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For a living planet

WWF’s contribution to the Green Paper on Energy Efficiency
December 2005

Questions regarding the options identified in the Green Paper

  1. How could the Community and the Commission in particular, better stimulate European investment in energy efficiency technologies? How could funds spent supporting research in this area be better targeted? (Section 1.1)

Investments on energy efficiency both on the demand and supply side are deeply needed. A better use of energy efficiency funds, regional funds and fiscal incentives (i.e. tax breaks) should be used to overcome the major barriers for energy efficiency investments and face the up-front investments.

Funding the research in favour of carbon neutral and energy efficient technologies is a necessary step if Europe wants to win its battle against climate change and be ready to offer advanced technology to other industrialised and developing countries (the so called ‘leapfrogging’).

In order to develop advanced technologies though, no more funds should be allocated to nuclear fission and fusion and fossil fuels, but more funds should go to energy efficiency and renewable energy sources research projects as they are key tools to decrease energy demand, fight climate change and ensure energy supply. Therefore, the 7th Research framework programme (2007-2013), which is currently under discussion, should guarantee funds in favour of these technologies instead of carbon intensive technologies such as ‘clean coal’, gas infrastructures or nuclear energy. All these conventional technologies, as clean they may be, are driven by the corporate agenda in any case. Sponsoring technical developments, which are already in the corporate investment plans and agenda, is not appropriate especially in times of restricted public financial support. Energy efficiency and energy conservation should be included among the EU priorities and specially financed. In addition, the existing EU funds need to be revised so that specific energy efficiency funding programmes are secured and regional funds should be also used to favour investments. This is necessary not only to support research but also to make sure that existing technology enters the European market as soon as possible.

The challenge of the necessary long term GHG reduction imposes that substantial R&D resources in the 7th Research framework programme are allocated on every sector (i.e. industry, building, transport) and end-use concerned. Funds should be allocated to applied research so that existing technologies can be improved and applied to improve energy efficiency of existing products (i.e. refurbishment of the existing stock of buildings, fuel efficiency improvement of cars etc.).

  1. The emission trading mechanism is a key tool in developing a market-based response to meeting the goals of Kyoto and climate change. Could this policy be better harnessed to promote energy efficiency? If so, how? (Section 1.1)

The level of absolute emission targets (caps) under the ETS could be a major driver for energy efficiency investments in industry. In addition, structural changes in the way allowances are allocated to installations would give increased incentives to companies to invest in energy efficiency measures. Stronger caps and a serious revision of the national allocation plans (NAPs), which are a prime tool to create framework conditions favouring energy efficiency innovation and dissemination, are needed in order to foster energy efficiency and carbon-low and carbon-neutral investments in Europe.

  1. In the context of the Lisbon strategy aiming to revitalise the European economy, what link should be made between economic competitiveness and a greater emphasis on energy efficiency? In this context, would it be useful to require each Member State to set annual energy efficiency plans, and subsequently to benchmark the plans at community level to ensure a continued spread of best practice? Could such an approach be used internationally? If so, how? (Section 1.1.3)

Making the EU the most energy efficient economy in the world will greatly contribute to enhance its economic competitiveness and create new jobs as well as reduce energy dependence and imports, increase security of energy supply and benefit the environment. A boost in energy efficiency represents a “win-win” solution that can help reduce energy demand and also improve the economic competitiveness of the Unionat low or no cost[1]. Therefore, the strong link between the Lisbon strategy and a greater emphasis on energy efficiency cannot be denied anymore. However, in order to enhance European competitiveness, the large existing cost-effective potential for energy conservation, which is generally set between 20%[2] and 30%[3] of current energy demand - with the technical potential being much higher- needs to be seriously tackled. For example, the Directive on Energy End-Use Efficiency and Energy Services could bring a net economic gain for the EU economy of at least €10 billion/year and reduce energy import dependency while delivering up to 70% of the Kyoto target reductions[4]. The best way to tap this potential would have been to set mandatory energy savings targets, in order to provide additional energy savings and decrease absolute energy demand in every Member States. Deplorably, in the compromised text recently agreed by the Council and the European Parliament, such targets are inadequate and downplayed to indicative.

Even though the current level of energy efficiency is not equal across Europe, since some Member States have advanced on this path at a faster pace than others, the results achieved so far should not be used as a barrier to further mandatory action to reduce the energy demand and consumption throughout the EU. Setting the right targets is essential to create a stable legal framework, provide certainty for investors and ensure that all Member States introduce practical and effective measures to reduce energy demand and create a market for energy services. Member States shall be free to determine what the best measures to undertake are, but the targets should have remained mandatory. When adopting their national energy efficiency action plan, Member states should not be allowed to set a lower target and ensure adequate funding for the implementing agencies and programmes at national and local level. This will help create a level playing field and, once national measures are implemented, strengthen the overall European competitiveness.

Both human and financial resources should be allocated to build energy efficiency capacity in all sectors of the economy and hence allow the necessary market transformation in favour of energy conservation.

For that reason, the EU should adopt the target of at least 20% reduction of today’s energy consumption by 2020 proposed in the Green Paper on energy efficiency[5].

Nevertheless the target, which is based on currently existing and cost-effective technology, should not be restrictive: the EU should not limit itself purely to this goal as an ambitious long term energy efficiency strategy could cut final energy consumption by 40% against current levels until the mid of the century[6].

The recent liberalisation and reorganization of the supply side of the gas and electricity market only addresses half of the market, since demand side efficiency has not received the due attention. Tapping into the huge existing energy efficiency potential is absolutely necessary in order to improve the electricity market in Europe, decrease absolute energy demand, achieve EU’s Kyoto targets, effectively fight climate change and enhance competitiveness. However, in order to do so the EC must be sure that the proposed target is officially adopted; that existing legislation is strongly implemented and, where possible, improved; that the forthcoming Energy Efficiency Action Plan provides both short-medium term measures (including objectives, resources and monitoring) but also a long-term view on the future energy efficiency and climate change policy for the EU. The forthcoming action plan should then create the conditions necessary to enable the setting of more ambitious goals in the future and include binding objectives and timelines.

Security of energy supply and climate change being among today’s major concerns for EU citizens, a far-reaching and comprehensive European energy policy, which seriously tackles both supply and demand side management, needs to be developed. Time has come for the EU and its Member States to take responsibility and show its citizens concrete commitments leading to an improvement of the economy and their quality of life without compromising the overall wellbeing of the planet.

  1. Fiscal policy is an important way to encourage changes in behaviour and the use of new products that use less energy. Should such measures play a greater role in European energy efficiency policy? If so, which sort of measures would be best suited to achieve this goal? How could they be implemented in a manner that does not result in an overall increase in the tax burden? How to really make the polluter pay? (Section 1.1.4)

A better use of taxation will certainly prove useful in order to change not only consumption but also production patterns in a more sustainable way. Introducing tax breaks for energy efficiency investments, higher taxes/fees for wasteful practices, incentive schemes such as reduced VAT rates supporting the purchase of energy efficient products[7] or an harmonised and compulsory car rating system (similar to the A-G appliance labelling) supported by an equivalent shift in taxation would have a significant impact in consumers’ and producers’ behaviour. If we take road vehicles taxation for instance, currently in many countries the least efficient vehicles, such as Sports Utility Vehicles, are granted tax exemptions. This situation must be reversed and replaced by a taxation system that encourages the consumer to buy the most efficient cars or, at least, discourage them to buy the most consuming and/or polluting vehicles (the same is true for other household products, although the perverse effect of the current system is particularly striking in the case of cars)[8].

  1. Would it be possible to develop state aid rules that are more favourable to the environment, in particular by encouraging eco-innovation and productivity improvements? What form could these rules take? (Section 1.1.5)

More favourable state aid rules in favour of environmental protection, including energy conservation, when global economic viability and environmental gains are positive, would be very helpful. The substantial role of public procurement must be recognised and Member States have to take a leading role in the acquisition of new, energy efficient products, as well as the establishment of appropriate conditions and incentives for market operators to provide more information, advice and services to final customers. Public procurement guidelines including energy efficiency requirements and favourable state aid rules, especially for small investments, are key in order to remove the barriers for public administrations to benefit from and fully exploit the existing energy efficiency potential.

  1. Public authorities are often looked to for an example. Should legislation place specific obligations on public authorities, for example to apply in public buildings the measures that have been recommended at Community or national level? Could or should public authorities take account of energy efficiency in public procurement? Would this help build viable markets for certain products and new technologies? How could this be implemented in practice in a way that would promote the development of new technologies and provide incentives to industry to research new energy efficient products and processes? How could this be done in a manner that would save money for Public authorities? As regards vehicles, please see question 20. (Section 1.1.6)

The public sector, including the European institutions, should take the lead and play a primary and exemplary role in improving energy end-use and energy efficiency. There are several areas where public intervention can be determinant in order to enhance energy efficiency measures, such as the planning, construction and refurbishment of public buildings, the refurbishment of district heating systems and the management of public illumination. Therefore, the public sector should adopt specific green procurement rules favouring the purchase of energy efficient equipment.[9]

Member States should develop a road map for efficiency improvements, detailing opportunities and costs for efficiency improvements in all public sectors, so that they could identify the highest potential and develop helpful public procurement rules. Special attention needs to be paid to purchasers, especially in the public sector. Complex purchasing rules make public purchasing very “traditional” and counterproductive since many purchasers simply follow consolidated (and not suitable) purchasing patterns, often excluding environmental criteria, because it would be too difficult and time-consuming to change them. Therefore a tailored information package, providing all the necessary information and tools to save time (i.e. up-date information on procurement legislation, calculator for life-cycle cost, energy labels, existing cost-effective saving potential) should be included in the purchase criteria for public procurement.

Public procurement rules favouring energy efficiency requirements will increase the demand for energy efficient products and services, therefore helping market penetration and inducing industry to augment their investments on cutting-edge technologies.

As regards the costs, considering that the existing cost-effective potential for energy conservation is generally set between 20% and 30% of current energy demand, with the technical potential being much higher (up to 50% of current energy demand[10]) very good results can be achieved at low costs.

Nonetheless, we recognise that national governments cannot be expected to bear the entire costs for achieving energy savings targets. That is why we consider the role of Energy Services Companies (ESCOs) very important in delivering and implementing energy efficiency programmes and measures.[11] ESCOs can provide the financing and facilities upgrades necessary to achieve energy savings without any capital investment from public authorities, since the improvements are financed through the energy savings obtained. Thus, no costly upfront investment is necessary. Such a system takes the burden of meeting energy savings targets from the national authorities and places it on the companies who deliver such services. Procurement rules should then be adapted in order to allow administrations to join multi-year energy performance contracting (EPC and ESPC).[12]

7. Energy efficiency funds have in the past been used effectively. How can the experience be repeated and improved? Which measures can be adopted usefully at:

– International level

– EU level

– National level

– Regional and local level?

(Section 1.1.7. See also question 22)

Adequate funding, human resources and institutions are crucial, especially considering that achieving higher energy efficiency levels in Europe is critical to cut energy demand, reduce our dependence on energy imports, and promote economic growth for the benefit of the environment, the economy, and the wellbeing of EU citizens. Funds could be used to collect data, refurbish and promote efficient district heating, increase capacity building and widen education. Regional funds could be profitably used to support energy conservation, but first of all energy efficiency needs to be clearly recognised as a priority, so that specific programmes can be officially established in the Structural Funds Programmes to develop and fund energy efficiency initiatives. Similarly, International Financial Institutions such as the European Investment Bank, and European Bank for Reconstruction and Development must stop funding fossil fuel extraction and transport and promoting, instead, lending for energy efficiency and renewable energy projects, especially in Central Europe. Energy efficiency projects are often too small for the investments that big financial institutions usually grant. Therefore, multilateral banks and public financial institutions should create an Energy Efficiency fund granting money for energy efficiency projects. Energy objectives should also be integrated into other sectoral policies (i.e. fiscal policy, industrial and transport policies, and cohesion policy). Furthermore, innovative financing schemes and contractual tools, such as micro-credits, joint ventures between private companies and municipalities, communities owned projects, third party financing or public guarantees on bank loans to private enterprises must be proposed in order to actively involve local partners and decision-makers, which are usually in charge of the planning, development and implementation of the projects financed by European funds.[13] Public authorities could set up funding schemes for projects involving the private sector and households, in co-operation with credit unions, banks or financial institutions[14] and energy saving activities for SMEs and public entities should be promoted.

At a regional/local level, energy agencies should be established and adequately staffed and financed to provide local experts and effectively implement their action plans. Energy agencies can also supply knowledge and fundraising for energy efficiency projects at national and local level.

EU regional policy funds could also be used to finance inter-regional projects providing know-how transfer to the Member States and regions lacking advanced technology development for energy efficiency[15].

8. Energy efficiency in buildings is an area where important savings can be made. Which practical measures could be taken at EU, national, regional or local level to ensure that the existing Community Buildings Directive is a success in practice? Should the Community go further than the existing Directive, for example extending it to smaller premises? If so, how could the appropriate balance be achieved between the need to generate energy efficiency gains and the objective of limiting new administrative burdens to the minimum possible? (Section 1.2.1)

In the European Union, 40% of all energy end-use occurs in the building sector. According to the European insulation manufacturers association, bringing existing buildings up to current standards for thermal insulation could cut the energy consumption related to buildings by half.[16] Space heating and hot water production are responsible for approximately 2/3 of the energy demand in dwellings. The existing potential in the building sector is extremely high; it’s a low hanging fruit that needs to be caught. In January 2006, the Directive on the Energy Performance of Buildings will entry into force and Member States will have to implement it but a revision of the current text is already needed, since it doesn’t apply to existing buildings smaller than 1000m².