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With New Energy Efficiency Directive, the EU Makes Sausage

Eric Woods — June 26, 2012

The remark often attributed to Bismarck, that the making of laws, like sausages, is not a pretty sight, seems particularly relevant to regulation in the European Union.  The EU’s 20-20-20 targets for 2020 are rightly considered to have established a world-leading benchmark for energy policy and the reduction in greenhouse gas emissions, but maintaining real commitment to that policy across 27 nations is a constant political struggle.

Of the three key targets set for 2020, the reduction in energy consumption has proven the hardest goal, with member states likely to achieve 9% efficiency gains by 2020 on current activities, instead of the targeted 20%.  This has led to renewed pressure for the EU to provide a tougher approach to ensuring that member states meet the required targets.  However, reaching agreement on how tough the new Energy Efficiency Directive should be has also proven far from easy.

Advocates of a stronger approach to energy savings had hoped that enforceable energy efficiency targets could be applied for each country, an approach that has been successful in driving forward renewable energy programs across the EU.  Government leaders, though, have resisted any significant move in that direction.  Instead, the new directive details measures that EU countries must adopt but does not provide specific targets for each country.  Those measures in turn have been the focus of difficult negotiations.

A number of countries have resisted important elements of the proposed new directive, including the United Kingdom and, more surprisingly, Germany.  Nevertheless, an agreement was finally reached earlier this month.  The result is a half-full or half-empty glass situation depending on your perspective.

The focal point of the new directive is the requirement for energy retailers to reduce energy consumption (in terms of their volume of sales) by 1.5% by 2020.  This proposal was watered down to allow about a quarter of that reduction to be achieved by other means, and so the actual reduction is closer to 1.1%.  In addition, the requirement that 3% of public building stock should be renovated annually to meet energy efficiency standards will now only apply to central government buildings.

These and other measures are estimated to provide a 17% saving in energy efficiency by 2020.  For some that’s enough to claim a victory, particularly as this is a minimum requirement and there will be a further review of progress in 2014 and 2016, with the possibility of introducing further measures as necessary.

The state of the European economy, of course, loomed over the discussions.  Critics of stronger measures claimed that it is the wrong time to put additional requirements on businesses, while others pointed to the overall net value of the measures to the European economy.   The Energy Efficiency Directive is estimated to cost €24 billion ($33 billion) a year until 2020, but it will save companies and consumers €44 billion ($61 billion).  The European Commission also estimates that the Directive will lead to an increased GDP in EU of €34 billion ($47 billion) in 2020, along with 400,000 new jobs.

As Europe’s countries struggle to resolve the financial and political issues around the eurozone crisis, the goal of achieving a low-carbon Europe is one of the few positive long term visions.  The struggle over the Energy Efficiency Directive, however, indicates that getting there will require a lot more sausage-making.

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