New governance tools could boost credibility of energy efficiency targets

Earlier this year, the European Commission unveiled its “Fit for 55” climate and energy package. The proposal includes new tools to achieve EU energy efficiency targets, while aiming to bind Member States to the increased climate targets. A new study by Stefan Scheuer Consulting and Fraunhofer ISI reviews the proposed governance tools within the updated Energy Efficiency Directive (EED), and makes recommendations to improve the impact of the package.

Paving the way towards climate neutrality is the main driver behind improving the EU’s policy instruments. The proposed recast of the Energy Efficiency Directive therefore increases the EU target for energy efficiency, makes the target binding at EU level, and introduces potentially powerful target governance tools. The new study assesses the critical points in the governance of the EED, and provides recommendations for how the substantial energy efficiency potentials identified in the study can be realized in practice.

A new target allocation formula for the Energy Efficiency Directive

The central governance tool is a formula to allocate the EU’s 2030 energy efficiency targets among Member States. Such target allocation is new for energy efficiency, but has already been successfully used for renewable energy, climate targets and the Effort Sharing Regulation (ESR). The proposed EED recast includes a common correction factor, which could be used to adjust national targets and avoid a gap to the EU target. However, the legal text is unclear as to whether this is the intention, and how it would work in practice.

Furthermore, Member States would be allowed to deviate from the results of the energy efficiency formula when determining national energy efficiency targets. The study’s review of climate and energy legislation finds that binding national contributions can deliver the EU’s targets if complemented by strong governance. Thus, national contributions should be adjusted after they are set by Member States to ensure that overarching European targets are achieved.

New tools need to be applied in the right order

“This proposal is a leap for the credibility of EU energy efficiency policy”, says Stefan Scheuer, Director of Stefan Scheuer Consulting. “The governance tools are put forward to secure a new and binding EU target. But they need to be placed in the right order, so that at the end of the target allocation the wrench is at hand to tighten the nut. Extended carbon pricing coupled with the Social Climate Fund can provide the tailwind for energy efficiency investments, further boosting confidence that this time the EU is going to deliver on its targets”.

Economic viability of energy savings is growing

Compared to recent reference projections, the EU’s ambition to reduce energy demand by 9% by 2030 increases the current final energy demand target from 32.5% to 36% and the primary energy demand target to 39%. Nevertheless, even greater ambition is needed to reliably achieve climate neutrality in the timeframe compatible with the 1.5°C target. Matthias Reuter from Fraunhofer ISI affirms: ”Our assessment shows that economic energy saving potentials are growing, as efficient technologies become economic, and would get the EU two times further than proposed, reducing final and primary energy demand by 17% and 18% respectively compared to reference projections.”

Energy efficiency improvements can help to support vulnerable households

Beyond the EED, the package includes additional new elements that boost the delivery of energy efficiency targets through carbon-pricing schemes for buildings and transport. Increased carbon pricing and strengthened revenue recycling make even more energy-saving potentials economical. Wolfgang Eichhammer from Fraunhofer ISI concludes: ”Member States have to tap these potentials to mitigate negative social impacts of higher energy prices and to get on track towards climate neutrality. If coupled with strong revenue recycling requirements through the new Social Climate Fund this also benefits vulnerable households by lowering their energy bills through energy efficiency improvements”.

The Fraunhofer Institute for Systems and Innovation Research ISI analyzes the origins and impacts of innovations. We research the short- and long-term developments of innovation processes and the impacts of new technologies and services on society. On this basis, we are able to provide our clients from industry, politics and science with recommendations for action and perspectives for key decisions. Our expertise is founded on our scientific competence as well as an interdisciplinary and systemic research approach.

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