A 40% energy efficiency target for 2030 has been the long-standing ask of campaigners in Brussels. In the European Commission’s ‘Fit for 55’ package for 2030, they almost got it. Moreover, the EU executive is – once again – proposing to make this target binding. It also wants to nearly double a binding annual energy end-use saving requirement and massively increase the scope of a requirement to renovate public buildings.
“It is very ambitious,” says Brook Riley, head of EU affairs for the Rockwool Group, a building insulation provider.
Plans to reform the EU Emission Trading Scheme (ETS), introduce emissions trading for buildings and transport and create a carbon border tax have captured the headlines. Once the hoo-ha calms down, however, energy efficiency is likely to find itself in the limelight as member states realise the full extent of the Commission’s proposals.
Energy efficiency versus coal
Energy efficiency is “the first fuel”, says the International Energy Agency (IEA). Its latest electricity market report, released the day after ‘Fit for 55’, shows why saving energy matters.
Global electricity demand is due to rebound in 2021 and 2022. Most of the growth is expected in Asia-Pacific and, in 2022, over half of it in China. “Despite record additions of renewable generation capacity [however], fossil fuel-based generation and associated emissions are rising along with electricity demand,” warns the IEA. It expects fossil fuels to meet almost half of the 5% increase in electricity demand it foresees in 2021, with coal exceeding pre-pandemic levels and CO2 emissions from the power sector threatening a new record in 2022.
Jan Rosenow from think tank the Regulatory Assistance Project (RAP) recently argued in Energy Monitor that electrification need not raise emissions; in Europe, the roll out of renewables is more than enough to offset new demand. However, the same does not appear to be true at the global level. Energy efficiency, which RAP also supports as the first priority, is the only way of keeping a grip on the burgeoning decarbonisation challenge.
“There is no pathway to net zero that does not prioritise energy efficiency and renewables," said EU energy commissioner Kadri Simson at the 'Fit for 55’ launch. "Energy efficiency is the unsung hero, without which nothing would happen. It would become impossible or very difficult [to reach net zero] if we don’t reduce the amount of energy we consume.”
The Commission proposes a binding 36–39% energy efficiency target for 2030 for the EU in its 'Fit for 55’ package, compared with a non-binding 32.5% target today. The 36% and 39% correspond to final and primary energy consumption. The Commission proposes to make both compulsory. “In other words, member states cannot deliver savings purely by fuel switching,” translates Riley. Switching from thermal generation to wind or solar power delivers a big primary energy saving but does little to cut actual energy use by industry or households.
The 36–39% target corresponds to a 9% increase on the pledges made by member states in their national energy and climate plans for 2030.
In addition to the new, binding EU target, the Commission proposes to introduce national indicative targets and a “gap-filler” mechanism to ensure member states whose pledges fall short do more and the EU target is met. This strategy would mirror the EU's approach to renewables. In practice, the efficiency target equals 787 million tonnes of oil equivalent (Mtoe) of final energy consumption and 1,023Mtoe of primary energy consumption in 2030.
A public consultation run by the Commission in 2020 suggests binding national targets are more popular than indicative goals (47% versus 36% of respondents), but the Commission argues the latter are “more aligned with the subsidiarity principle”. In other words, binding national targets do not stand a chance with national ministers in the European Council.
Big on buildings
Buildings are responsible for 40% of European energy consumption and three-quarters of them consume more than they should, says the Commission. In an attempt to reduce this figure, the EU has required 3% of public buildings to be renovated every year, but the criteria for that 3% has been so specific that in practice, less than 1% of Europe’s total building stock has fit the bill. That is about to change.
“Now all public buildings are covered and they have to be renovated to a nearly zero-energy standard,” explains Riley. He estimates the Commission’s proposal increases the scope of the renovation requirement about 20-fold. The big change is that the requirement to renovate no longer only applies to central government buildings with a surface area of over 500m2, but to all public buildings – including hospitals, schools and public housing – at all levels of governance, and with a surface area above 250m2.
This is before a revision of the EU energy performance of buildings directive (EPBD), due in December. Contrary to a year ago, that is now expected to set the EU’s first-ever minimum energy performance standards for buildings, much like the Ecodesign directive does for products. “From January this year, all new buildings have to be nearly zero energy," says Riley. "The new EPBD will start applying this logic to existing buildings.”
All this is in line with the EU’s Renovation Wave strategy, issued in October 2020, which sets the goal of at least doubling EU renovation rates in the next ten years. This means 35 million buildings need to be renovated between now and 2030.
Doubling down on savings
The centrepiece of the existing energy efficiency directive is an annual energy end-use saving requirement of 0.8%. Until now, that has been the bit with legal bite. This obligation will remain “a core part” of the directive, says Antonin Chapelot at the Coalition for Energy Savings, a non-profit association for energy efficiency. He welcomes the Commission’s proposal to nearly double the requirement to 1.5% from 2024, and the fact a share of the savings will be delivered for those suffering from energy poverty.
For companies, energy consumption, not size, will determine whether they need to carry out energy audits in future. Audits will be compulsory for businesses using more than ten terajoules (TJ) a year; energy management systems will be compulsory for those using more than 100TJ. Installations not implementing the recommendations made in audits will have their free carbon allowances reduced by up to 25%, the Commission suggests in its EU ETS reform.
To put these numbers in perspective, long-distance road haulage can be estimated to use around 1TJ per truck employed full time, the Commission says.
There is also a new requirement for the public sector to reduce its energy consumption by 1.7% a year. It can deliver these savings in any sector, including transport (responsible for more than 30% of final energy consumption).
There are reasons to be optimistic that the ‘Fit for 55’ energy efficiency proposals stand a chance of becoming law.
In the past, the EU ETS was a thorn in the side of energy efficiency. Climate officials worried that ambition on efficiency would be bad news for the carbon market (more efficiency, more unused allowances, more downward pressure on an already depressed carbon price). The market stability reserve created in 2019 put that argument to rest by creating an automatic mechanism to remove surplus allowances from the market.
In addition, there are tougher targets but no radically new approach. The recent extreme weather – from floods to heatwaves – make climate change a more tangible reality. If governments are serious about the European Green Deal, energy efficiency is an indispensable part of making it happen.
Nevertheless, the age-old problems have not entirely disappeared. “Upfront costs remain a challenge," says Riley. “We are talking about a major increase in ambition in less than ten years. The real challenge is logistical.” He draws a parallel with the Covid-19 vaccination campaigns. “It is about securing enough resources fast enough and then putting them to use. It is vastly easier to sit in an asset management fund and decide to switch €10bn [$11.87bn] to renovation investments, than to match that money with several hundred thousand homes.”