Recasting the Energy Efficiency Directive
As part of the European Green Deal, the EU has adopted the European Climate Law, which includes a binding commitment for the Union to become climate-neutral by 2050. It has set a highly ambitious interim goal on the road towards achieving climate neutrality by targeting a reduction of at least 55% in CO2 emissions by 2030.
With the support of the wide-ranging Fit for 55 package launched on 14 July 2021, the European Commission is taking steps to align EU climate and energy-related legislation with the 55% target, while at the same time safeguarding and enhancing competitiveness, innovative capabilities and social fairness.
Although Austria is still in the process of transposing the Energy Efficiency Directive 2018/2002 (EED) into national law, the Commission has published a proposal for amending the EED.
Preliminary remarksOesterreichs Energie is committed to ensuring that the efficient use of available energy supplies remains relevant as the proportion of renewables in the energy mix increases. The use of electricity has enormous potential in terms of boosting energy efficiency and reducing CO2 emissions, particularly in the building and transportation sectors.
However, with regard to Europe’s climate-protection goals, energy efficiency should not be viewed as an absolute savings target, but also take into account the overarching goal of CO2 reductions and the need for increased flexibility in view of the growing share of renewables.
In addition, many energy efficiency measures set out in the EED have been included in sector-related legislation (e.g. the Energy Performance of Buildings Directive, Internal Electricity Market Directive, Ecodesign Directive, etc.). Therefore, streamlining the scope of the EED in order to avoid double regulation would be desirable
Detailed response to the Commission’s proposal for the recast of the Energy Efficiency Directive (COM 2021/558)
Article 1: Subject matter and scope, and Article 4: Energy efficiency targets
Article 1 and Article 4 determine a higher mandatory EU energy efficiency target for final and primary energy consumption and indicative national energy efficiency contributions. They also provide the member states with a formula to calculate their contributions (new Annex I).
Based on the European Commission calculations presented in the impact assessment for the 2030 Climate Target Plan, the newly formulated EU-wide reduction target of 9% by 2030 (compared with the 2020 reference scenario) equates to a 39% cut in primary energy consumption and a 36% decrease in final energy consumption under the 2007 PRIMES reference scenario (projections for 2030). In absolute terms, the Commission proposes that final energy consumption in the European Union should stand at a maximum of 787 million tonnes of oil equivalent (mtoe) and primary energy consumption at a maximum of 1,023 mtoe by 2030.
According to the Commission’s remarks, the Union is already falling short of the highly ambitious EU energy efficiency target of a reduction of 32.5%, which was only set in 2018. In the view of Oesterreichs Energie, yet another and further increase of the target does not appear to be the most appropriate method of choice, particularly as further restrictions on the creditability of policies and measures are under consideration.
The reframing of the previously indicative energy efficiency target as a mandatory EU-wide target has been considered critically, because its implementation requires further tightening of the rules on governance structures and gap filling mechanisms, which will increasingly undermine the indicative nature of the national efficiency contributions.
However, as Oesterreichs Energie believes that reducing CO2 emissions is the primary, overarching target, energy efficiency targets must always take the form of indicative contributions, both at EU and national level.
Overall, the amendments to and extensions of governance structures, which the Commission proposes, will significantly increase planning, reporting and corrective action obligations (gap filling mechanisms) related to energy efficiency at the national level. This will result in substantial additional bureaucracy, which must not place a burden on companies and other obligated parties.
Oesterreichs Energie takes a sceptical view of the proposed interventions in national approaches in case member states make insufficient progress towards meeting their national energy efficiency contributions (Article 4). In particular, an increase in the annual savings obligation (Article 8) is excessive and should be rejected.
Additionally, according to the Commission’s proposal, in the future the member states will be required to report their contributions to achieving the objective in terms of the reduction of both final and primary energy consumption. As a consequence, the previous option of choice and related flexibility would be removed, which in any event must be viewed critically.
As far as Oesterreichs Energie is concerned, swift clarification and disclosure of the consequences of the amendments in the recast directive for Austria’s indicative contribution is essential.
There is also ambiguity, as well as some unanswered questions, regarding the proposed formula for determining national energy efficiency contributions set out in Annex I. The formula in the revised Annex 1 (new) of the Commission’s proposal contains four criteria which should all be given an equal weighting:
- a flat rate contribution
- GDP-per-capita dependent contribution
- energy intensity dependent contribution, and
- cost-effective energy savings potential contribution.
Additional information and analysis are required to carry out evaluation and assessment – both in terms of the four proposed parameters such as the flat rate contribution, as well as the weighting of these parameters. In any event, steps should be taken to ensure that the common EU target is achieved in an economically efficient and effective manner. At present, it is not possible to conclusively evaluate whether equal weighting of the criteria, as proposed by the European Commission, is the best option.
With regard to the member states’ indicative efficiency contributions, the current efficiency status as well as climate conditions must be taken into account to ensure that the burdens are not unevenly allocated. Furthermore, the aim must be to achieve improvements in the member states with the greatest potential, paying particular attention to the cost effectiveness of the measures.
Article 3 and Article 25: the energy efficiency first principle and its application
The new proposed Article 3 clarifies and sets out more detailed provisions for the energy efficiency first principle compared to the previous definition in Article 2(18) of the Governance Regulation. According to the proposal, in the future member states must explicitly take into account energy efficiency solutions in policy and major investment decisions.
Additionally, the newly introduced Article 25 regulates specific applications of the energy efficiency first principle, and national regulatory authorities are subject directly to the related obligations.
When performing the regulatory duties assigned to them within the internal electricity and gas market, regulatory authorities must apply the energy efficiency first principle in all decisions related to infrastructure operation, including grid tariffs. In addition, the member states must ensure that gas and electricity transmission and distribution network operators apply the energy efficiency first principle in their network planning and development (Article 25). Furthermore, Article 25(3) includes an obligation to prevent network losses.
In the view of Oesterreichs Energie, the proposal contains a comprehensive scope of application for the energy efficiency first principle, which requires more detailed analysis. Closer evaluation is required as to whether an obligation placed on national regulatory authorities could distort competition between gas/electricity and other energy forms/technologies that are not subject to regulation by national authorities. Such discriminatory treatment must be prevented and rejected under all circumstances.
However, security of supply must remain the number one priority in energy network operation. If the energy efficiency first principle results in obligations for system operators, any costs arising from the implementation and performance of measures aimed at boosting energy efficiency must be reflected in tariffs.
Overall, the proposed provisions are very broad in scope, but in terms of details they still leave a large number of unanswered questions unanswered. Consequently, in view of Oesterreichs Energie a comprehensive assessment will only be possible in connection with the announced guidelines of the European Commission, which are due to be published in autumn 2021.
Sufficient flexibility for the member states is also required so that they can take national circumstances into account to the required extent during implementation.
Articles 8 and 9: National energy savings obligation and energy efficiency obligation schemes
The Commission proposes increasing the annual energy savings obligation for all member states to 1.5% from 2024, by means of amendments to Article 8 (previously Article 7). The annual savings obligation will remain at 0.8% from 2021 to 2023.
Article 8 of the revised directive also includes very wide-ranging requirements aimed specifically at reducing energy poverty. According to the proposal, policy measures must be implemented with the aim of improving energy efficiency as a priority among people affected by energy poverty, and member states must achieve a specified minimum share of the required end-use energy savings among people affected by energy poverty. This share shall minimum correspond to the proportion of households in energy poverty as notified in the National Energy and Climate Plan (NECP). The monitoring and reporting obligations in the NECP should be amended in this regard.
Article 8 also defines a gap filling mechanism for the required energy savings, which are supposed to be achieved within a specified obligation period. Any gaps shall be added to the savings for the next obligation period and must be made up by the end of that period.
The option of increasing the energy savings obligation during an obligation period should be rejected, for reasons of the necessary planning and legal certainty.
Overall, an evidence-based feasibility analysis is lacking with regard to how such ambitious targets can still be met with stricter efficiency requirements, and in combination with additional EU legislative provisions and instruments aimed at increasing energy efficiency and reducing CO2 emissions within the recast efficiency regime. In particular, future overlaps between instruments and measures under EU climate and energy policy must be critically analysed and discussed in detail.
Article 9 ‘Energy efficiency obligation schemes’ (formerly Article 7a) defines transmission system operators as potential obligated parties, as well as introducing further detailed provisions aimed at ensuring a specific focus on households affected by energy poverty. In addition to ensuring that such groups are considered in the process of implementing strategic measures, one new aspect of the provisions is the possibility of placing explicit requirements on the obligated parties in the framework of obligation schemes.
The Commission’s new proposal represents an increased threat to the member states’ freedom to use various instruments in order to meet their national reduction obligations. The continued rise in the burden of regulation imposed by Articles 8 and 9 increasingly contradicts to the principles of subsidiarity and proportionality.
For instance, it is undoubtedly necessary to protect low-income households to a greater degree against the effects of a lack of financial resources, but it is also essential to take a holistic view of the problem of low incomes and deal with it by means of social policies. The Energy Efficiency Directive in general, and an obligations scheme in particular, are not suitable instruments to achieve this.
Article 29: Conversion factors and primary energy factors
Generally speaking, we welcome the adjustment of the primary energy factor (PEF) for electricity, but according to the Commission’s remarks, the revision is based partly on obsolete data and still relates predominantly to the past. In view of the rapid developments in the deployment of renewable energy and coverage of electricity consumption from renewable sources, as well as the ambitious European and national targets, Oesterreichs Energie calls for wide-ranging adjustments.
The PEF could be determined in the form of a projection for the situation in 2030, an approach that would promote a more effective integration of renewable energy sources, as the impact of investments across the life cycle would be more accurately reflected.
In addition, the PEF applied as standard in the Energy Efficiency Directive should take into account the different starting points of the EU member states – in this regard, we take a positive view of retaining the possibility of national deviations. Oesterreichs Energie suggests assessing the option of adjusting national commitments to reflect forecasts for the situation in 2030.
Annex II: Extension of the criteria for high-efficiency cogeneration
The current proposal extends the defined procedure for determining the efficiency of the cogeneration process – set out in what is now Annex II – by adding a criterion, namely that direct emissions from the use of energy output from CHP stations (heating, cooling, power and mechanical energy) must not exceed 270g of CO2/kWh.
We take an extremely critical view of the extension of the criteria for high-efficiency CHP stations in the amended Annex II, as this means that all such stations previously classified as highly efficient can – at a stroke – no longer be used to produce district heating/cooling and also no longer qualify for gas levy refunds for electricity from high-efficiency CHP stations.
Therefore, transitional arrangements would make sense. The new efficiency regulations should apply immediately to all new stations, and to existing stations only from 2030, in order to give operators sufficient planning certainty for decarbonisation measures. This is the only way to ensure that CHP stations continue to play a fundamental role in terms of security of electricity and heating supply in the long run.
The loss of high-efficiency CHP stations due to the strict emissions thresholds would endanger our highly efficient district heating and cooling systems, as well as all strategies aimed at decarbonising the energy system.
Annex V: Tightening of regulations for the creditability of measures
Following the significant tightening of provisions in the EED 2018, the Commission’s current proposal for recasting the directive includes plans for a further increase in requirements and stricter regulations for the creditability of measures. The Commission’s proposal contains two changes that, in Oesterreichs Energie’s opinion, should be entirely rejected.
Firstly, as of 2024 the Commission proposes banning credits for energy savings arising from policy measures that promote the use of technologies for the direct combustion of fossil fuels.
Secondly, the requirement for accompanying taxation policy instruments will be increased (i.e. distribution effects, price elasticity, overlaps with other measures). In the view of Oesterreichs Energie, the new requirements and stricter provisions are excessive and bureaucratic, and run contrary to the fundamental aim of improving the energy efficiency of all energy sources across the board. Ultimately, realistic and practicable regulations for creditability are required. Oesterreichs Energie considers the proposed restrictions on the creditability of measures from 2024 to be discriminatory and believes that they will restrict the leeway available to member states and obligated companies. The differentiation of efficiency measures implemented at generating stations, such as process improvements and heat recovery in production operations, definitely needs to be clarified.
The new proposal also includes additional provisions which state that reductions in energy consumption by means of measures in accordance with the ETS Directive cannot be credited towards achievement of the savings obligation. There is an urgent need for clarification on this point, in particular how this regulation should be understood and what national effects are to be expected. If measures implemented by companies covered by the ETS can no longer be credited under the recast EED, the corresponding quantities of energy would definitely need to be deducted from any national obligation systems. Failure to do so would result in a double obligation related to the volume of sales of companies in the ETS, without giving them the possibility to take creditable measures. Detailed analysis is required, as this seemingly minor clarification could have far-reaching consequences.
Especially in view of the highly ambitious targets set, neither the European Union nor Austria can afford to do without increases in and improvements to energy efficiency, regardless of the technology and energy source concerned, and act against the energy efficiency first principle. Negative incentives designed to enforce the ban on creditability would fundamentally contradict the goals of decarbonisation and improving energy efficiency, and should therefore be rejected.