Costs and Benefits of Energy Efficiency Obligation Schemes
In 2009, the European Union adopted high-level goals for renewable energy, energy efficiency, and greenhouse gas reductions with targets set for the year 2020. This was followed in 2012 by adoption of the Energy Efficiency Directive (EED) (2012/27/EU), a major component of which required Member States to create energy efficiency obligations schemes (EEOs) for energy companies, or equivalent alternative measures. These provisions have now been in effect for three years. In 2016, as European institutions consider how to meet clean energy and climate goals through 2030 and beyond, it is important to understand how the Energy Efficiency Directive can be renewed and extended. This paper reviews the main characteristics of the leading EEOs in Europe and the United States, and answers basic questions as to scope and scale to inform European policymakers as they consider extending the EED beyond 2020.
Drawing on data from five Member States—the United Kingdom, Denmark, France, Italy, and Austria—the report explores the full range of costs and benefits of EEOs that need to be considered in future impact assessments and presents our findings on the costs, bill impacts, and multiple benefits of EEOs under Article 7 of the EED. Data from the states of California and Vermont in the United States are included for comparison.
Our analysis shows that, within a few years of adoption, the benefits from EEOs far outweigh the costs. From a long-term perspective, EEOs can substantially reduce energy consumption and bills, delivering benefits to consumers who would otherwise face more exposure to volatile energy prices. Evidence from countries with long-running EEOs also shows energy consumption decreasing over time, which corroborates our findings.
But EEOs also deliver a wide range of benefits in addition to reduced energy consumption and bill savings for participants—they deliver substantial, measurable savings across energy systems and to society as a whole. These include health benefits, increased comfort, economic stimulus, job creation, cost savings in transmission and distribution, avoided CO2 allowance costs, and air quality improvements.
However, the current practice of largely ignoring those multiple benefits in cost-benefit analyses underestimates the true value of efficiency and sends potentially misleading messages. Methods for carrying out impact assessments and evaluations need to be adjusted to ensure realistic and complete accounting for the multiple benefits, at both the EU and the national level.