at a rate of 0.1% per year, 70% of the building stock in 2050 will be made up of buildings which exist today while only 30% will have been built after 2010 and thus subject to stringent energy performance requirements. Furthermore, some 200 million of today’s existing building stock of 210 million will still be in use and consuming energy, thus even if all new build is zero-net energy the existing building stock has to be radically decarbonised if the 2050 target is to be met. Today some 1.4% of buildings are renovated each year in the EU (just under 3 million per year) but reaching the 2050 target requires a renovation rate of at least 3% i.e. of about 6.3 million buildings per year from 2010 rising to 8.5 million per year by 2050.

In practice, a progressive ramp up of renovation rates needs to occur from the existing levels while the energy savings per renovation (the depth of saving) needs to substantially increase. This doubling and deepening of renovation rates implies a much bigger construction sector in the EU, with the associated increase in employment, skills and investment that go along with this. Any serious pathway to a low-carbon energy-secure and high quality EU building stock will therefore need to operate on a major scale if such a transformation is to be realised. However, the associated benefits are also impressive. Reductions in energy bills of up to 270 billion Euros/year have been estimated from such a transition while it is projected that up to 0.5 million green-collar jobs would be created.

Can we afford it? For new buildings highly energy efficient construction is extremely cost-effective over the life cycle of the building, even when the future value of energy savings is appreciably discounted (Figure 2) such that the optimum level can often occur for buildings that are so energy efficient that they don’t even require space heating or cooling (in which case the cost of such systems can be recuperated, Figure 2). Such buildings are typically four to five times more energy efficient than typical construction.

Viewed from a societal perspective building energy efficiency measures constitute some of the best investments that can be made. Depending on the measures considered the rate of return on the investment can be up to 300% and are often above 50%; however, while this is a compelling reason to stimulate investment in these options it rarely happens of its own accord in part because the rates of return for individual investors may be much less attractive. Also the rate of return from incremental improvements in energy efficiency becomes progressively less as the increased efficiency options are used up, such that it is much less economically attractive to make multiple incremental retrofits of the same building than it is to do a single deep renovation which captures the entire set of cost-effective options.

Overall, however, investment in energy efficiency in buildings is a much cheaper option to deliver energy services than investment in new energy supply and if such investments are compared to the clean energy supply-side options of renewable energies, nuclear and clean-coal they are much more viable again. The problem is to better link energy supply and demand markets such that the disparity in investment costs per unit energy service delivered is moved much closer to parity than is currently the case.

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Figure 2. Projections of building stock energy use under different renovation rates and depth scenarios

(Source: Jens Laustsen, IEA)

Barriers to energy efficient buildings are common The reason for this disparity is that there are numerous market failures and imperfections which prevent the full deployment of cost-effective energy efficiency solutions. Most notably there are a variety of split incentives known as principal agent barriers that inhibit investment in energy saving measures which are cost effective from the societal perspective, but may not be for each necessary actor in the decision-making process. The best known of these split-incentives is the landlord tenant barrier, wherein the landlord owns a property and pays for renovation investments but the tenant pays the energy bills. In this case the landlord has no direct incentive to invest in energy saving measures as they are unlikely to be recouped from increased rents. Another split incentive arises because many enterprises separate the management of infrastructure investments from the management of operation and maintenance budgets; this means that infrastructure investment account managers often have an incentive to procure the least cost infrastructure rather than the infrastructure with the lowest operation and maintenance cost.

The most significant barrier; however, is the least well known. Buildings are enduring assets and are likely to pass from one owner to another many times throughout their existence. Each owner, even if they also pay the energy bills, only has a limited incentive to invest in energy savings within the building because most of the downstream economies are likely to be realised by future owners of the asset. As property markets seldom place significant value on energy performance it is usually not possible to recoup the cost of energy performance renovations at resale. Furthermore, most owner-occupiers do not have any certainty about the length of time that they will own their property and thus tend to heavily discount the value of future savings from reduced energy bills. As a result energy efficiency refurbishments of buildings are only poorly amortised into near term investment decisions.

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Nor are these temporal and split incentives the only barriers to enhanced investment in building energy efficiency. Others include:

• Missing or partial information on energy efficiency – it is not visible to end users (building energy codes and energy performance certificates and labels help alleviate this)

• Fragmented supply chains and low awareness among service procurers of savings potentials from the use of more efficient buildings and equipment

• That energy budgets have low priority: EE is bundled-in with more important capital decision factors

• Lack of understanding in banks, mortgage lenders and other financial institutions of the risk-reward profiles associated with building energy performance investments leading to an excessive cost of capital

• Lack of broadly based skills in the construction and building energy services sector to deliver high quality low energy solutions

• Some EU economies require very high levels of consensus (up to 100%) among co-owned multi-tenanted buildings before permission to undertake renovations is approved

So building energy efficiency renovations and ZNEB are currently much more attractive at the societal level than they are at the individual level and a variety of barriers inhibit investment in the energy efficiency of the building stock. Until these problems are addressed the rate of energy efficiency refurbishments will remain low.

What is Europe doing to tackle these barriers? These barriers are highly impervious to the energy and carbon price signal and thus while increasing energy costs through measures that place a value on CO2 will tend to reduce energy demand in buildings, it will be far less effective than were it to be complemented by a portfolio of targeted policy measures that address the individual barriers too. Overcoming these barriers requires the adoption of robust, multi-faceted policy frameworks that create strong incentives to ensure new buildings are constructed to be highly energy-efficient and that encourage the low energy retrofit of existing buildings.

Europe has been at the forefront of efforts to develop and adopt such policies. In 2002 the European Union adopted the Energy Performance in Buildings Directive (EPBD)4 that required Member States to adopt building energy performance codes for new build and for major retrofits in buildings of over 2000 m2 of floor area. In 2010 this Directive was revised such that it will be mandatory for all major retrofits, regardless of building size, to comply with building energy performance requirements. The recast EPBD specifies that:

• All new buildings shall be “nearly zero energy buildings” (NZEB) by 2021 (and by 2019 for public sector buildings)

• Member States (MS) are to set intermediate targets to improve the energy performance of new buildings to achieve NZEB by 2021

• The Commission is to establish a cost-optimal methodology by July 2011 that will be used to assess the ambition of each specific member states’ NZEB energy performance requirements to ensure they are sufficiently ambitious to attain the cost optimised efficiency levels.

4 Directive 2002/91/EC of the European Parliament and of the Council of 16 December 2002 on the energy performance of buildings

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The Directive also specifies that:

• the MS are to inform the Commission of the progress they are making with the training and accreditation of certifiers and inspectors and that they should establish registers of such professionals.

• Compliance control systems & penalties for non-compliance are to be communicated to the Commission by 2013

In the case of existing buildings the recast EPBD specifies that MS must adopt:

• Minimum energy performance requirements for all¹ existing buildings, building units and building elements that are subject to major renovation

• Minimum requirements for building elements (e.g. wall, roof, floor, foundation) when retrofitted or replaced

It further requires that the minimum energy performance requirements are set for building elements with a view to achieving a cost-optimal energy performance levels and it strengthens the requirements in the original EPBD concerning the quality and promotion of Energy Performance Certificates (EPC), control systems for EPC and boiler inspections while requiring penalties to be imposed for non-compliance.

What more is needed to achieve the broader policy objectives? Laudable and internationally leading as the requirements set out in the original and recast EPBD are they are still insufficient to bring about a significant part of the wholesale transformation of Europe’s building stock that is required. The principal reason is because they do not contain elements to accelerate the rate and depth of renovation. The move toward ZNEB is welcome and will help to transform the new build market; however, it will only have a tangential effect on the quality of the existing building stock which will almost all still be standing in 2050 and which will account for 70% of the total building stock in that year. To access the potential energy savings in the existing building stock a raft of robust and fully-resourced policy measures is required which are specifically designed to stimulate an increased rate of building energy performance retrofit and to ensure that such renovations are to a sufficiently high standard that potential future energy savings are not left behind as stranded assets.

In modern liberal democracies it is not politically feasible to impose Haussmannesque planning and rebuild practices to bring about wholesale renovation so instead it is necessary to create sufficiently strong incentives that property owners will voluntarily permit their buildings to be renovated to a high level of energy efficiency. Such renovations are time consuming, intrusive and costly so the incentives would need to be set at sufficiently attractive levels for the uptake to be high and sustained. As these renovations will be costly, especially when conducted for a large proportion of the building stock, it will be necessary to create financing vehicles that provide upfront finance through the reward of downstream savings in energy costs. The pay as you save principle needs to be incorporated into financing and contractual vehicles which are able to cope with changes of ownership and yet be beneficial for all affected parties: the financiers, the property owners, the mortgage providers and the contractors who would do the energy efficiency renovations. In addition, the property renovation vehicles have to be set up in such a way that they are fully incentivised to achieve the energy savings associated with deep renovations rather than short-term cherry picking measures which are initially cost-effective but over the long-term much more costly.

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Were such investment vehicles to be created they would succeed in putting demand-side energy efficiency investments on a comparable basis with supply-side energy sector investments wherein the investment capital is substantial and much more patient than the aggregate of small investments typically seen in the building sector. But what might these investment vehicles look like and how can they act as aggregators that span a mass of individuals buying and selling properties for which the full value of future energy savings has not yet been realised? This is the principal policy challenge that Europe needs to address if the major building sector energy savings are to be achieved.

This paper does not attempt to provide the answers to this question as it is worthy of a proper investigation to reach viable community-wide solutions; however, it does comment on some relevant experience in related policy measures.

Several EU countries now operate mandatory utility energy efficiency schemes (obligations) where utilities are required to deliver measures that will save a certain proportion of energy consumption among their customer base within a given period. These energy efficiency obligation schemes are currently in place in the UK, Italy, Denmark, France and Flanders and several other countries are considering their introduction. In some cases (Italy and France) the obligated parties can trade their obligations via a formal white certificate market wherein eligible and certified energy savings can be sold into a white certificate market to be bought and traded by obligated parties. These schemes have only been in place for a few years in most cases but the signs are already apparent that they have comfortably met their targets and the costs of energy savings have been much cheaper than the cost of supply (by a factor of 8 in the case of the UK for example). Many of the savings measures have been building energy efficiency renovations and there is clear evidence that the introduction of such schemes has triggered increased demand in such services. Nor do the obligated parties (the energy utilities) lose out. All utilities in a given market have to make savings in proportion to their energy sales and they recover the costs through the tariff; therefore, utility energy efficiency obligation schemes (with or without the certificate trading aspect) present one viable means of linking energy supply and demand markets through the same market actors. Despite this much is yet to be optimised with such schemes. The energy savings produced, while important, are still much lower than full societal cost-optimised levels would imply and are nowhere near ambitious enough to affect the wholesale transformation of the building stock that is needed. Furthermore, the structure and management of these schemes has not yet incentivised the obligated parties to deliver deep energy savings for each renovation in line with what is needed to meet 2050 targets; rather, they have naturally tended to focus on the low cost and shallow retrofit options, which means the same properties will need retrofitting again in the future.

• Some banks and economies have begun to develop energy efficiency mortgages that offer favourable lending rates for properties undergoing energy efficient renovations.

• Many economies are offering favourable tax credits and soft loans for energy efficient renovations.

Overall a full scale review of renovation project financing options is required to provide clear guidance to EU policy makers of the most effective solutions for renovation of the building stock. The terms of reference of such a review need to be cast wide to ensure instruments such as utility energy efficiency obligation schemes are included among them, because it is clear that the only way the scale of investment that is required can be generated is if there is much greater integration of the energy supply and demand markets.

The creation of large scale viable renovation finance vehicles is not the only challenge however. The building sector is very fragmented and suffers from very low levels of investment in R&D.

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Much more needs to be done to stimulate demand for higher efficiency solutions and to provide supporting public R&D in the more blue sky end of the domain to accelerate the rate at which new technology options for the building sector are developed to near commercial levels at which point private sector R&D funding is better placed to support it. Just as there is commonality in the EU’s vision of public assistance through favourable tariffs or obligations to support the development and deployment of renewable energy technologies (e.g. via feed-in tariffs) there needs to be a similar vision regarding public support of the development and deployment of energy saving demand side technologies. All energy technologies, whether on the supply or demand side, are subject to a learning curve and need to achieve economies of scale before becoming viable. The future demand-side technologies need the same kind of public support to accelerate the rate at which they come down the learning curve and achieve mass deployment.

There are also huge capacity building needs in the construction sector to democratise the know-how to produce highly efficient and ZNEB and to conduct effective and viable building energy performance retrofits. While some parts of the industry have the necessary skills already they are far from universally developed and much more needs to be done at the programmatic level to bring each country’s industry up to the required standard.

Lastly, administrative capacity within the EU and at Member State level is woefully short of the required levels to develop, effectively administer and ensure compliance with such policies and programmes. Addressing this is not a simple matter of persuading front line ministries to commit a greater share of their resources to such programmes. It is more a question of educating finance ministries of the need to properly resource such efforts and of the huge macro-economic benefits in terms of net energy costs, employment, workforce efficiency, social inclusion and environmental benefits from doing so.

Conclusions: no time to waste The challenge then is clear. The EU needs to complement its existing policy framework with a dedicated large scale implementation vehicle that will ensure that each Member State creates a viable building energy performance renovation financing mechanism that is sufficiently attractive to increase building energy performance renovation levels to at least 3% of the total stock per annum. As this implies a corresponding substantial increase in the quantity of building work conducted each year it has major implications for many sectors of the economy and will require broad-based support across government to be realised. In addition to this there is a need to properly resource administration, implementation and compliance related activities to support the effective implementation of the recast EPBD and to manage the larger scale renovation programmes. Challenging and daunting as this task may appear the reward for getting it right is tremendous and the risk of failure is the derailment of the EU’s principal climate and energy policy objectives. As the wholesale energy performance refurbishment of the EU energy stock will greatly improve energy security, increase employment, lower the overall cost of building energy services, give the EU a competitive edge in the global economy and skills market place, support broader industrial objectives, raise the quality of life for the EU’s energy poor, improve the built environment and go a long way to achieving the EU’s CO2 emissions targets the multiple benefits derived far outweigh the costs which would be incurred.

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Energy Efficiency Policiesin Japan

Hajime WakudaDeputy Executive DirectorJapan Machinery Centre

Brussels Office 16 September 2010

1

1.Overview of Japan’s energy efficiency policies

2. Points to be considered

3. Examples of measures(1) Industrial sector (manufacturing phase)(2) Residential sector (use phase)

4. Future steps/ Conclusion

Outline of today’s presentation

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200

400

600

0

100

200

300

400

90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07

1. Overview of Japan’s energy efficiency policies

GDP（trillion yen） Regulation IncentiveVoluntary

actionCross Sectoral

approach

○Energy management obligation by Energy Conservation Law

(Carrier, Consignor)○Top Runner Program

○Enhancement of energy efficiency of residences by Energy Conservation Law

→Strengthen regulation○ Top Runner Program

○Energy management obligation by Energy Conservation LawType 1 designated energy management factories (annual energy use:3,000kl)

- Appointment energy managers - Submission of mid- and long-term plans - Submission of periodical report on energy

use Type 2 designated energy management

factories (annual energy use:1,500kl) - Appointment energy management officers - Submission of periodical report on energy

use →Introduce energy management by an unit of a company

○Promotion of high fuel economy vehicles(Idling-stop vehicles, clean energy vehicles)

○ITS, Modal shift○Tax incentive / Low-interest loan○Promotion of eco-driving

○Promotion of Nippon Keidanren’s Voluntary Action Plan

○Subsidies for promoting energy efficient facilities (high-efficient building)

○Promoting ESCO(Energy Service Company)

○Tax incentive / Low-interest loan

○Subsidies for promoting energy efficient facilities/Joint energy conservation project by multiple companies

・high-performance industrial furnace etc. ・Energy conservation diagnosis service ○ Tax incentive / Low-interest loan

○Providing information and promotion of national movement

○Promotion of energy efficiency technological development

○Promoting international cooperation

Commercial Sector

Residential Sector

○Energy management obligation by Energy Conservation Law

→Introduce energy management by an unit of a company

○ Enhancement of energy efficiency of buildings by Energy Conservation Law

→Strengthen regulation○Top Runner Program○The Green Procurement Law(Public sector)

○Subsidies for promoting energy efficient equipments in residences and buildings (high-efficient water heater etc.)

○Tax incentive for energy efficient reform of residence

○Energy-saving labeling, Forum for Promoting energy efficient home electric appliances, etc.



Transportation Sector

1990-20071.1times1.1times

Residential and commercial

Sector1990-20071.3times1.3times

Industrial Sector

1990-20071.0times1.0times

GDP1990-20071.2times1.2times

Energy consumption（million kl）

（fiscal year） 2

Fiscal Year(Source) Total Energy Statistics, Annual Report on National Economy.(Note) It must be noted that the values after 1990 were calculated differently from those of the years before that, because the calculation method for totaling the total energy statistics was changed in that year.

1973-20072.2.00 timestimes

1973-20072.5 2.5 timestimes

1973-20071.0 1.0 timetime

GDP

Industrial sector

Commercial/residential sector

Transportation sector

65.5%

18.1%

16.4%

45.6%

31.2%

23.2%

2. Points to be considered: Which sector should be improved2. Points to be considered: Which sector should be improved

Million Kl in crude oil equivalent

Trillion yen

○ Japan’s final energy consumption has increased almost continuously, except immediately after the two oil crises and during the recent economic recession.

○ The GDP grew 2.4 times from 1973 to 2007. Energy consumption increased by 2.5 times in the commercial sector and, 2.0 times in the transportation sector, while it was almost flat in the industrial sector.

GDP1973-20072.2.44 timestimes

3

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4

IT 4%

2. Points to be considered : main appliances consuming much energy

Distribution of Consumption of electricity in Home Sector

Air Conditioner

25%

Refrigerator.

16%

Lights

16%

TVs

10%

Others

33%

Approximately 50%

Approximately 10 %[%]

Coverage of energy use by the Regulation

Approximately 90%Industrial Sector

Commercial Sector

5

ΟEnergy Efficiency Law is the pillar of Japanese energy conservation policies.

ΟThe law was enacted in 1979 in the light of the oil shock.

3. Examples of policies: Japan’s Energy Efficiency Law

(i) Target is to improve annually energy intensity 1% or more onaverage . ΟThis comprehensive law

covers all sectors as follows

(1)Energy management in manufacturing, commercial and transportation sectors

(2)Energy efficiency standards for vehicles and appliances (”Top Runner Program”)

(3)Energy efficiency standards for houses and buildings

(ii) Current coverage: 7,000 companies ( 9,000 factories and 5,000 workplaces )

Industrial sector: approx. 90%

Commercial sector: approx. 50%

(increased from 10% by the latest revision of the law)

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6

* Failure to abide by administrative orders result in fines of no more than JPY1 million.

Manufacturing plants and

business locations

Instruction relating to planning for

rationalization

Public disclosure and orders

Evaluation for observation of evaluation criteria and transition of energy consumption units

In cases where rationalization of energy use is significantly inadequate

Refusal to follow instructions

Ministry of E

conomy,

Trade and Industry

Guidance

Onsite inspections

Submission of periodical reports

Implementation of onsite investigations at manufacturing plants

3. Examples of policies: reporting (industry sector)

Procedure for reporting

Top Runner Program:Top Runner Program:

The concept of the program is that fuel economy standards for veThe concept of the program is that fuel economy standards for vehicles and energy conservation hicles and energy conservation standards for electric appliances, etc. shall be set exactly thestandards for electric appliances, etc. shall be set exactly the same as or higher than the best same as or higher than the best standard value of each product item currently available in the mstandard value of each product item currently available in the market. arket.

Target products （23 products）Fuel Efficiency(km/L)

Energy conservation standards according to Top Runner method

At the time of standard setting Target Fiscal Year

19km/L

18km/L

17km/L

15km/L15km/L

14km/L

13km/L

12km/L

16

Achievement is judged by weighted average per product category

Example of Top Runner Program

3. Examples of policies: Top Runner Program3. Examples of policies: Top Runner Program

1. Passenger vehicles

2. Freight vehicles

3. Air-conditioners

4．TV sets

5. Video-cassette recorders

6. Fluorescent lights

7. Copiers

8. Computers

9. Magnetic disc units

10. Electric refrigerators

11. Electric freezers

12. Space heaters

13. Gas cooking appliances

14. Gas water heaters

15. Oil water heaters

16. Electric toilet seats

17. Vending machines

18. Transformers

19. Electric rice cookers

20. Microwaves

21. DVD recorders

22. Residential router

23.Layer 2 switch

7

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* The energy conservation criteria for the products marked * are fixed by the energy consumption efficiency per unit (for example: km/l), while the energy conservation criteria for those not marked * are fixed by the amount of the energy consumption (for example: kWh/year). The “improvement of energy consumption efficiency” said in the above table indicates the improvement factor based on each criteria (for example: if 10km/l becomes 15km/l, it is regarded as 50% improvement (not that fuel consumption was improved by 33%, i.e. from 10 liter to 6.7 liter consumed to drive 100km), and if 10kWh/year becomes 5kWh/year, it is regarded as 50% improvement).

Energy Efficiency Improvement by the Top Runner ProgramEnergy Efficiency Improvement by the Top Runner Program

Equipment

Electric refrigerators

Diesel trucks *

Gasoline passenger vehicles *

Electric freezers

Video-cassette recorders

TV sets (CRT televisions)

Magnetic disc units

Fluorescent lights *

Computers

Vending machines

Air-conditioners * (Room air-conditioners)

Improvement of energy efficiency (Achievement)

25.7 % (FY1997→FY2003)

73.6 % ( FY1997→FY2003)

67.8 % ( FY1997→FY2004)

55.2 % ( FY1998→FY2004)

29.6 % ( FY1998→FY2004)

35.6 % ( FY1997→FY2005)

22.5 % ( FY1995→FY2005)

21.7 % ( FY1995→FY2005)

37.3 % ( FY2000→FY2005)

99.1 % ( FY1997→FY2005)

98.2 % ( FY1997→FY2005)

8

9

○ The energy saving labeling program has been introduced to inform consumers of energy efficiency ofhome appliances and to promote energy-efficient products.

○ The Revised Law Concerning the Rational Use of Energy enforced in April 2006 stipulates that retailers shall make efforts to provide information. In light of this, a guideline was formulated, including providing information by using uniform energy-saving labels.

○ The system started in October 2006.

Uniform Energy Saving LabelUniform Energy Saving Label

3. Examples of policies: Energy Saving label3. Examples of policies: Energy Saving label

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3. Examples of policies: Eco Point

Consumer

Home appliance store・Air conditioner

・Refrigerator・TV

（Energy efficient product）

Electronics Maker

Delivery of the product

CO2 Reduction

Eco Point

Office

1. Purchase of the Product

Government

Request for financial support

Provide financial support

FrameworkFramework

- Consumers can receive about 5% of the purchase price of “Green electronics”(energy efficient A/C, Refrigerator, TV) as the Eco Point

- Extra 5% is added in case of TV（for the promotion of the digital broadcast)- Recycling charge is also added to the eco point - Consumers can use eco point when they buy eco-friendly products or service

Concept of the Eco PointConcept of the Eco Point

2.Register of the eco point

Order eco-friendly products or service

3. Delivery of eco friendly products

10

The sales of green electronics by Eco point

11

- Quantity amount- Monetary amounts(compared to same period of last year)

Beginning of eco-point

The sales of green electronics were boosted about 130%(quantity amounts), 120%(monetary amounts) compared to same period of last year.

Month

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The portion of green electronics by Eco point

12

TVRefrigeratorAir conditioner

The portion of green electronicshave increased.

Month

Example:

Company A

More Energy Efficient Air Conditioner

Sells more

Company A emits more CO2 than company B

Company B

Less Energy Efficient Air Conditioner

A’s contribution > B’s contribution

4. Future steps: How to assess the contributions of Green appliance

13

Sells less

Wholesociety

Company A contributes

more to CO2 reduction

CompanyLevel

○ We need a mechanism that provides accurate assessments of private sector efforts to proactively market energy-efficient products and services.

○ We need a mechanism that provides accurate assessments of private sector efforts to proactively market energy-efficient products and services.

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14

(1)Effective policy target- Which sector should be targeted? How?

(2) Best policy mix- Combination of regulations, incentives and

voluntary actions

(3) Tackling to demand side issue- Measurement of contribution

4. Conclusion

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Selected Developments in Energy Efficiency from California, Florida, and Lance Armstrong

Alan Meier

In the News

• Huge national investments in energy conservation

• Upgrading and expansion of MEPS

• New technologies, such as heat pump water heater (50% reduction in kWh)

• Fuel economy standards for motor vehicles

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California

• Consensus that energy efficiency has highest priority– Invest in all cost‐effective conservation before building new capacity (“First in the loading order”)

• The utilities play a large role in efficiency plan

– Regulatory agency “de‐coupled” profits from kWh sales (a kWh saved = a kWh sold)

– Evaluation and monitoring energy savings is key element of de‐coupling

• Energy Efficiency Action Plan (Sept 2010) outlines roles of utilities and state agencies

Not Quite in the News

1. “Progressive” efficiency standards

2. Smart meters

3. Changing attitudes towards disclosure of energy use

4. Including user‐friendliness in future MEPS

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High‐Efficiency Products Still Have High Consumption

• The problem: large energy‐using products are technically efficient yet use more energy than smaller units– 600 liter refrigerators

– 400 m2 homes

– 2 m2 TVs

– 400 liter water heaters

• Most energy regulations seek to raise efficiency rather than reduce consumption

Progressive Energy Efficiency

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Progressive Efficiency Standards

• There are technical and economic justifications for requiring stricter efficiency regulations to meet higher efficiency levels

• Some progressive standards have been created but they are haphazard– TVs, heat pump water heaters

• Recommendation: make progressive efficiency requirements an explicit policy

Smart Meter Deployment

• Installation of “smart” meters (for electricity and gas) offer advantages to consumers and utilities:– Time of use pricing, remote meter reading

– Bills based on actual consumption

– Opportunities for better energy management and feedback

• More frequent (and real) utility bills have cut energy use 15% in European homes

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Smart Meter in My Home

Smart Meter Data for My Home

280 m2

2 units5 people3 refrigerators5 computers1 TVNo AC~90% fluorescentGas water heating

login to PG&E website

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Recommendations

• Ensure that benefits of smart meter also go to consumers– Encourage installation of smart meters

– Require consumer access to real‐time information on web

– Allow consumers to route data to 3rd parties (see Google Power Meter and Microsoft Hohm)

Changing Attitudes Towards Disclosure of Energy Information

• Traditionally energy consumption data has been treated as confidential

• Public disclosure may encourage greater vigilance, ability to compare, and attention towards highest users

• Attitudes toward privacy are evolving– Google Earth

– Facebook

– Water use is already disclosed in some places

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Lance Armstrong: #1 water user

In July, Mr. Armstrong, used 330,000 gallons of water at his lush Spanish-colonial home, which is 38 times more than the average household in the city uses in the summer

Gainesville, Floridalogin to gainesville-green website

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Gainesville example

Gainesville neighborhood view

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Satellite view of 2345 NW 13th

Recent California Legislation (AB 1103):

Disclosure of Utility Bill Information When Commercial Buildings are Sold

• Requires building owners to provide 12 months of energy‐use information when a building is sold, leased in whole, or refinanced

• Recent changes in LEED voluntary program will require reporting of energy information to confirm LEED rating

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Recommendations on Disclosure

• Don’t underestimate value of public disclosure of energy consumption (or carbon emissions)

• Don’t exclude possibility of public disclosure

• Search for common ground and special cases– Prior to sale

– Commercial buildings

– 100 largest corporations (already done in Australia)

Improving the Usability of Appliances

• Settings and Preferences have large impact on energy use (thermostats, TVs, etc.)

• Poor interfaces prevent consumers from finding (and using) energy‐saving options

• A good user‐interface can facilitate energy‐ saving behavior

• The science of measuring usability is advancing

Recommendation: allow usability to be included in future MEPS

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Conclusions

• California invests in energy efficiency before building new capacity

• Make progressive efficiency requirements an explicit policy

• Ensure that benefits of smart meter also go to consumers

• Public disclosure of energy consumption data is a potentially valuable policy tool

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Efficiency Innovations fro ia and the United States m Californ

Alan Meier E

Univ vis nergy Efficiency Center er Dasity of California, [email protected] September, 2010

I would like to describe some of the energy efficiency activities taking place in the United States, but with a special emphasis on California.

My remarks are divided into two parts: first, some of the visible actions and events that will reduce energy use in the United States and California, and second, some events and trends that are not in the news but that may be relevant to Europe as it prepares the next energy efficiency action plan

National Developments:

The Obama Administration has been unusually active in energy efficiency. First, it has reinvigorated the agencies responsible for energy conservation at the DOE and EPA. The most visible signs of progress are a huge expansion of the minimum efficiency standards – MEPS – for appliances and motor vehicles. These regulatory changes, while only affecting new products, will transform the efficiencies of America’s stock of appliances and vehicles.

The Obama Administration has also made increasing energy efficiency a major target of its economic stimulus investments. It has increased spending on weatherizing poor people’s homes and upgrading the efficiency of government installations. At the same time it has transferred huge amounts of funds to states for them to make their own efficiency investments. In many cases, the states are using the utilities as the vehicle for delivering these services, including rebates for purchase of efficient appliances.

New technologies to provide services with much less energy are also appearing. LED lighting may be the most visible new technology but I believe that heat pump water heaters will save more electricity in many homes. These devices have just been introduced in the United States – though millions have already been sold in Japan – and typically reduce hot water energy use by 50%. Since nearly 40 million US homes have electric water heaters, and each installation will save over 1500 kWh/year, the cumulative savings potential is enormous.

California

The history of energy efficiency in California can be summarized in one chart. This chart shows the per-capita electricity use in the United States and California over time. (See Figure 1).

Since World War 2, electricity use in California was below that of the United States, although the rate of increase was about the same. In the mid 1970s, after the first oil embargo, this trend changed. California’s per-capita electricity use made a “right turn”, that is, it turned from constant growth to flat consumption. At the same time, consumption in the rest of the United States continued to grow.

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s (and will continue) commitment.

Electricity consumption, per person, has remained virtually constant for thirty years1, even though California has experienced robust economic growth. California’s aggressive energy efficiency programs are clearly responsible for part of the divergence from the rest of the country; however, higher electricity prices and transformation of the state’s industrial sector also played a role.2

Whatever the reasons for California’s initial “right turn” in energy use, the focus of discussions is now on how California can make a second right turn. In other words, what policies will be needed to promote a reduction in per capita electricity (and other energy) use?

Many of California’s efficiency initiatives have been adopted by the Obama Administration: motor vehicle efficiency improvements and more aggressive appliance standards are two examples. Nevertheless, California continues to innovate—and sometimes stumble—in energy efficiency and renewable energy policies.

The starkest difference between Europe and California is the role played by utilities in promoting energy efficiency. California pioneered the concept of “decoupling”, that is separating the profits earned by utilities from the amount of energy they sold.3 Furthermore, they encouraged utilities to “invest” in energy efficiency and awarded the utilities profits for saved energy equal to that from a unit of energy sold to customers.

A second policy requires that the utilities must undertake all cost-effective conservation before building new supply facilities. Put another way, energy efficiency is first in the “loading order” for supplying customer demand.

A key element of de-coupling is measurement and verification of energy savings. It is impossible to directly measure energy savings; instead one must examine the difference between a reference condition and the situation after the energy saving action (or program) has taken place. Evaluation is complicated because it must take into account the specification of the reference conditions, various forms of rebound effects, and other factors. Evaluation is so important (and represents a significant fraction of program cost) that it has spawned a new industry, associations, and conferences.4 Actual evaluations can be viewed at the California Measurement Advisory Council (CALMAC) website.5

The result of these policies is that the utilities have become agents supporting energy efficiency. This is visible in many ways. For example, the make-up of the utilities’ staff has changed dramatically. The departments responsible for designing and building power plants have shrunk, while the departments responsible for delivering “saved energy” have grown enormously.

These policies enjoy widespread support across the state and government agencies responsible for assuring California’s energy security, meeting its climate change commitments, and keeping energy costs down. To be sure, considerable debate remain but this is to be expected given the scope and ambition of the

1 Of course California’s population has increased substantially during this time, so its absolute electricity consumption has risen in a proportional manner. 2 A series of lectures exploring Californ a’s “Roots of Energy Efficiency: How California Changed the Way the World Uses Energy” are dedicated to this topic

ihttp://eec.ucdavis.edu/roots.php .

3 For explanations of the mechanics of decoupling, see http://www.raponline.org/Home.asp . 4 See, for example, the International Energy Program Evaluation Conference, http://www.iepec.org/ . 5 http://calmac.org/

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http://eec.ucdavis.edu/roots.php

http://www.raponline.org/Home.asp

http://www.iepec.org/

http://calmac.org/

California issued its own Energy Efficiency Action Plan in 20086. It laid out goals and responsibilities of the different parts of the state government and the utilities. The highest priority is maximizing energy conservation and efficient use of resources. Billions of dollars will be invested to achieve these goals.

The policy framework from this report is shown in Figure 2. It summarizes many of the elements that make California’s efficiency strategy unique. This broad strategy has now been converted in detailed actions for the specific sectors. In September 2010, a detailed plan for the commercial building sector was released. This plan covers concrete actions for the next two years as well as longer-range activities. An extract of the strategy for commercial buildings is shown in Figure 3. The detail and the extent to which progress will be monitored are evident even in this single table.

It would be easy to devote this presentation entirely to this plan; however, I want to describe other trends that may not be so well known or described in the literature but still deserve consideration in an efficiency action plan.

Progressive Efficiency Standards

An important fraction of energy-using products and buildings are both technically efficient and larger than average. Examples include 400 m2 homes, 600 liter refrigerators, and 2m2 TVs. Energy Star was found to have endorsed some homes above 500 m2.7 In spite of their high efficiency, their larger size results in total energy consumption that is greater than smaller, less-efficient, units.

One strategy to lessen the difference in energy consumption between larger and smaller products is to require higher efficiency levels for larger products. This strategy is called “progressive efficiency” and is illustrated in Figure 4.

There are both technical and economic reasons to require higher efficiency levels in appliances and buildings. For example, the energy use of refrigerators is determined mostly by their surface area; however, the volume enclosed by the walls increases much faster than the surface area. As a result, efficiency investments (per unit of volume) are cheaper for large refrigerators than for small units and, in a perverse way, may encourage the manufacture of larger sizes simply to comply with efficiency standards. A progressive efficiency strategy is also more appropriate if the goal is to reduce carbon emissions rather than simply raise efficiency.

To date, the progressive efficiency approach has been applied in only a few situations and sometimes unintentionally.8 Nevertheless, Europe should consider adopting the principle of progressive efficiency regulations as it establishes and revises its energy standards. The concept will not apply in every case (or result in negligible savings) but one should begin with the assumption that economies of scale will take place; if they are not significant, then the linear approach can be adopted.

6 See http://www.cpuc.ca.gov/PUC/energy/Energy+Efficiency/eesp/ . 7 See “Living in a Carbon Constrained World” http://eetd.lbl.gov/ea/akmeier/pdf/hem-17-2-carbon.pdf 8 The ECEEE recently held a workshop on progressive efficiency (and related) topics. An exploratory paper was also written. These materials are available at http://www.eceee.org/sufficiency/ .

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http://www.cpuc.ca.gov/PUC/energy/Energy+Efficiency/eesp/

http://eetd.lbl.gov/ea/akmeier/pdf/hem-17-2-carbon.pdf

http://www.eceee.org/sufficiency/

Deployment of Smart Meters

A “smart” meter is a device that replaces a kilowatt-hour-meter but is also able to communicate with a central office. Most smart meters have additional features, such as to remotely disconnect service, to record energy use in intervals as short as 5 minutes, and to receive information from other, nearby meters and transmit it to the central office. Smart meters for natural gas are also available.9 Buildings equipped with photovoltaic or other sources of electricity generation need a smart meter to monitor those contributions to the grid.

Smart meters offer numerous benefits to the utility: they eliminate the need for a human meter reader, allow time-of-use (ToU) tariffs, and make it possible for the utility to remotely switch on and off the meter. They are considered an essential component of the “smart grid”. The benefits of smart meters can flow completely to the utility if no intervention occurs.

Smart meters are already widely deployed in Italy and, to a much smaller extent, in Germany, Scandinavia, and the UK. Few of the potential features are being exploited. The two major California utilities are rapidly deploying smart meters at the request of the regulatory commission. The business model justifying installation of smart meters in California is probably much stronger than in Europe because the range of costs of generation are much higher in California10, although parts of Southern Europe are now experiencing summer peaks and beginning to resemble California’s electricity demand structure.

Consumers could extract some value from the smart meter if the utility makes available the information that it collects from the smart meter. This would most likely be in the form of a website where the consumer can view his electricity consumption. An example of the information available to California homes is shown in Figure 5. It is also possible to view natural gas consumption on a daily basis.

European consumers would enjoy an almost 10,000-fold increase in actual meter readings over today, that is, from once per year to once per hour. One Norwegian study found that more frequent “real” bills (from once a year to monthly) caused a 15% reduction in demand. On the other hand, a recent review of the literature found little or no savings from in-home energy displays.11 Probably the true answer lies in between. In any event, the cost of providing data on the web is much smaller than through in-home energy displays.

The utility can also send the smart meter data to third parties that offer additional services. In the United States at least two large firms (Google and Microsoft) offer much more detailed graphics and analysis. Utilities have so far been reluctant to permit these transfers, even though the quality of Google’s and Microsoft’s interpretations is superior.

9 Smart meters should not be confused with in-home energy displays (IHDs). An IHD permits the occupants to view electricity consumption in real time. In one configuration, the IHD receives a signal from the smart meter. Unfortunately the communication protocols between smart meters and IHDs have not been settled, so many IHDs rely on indirect or proprietary methods of communication. 10 California’s peak demand for electricity is driven by air conditioning. When a heat wave strikes and customers switch on their air conditioners, the price of electricity can jump ten times. smart meter can communicate the higher price to customers and charge them for it. In theory, this high price will encourage consumers to switch off unnecessary air conditioning (as well as electricity r other services).

A

fo11 See http://www.eci.ox.ac.uk/research/energy/downloads/smart-metering-report.pdf

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http://www.eci.ox.ac.uk/research/energy/downloads/smart-metering-report.pdf

ates is called Leadership in

Europe already requires utilities to convert their “dumb” meters to smart meters. However, this program would be more popular (and save more energy) if it included requiring utilities to post the data on the web and to ensure that consumers could transfer the data to third-party websites.

Changing Attitudes Towards Disclosure of Energy-Use Data

Traditionally energy consumption data has been treated as confidential. However, there may be situations where disclosure is justified. For example, public disclosure encourages greater vigilance, enables comparison with others, and directs attention towards highest users.

Our attitudes towards privacy in general are evolving rapidly. Most people now accept – though may not embrace – Google’s satellite photos of our backyards. Most Americans’ political donations are listed on official websites. At the same time, millions of people voluntarily disclose enormous amounts of personal information on Facebook and other social network websites. All of these disclosures of private information would have been inconceivable fifteen years ago.

Water consumption data is already disclosed in many American cities, especially in areas where shortages occur and excess use by one person will deprive another. The water utility typically discloses the highest users in an attempt to “name and shame” them into conservation. The results are intriguing: the largest residential water user in Austin, Texas, was Lance Armstrong12 and the largest user in Las Vegas was a prince from Brunei13.

At least two communities already disclose their residents’ energy use, Madison, Wisconsin, and Gainesville, Florida.14 (Both are served by municipal utilities.) The Gainesville utility15 has the most extensive and, potentially, the most effective disclosure of energy information. The program is an experiment, though, and there is no assurance that it will continue. Nevertheless, the website illustrates many of the different aspects of disclosure.

Anybody can enter an address and view any home’s electricity, gas and water use over the past several years. The gas and electricity consumption is also merged into a “carbon footprint”. Additional data (taken from another city database) gives physical characteristics of the home. An example is shown in Figure 6. The website also compares that home’s usage with others in the neighborhood (or the whole city) as a histogram and month-by-month. The website is also linked to a map application so that the home’s physical situation can be examined (and the consumption of neighboring homes easily compared). This is illustrated in Figure 7.

Other forms of energy disclosure are appearing. For example, California recently approved a law16 requiring owners of commercial buildings to disclose the last 12 months of energy-use information when a building is sold, leased in whole, or refinanced. Privacy did not appear to be the strongest argument against the bill; it was the increased paperwork that would raise transaction costs during sale.

The most popular voluntary environmental rating scheme for buildings in the United St Energy and Environmental Design (LEED).17

12 www.nytimes.com/2008/08/16/us/16lance.html 13 http://www.lvrj.com/news/41647962.html 14 Other communities may disclose their residents’ energy consumption but I am unaware of any compilation beyond my own research. 15 The Gainesville energy data website is located at: http://gainesville-green.com/ 16 This is Assembly Bill 1203, http://www.energy.ca.gov/ab1103/ 17 See www.usgbc.org/LEED for a description of LEED.

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http://www.nytimes.com/2008/08/16/us/16lance.html

http://www.lvrj.com/news/41647962.html

http://gainesville-green.com/

http://www.energy.ca.gov/ab1103/

http://www.usgbc.org/LEED

Recently the efficacy of the LEED ratings has been questioned.18 Partly to refute the critics, LEED now requires building owners to submit five years of utility data to demonstrate that actual energy use is as low as predicted in the approved designs.

Recent legislation in Australia requires the hundred largest corporations to perform energy audits of their operations and report those results in their annual reports to shareholders.19 The legislation was an attempt to call attention to cost-effective efficiency investments as well as to encourage reductions in carbon emissions. Disclosure of energy use is likely to occur as part of this process.

Disclosure of information of any kind that can infer behavior is a (justifiably) very sensitive topic. Nevertheless, the trend appears to be towards greater disclosure in certain circumstances. Europe should not underestimate value of public disclosure of energy consumption (or carbon emissions) as a policy tool. Public disclosure should not be automatically excluded as a policy; instead, one should search for common ground and special cases where disclosure addresses a market failure and the benefits outweigh any drawbacks. Some of these cases include buildings being offered for sale, commercial buildings, and the largest corporations.

Conclusions and Recommendations

California continues to invest heavily in energy efficiency and seeks to undertake all cost-effective investments in efficiency before building new generation facilities. Utilities are encouraged to operate efficiency programs by ensuring that they earn as much profit on saved energy as they would on energy sold. The de-coupling of revenues and profits is a key policy innovation. At the same time, a strong program of measurement and verification of energy savings is required to adequately reward utilities for demand-side programs.

Progressive energy efficiency standards is a new concept but is justified for both technical and economic grounds in some products. It may also be more compatible with a larger strategy to limit carbon emissions. Europe should explicitly endorse progressive strategy where appropriate.

Smart meters will clearly benefit utilities but not necessarily consumers. However, small changes in the deployment of smart meters can provide benefits and opportunities for energy savings through greater awareness and ease of oversight. Europe should ensure that consumers are able to easily access their consumption data and to transfer the data to third parties to obtain additional services.

Public disclosure of energy consumption data is a potentially important policy tool. It provides valuable information for comparison and may encourage people or businesses to save energy. The best applications may be niches, such as buildings offered for sale or commercial buildings. In any event, public disclosure should not be unilaterally dismissed as socially unacceptable.

18 For example, see http://www.npr.org/templates/story/story.php?storyId=129727547&ft=1&f=129727547 19 See http://www.ret.gov.au/energy/efficiency/eeo/pages/default.aspx

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http://www.npr.org/templates/story/story.php?storyId=129727547&ft=1&f=129727547

http://www.ret.gov.au/energy/efficiency/eeo/pages/default.aspx

Figure 1. Per‐capita electricity use in the United States and California.

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F

igure 2. Framework of California’s energy efficiency plan.

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Figure 3. Sample table in efficiency plan for commercial buildings.

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Figure 4. Graphical depiction of relationship between linear and progressive efficiency budgets.

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Figure 5. Typical web output from a customer’s smart meter data.

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Figure 6. Disclosure of electricity use for the house at 2345 NW 13th Place, Gainesville, Florida.

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Figure 7: Map of area around 2345 NW 13th Place, showing level of electricity use keyed by color). The home denoted with a tree is the lowest user and the star is the ighest. (h

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NOTES