The RAPPORT, Europe Edition, January 2022

Measuring and increasing impact: The next challenge for EU energy efficiency policy measures

The European Union is entering a crucial decade in its energy transition, with the 55% climate goal representing a step change in ambition. Energy efficiency is expected to play a major role in achieving necessary reductions in energy consumption across buildings, transport and industry. Enacting the Energy Efficiency First principle will require reliable data on the costs and benefits of energy efficiency actions, to ensure that policy measures are as effective as possible. Providing this reliable data is the role of evaluation, measurement and verification.

Yet the current reporting obligations on Member States under the Energy Efficiency Directive (EED) — and Member States’ compliance — do not supply reliable and timely information on the key performance indicator for energy efficiency policy measures: energy savings. This paper recommends improvements in evaluation, measurement and verification practices as a way of increasing the impact of the EED and enabling implementation of the Energy Efficiency First principle.

The paper gives clear guidance for the European Commission and Member States to implement seven recommendations for:

• Independently evaluating energy savings reported under the EED energy savings obligation.
• Focusing impact evaluation efforts on assessing the costs and benefits of meeting policy goals.
• Mandating the piloting of pay-for-performance using metered savings in the buildings sector.
• Providing clear pathways for accessing individual dwellings’ smart meter data.
• Mandating the publication of verification reports by Member States every two years, alongside the reporting of energy savings.
• Facilitating knowledge and expertise sharing on evaluation, measurement and verification across Member States.
• Regularly assessing the accuracy and consistency of energy savings estimates across Member States.

With the EED being renegotiated, now is the time to make the changes that will enable energy efficiency to play its full role in the energy transition.

EU at risk of missing 2020 energy efficiency targets: Lessons for 2030

Energy consumption in the EU is rising despite targets to reduce demand across Europe. This should not come as a surprise and is explained mainly by GDP growth, writes Samuel Thomas.

It’s 1992. The Republicans have been in the White House for 12 years. President George H. W. Bush Sr. has overseen victory in the Cold War and a wave of optimism for the future is sweeping across the world. What could possibly unseat a sitting president in these circumstances?

“The economy, stupid.” It was during the 1992 presidential campaign that this now ubiquitous phrase was coined by James Carville, lead strategist for the Democratic Party contender, Bill Clinton. The first Bush presidency had been plagued by an economic recession and a spike in oil prices caused in part by the Gulf War. George Bush Sr. lost his second bid and became the only one-term US president since the 1970s.

Jump forward to 2019 and the latest data show that EU energy consumption is rising despite targets to reduce demand across Europe. This should not be a surprise: again, it’s the economy. Between 2014 and 2017, EU gross domestic product grew at its fastest rate since the mid-2000s and, however much we would like to kid ourselves, economic activity is not yet meaningfully decoupled from energy consumption.

Faster economic growth has seen rises in industrial production across all sectors, more transportation of goods, and an increase in passenger travel.

What does that mean for the EU’s 2020 energy efficiency targets? To meet them, final and primary energy consumption must fall by 0.5 percent and 1.0 percent per year, respectively, between 2016 (our latest data point) and 2020. However, over the two years prior to 2016, final energy consumption grew by more than 4 percent and primary energy consumption was up by more than 2 percent. Early indications suggest another increase in 2017.

With only a year to go until 2020, the best hopes to meet the energy efficiency targets lie outside of policymakers’ control. Just as economic growth has driven up energy consumption since 2014, the dark clouds of Brexit and the China-US trade dispute may too cause a downturn in consumption next year. Indeed, both the German and French economies have seen slower growth during the second half of 2018.

The other key factor is the weather. Around one-quarter of all EU final energy consumption is used to heat the spaces we live and work in. That share rises and falls with variations in the weather. A historically warm winter looks to be the most likely way that the targets can be met.

While the weather can have a big impact on yearly variations in energy consumption, energy efficiency gains are what drives it down in the long run. This was the case with space heating in the 2000s (see chart below) as gas condensing boilers replaced conventional gas and oil boilers.

Energy efficiency policies, such as minimum standards for new boilers, and financial incentives drove this trend. However, this decade climate-corrected residential space heating energy consumption (the amount of energy we use to heat our homes, adjusted to take account of winter temperatures) has remained stubbornly stable across all regions of the EU.

Another step change in ambition on buildings efficiency is essential as we look forward to 2030. Kick-starting a new wave of energy efficiency improvements in space heating means upping the rates of building renovation and the installation of more efficient heating technologies such as heat pumps.

Make no mistake—it will not be easy. It will require more investment, both public and private, better evaluation, monitoring and verification, and policy innovation to overcome long-standing barriers to action. Thankfully, the current situation provides the perfect opportunity to act. We have the money, and there is plenty to learn from recent experiences in different countries.

As EU carbon allowance prices rise, auction revenues from the EU emissions trading system are likely to top 10 billion euros per year by 2020. Investing those revenues in building efficiency makes sense for several reasons. Many EU countries are implementing new policy instruments, including energy efficiency obligations. If designed well, those instruments will drive extensive investment in building retrofits, which will in turn deliver a host of benefits: households will benefit from the measures, reducing natural gas imports improves the EU’s energy security, and electrifying heat load will provide more flexibility to the grid as renewable sources increase their share.

A raft of policy innovation is taking place across the world. The U.K., France, and Canada are introducing minimum energy efficiency standards for privately rented properties. Several U.S. states are allowing property improvement loans to be collected through local property taxation. The Regional Greenhouse Gas Initiative—a carbon cap-and-trade mechanism in New England—recycles 80 percent of its revenues through the funding of additional greenhouse gas abatement, of which around 70 percent is spent on energy efficiency measures.

Fast forward to 2032. Eurostat has just released the 2030 energy consumption data. Will we be celebrating the achievement of the EU’s ambitious energy efficiency targets? Well, in 1992 James Carville wrote three phrases on the sign that hung in the Democratic Party’s “War Room.” The first was most prescient—it would be adapted by the future President Obama on the 2008 campaign trail—and still today most apt: “change versus more of the same?”

Changing up—indeed, dramatically ramping up—our ambitions for energy efficiency is the one surefire way to ensure that we’re not still talking about “the economy, stupid” in 10 years’ time.

A version of this article was originally posted on Euractiv.

Market-based instruments for energy efficiency: a global review

There is an increasing interest in the role so-called market-based instruments (MBIs) can play to deliver energy efficiency across the world. Their rising popularity among policymakers owes, in part, to their characteristics. They tend to be less prescriptive than traditional regulations and grants because they focus on the energy savings versus the means of delivery. Furthermore, policymakers’ objectives can potentially be met more cost-effectively through the direct involvement of profit-maximising companies, either as obligated parties or auction bidders. In the case of obligations, the costs to utilities do not appear on government balance sheets, as utilities pass on their costs to consumers through energy prices.

While these characteristics can also create some challenges for policymakers, the uptake of MBIs has not yet slowed as a result. The freedom given to private sector actors to discover the most cost-effective means of generating energy savings can lead to delivery through a concentration of particular technology types, especially if their costs decline quickly. This puts a premium on good programme design, with regular evidence-based reviews and, in many cases, limits on the amount of energy savings that can be claimed by individual technologies. Another issue related to obligations is that instruments funded through energy prices are potentially more regressive than those funded through general taxation, given that poorer households tend to consume more energy as a proportion of their incomes. A number of programmes have elements targeted at fuel poor households, while other policymakers have employed explicit redistribution policies aimed at lowering the energy bills paid by poorer households.

In a groundbreaking effort, the authors provide a global assessment of the impact of MBIs for energy efficiency in terms of investment, energy savings, and cost-effectiveness. Our analysis of 52 different instruments from across the world shows that MBIs are becoming increasingly important in terms of their number, global coverage, energy savings, and investment triggered.

RAP welcomes former IEA lead energy efficiency analyst Samuel Thomas to Europe team

BRUSSELS, Belgium—The Regulatory Assistance Project (RAP) recently added Samuel Thomas as the newest member of its Europe team. Mr. Thomas is the former lead energy efficiency analyst of the International Energy Agency (IEA).

Mr. Thomas has served as a public policy analyst for 20 years, with 12 years of experience in the fields of energy and climate. In recent years, he acted as a rapporteur to the European Commission on energy consumption trends in addition to leading the IEA energy efficiency analytical programme. Prior to the IEA, he held high-level analytical and advisory roles with the U.K. government’s Department of Energy and Climate Change, focusing on energy efficiency, renewable energy, fuel poverty, emissions trading, and smart technology.

At RAP, Mr. Thomas advises the European Commission, national governments, and a wide range of stakeholders on policies to drive the role of energy efficiency and its numerous benefits for advancing the clean energy transition in Europe. He provides guidance on policies to promote Efficiency First; effective evaluation, monitoring, and verification of efficiency programmes; and the implementation of EU energy efficiency policy at the EU and national level.

“Sam’s outstanding background is a tremendous asset to RAP,” said Jan Rosenow, director of RAP’s Europe programme. “He has a keen understanding of the challenges facing policymakers. As an economist, he also provides deep insight into the effectiveness of energy efficiency policy and programmes.”

“I’m excited to be working with another strong team,” said Mr. Thomas. “RAP’s reputation as an independent thought leader on the energy transition was a big draw for me.”

Mr. Thomas earned a bachelor’s degree in economics and history from the University of the West of England as well as a master’s degree in economics from the University of London’s Birkbeck College.

RAP is an independent, non-partisan, non-governmental organization dedicated to accelerating the transition to a clean, reliable, and efficient energy future. RAP’s registered European non-profit entity (ASBL) is based in Brussels.

Recognizing Early Action Under the Clean Power Plan

Data suggest that the electric power sector’s long march toward decarbonization was already well underway before the EPA’s Clean Power Plan (CPP) rulemaking, let alone the final rule’s compliance period, which doesn’t begin until 2022. If so, then the emissions reduction obligations imposed by the CPP might be characterized as consistent with the dramatic changes already underway within the power sector as much as they are a driver of those changes. This is an encouraging characterization, because it suggests that compliance with the CPP is likely to be accomplished without departing greatly from the utility resource planning and state policy pathways already in motion.

Some are concerned, however, that the CPP could temporarily slow the adoption of cleaner, more renewable energy sources and more efficient end use of energy. The CPP prudently provides states and sources with an unusually long window to prepare for and achieve compliance with its emission limits. But in doing so, it may have created an inadvertent gulf for the development of renewable energy projects and implementation of energy efficiency efforts until that window opens. Specifically, it is not clear that early energy efficiency and renewable energy actions—those undertaken before 2022—will count toward a state’s compliance with the CPP.

The CPP does allow renewable energy generated after 2022 by projects constructed between 2012 and 2022 to count toward state compliance. And many energy efficiency measures implemented during the 2013–2021 period are apt to be still providing some energy savings and emissions reduction benefits in 2022 and beyond, which could contribute to compliance. But the fact remains, developers now face a tricky question: Should they delay projects until after the CPP compliance window begins in 2022? In other words, has the CPP created a “chilling effect” on efficiency and renewables development during the 2016–2021 timeframe?

The EPA provides one avenue for states to bridge this gulf—the Clean Energy Incentive Program (CEIP). The CEIP encourages new renewables to come online in 2020–2021 by offering one allowance or emission rate credit (ERC) for each MWh generated during these two years, one half coming from the state and one half from the EPA.

The CEIP provides an even greater incentive for energy efficiency—two ERCs per MWh saved, one from the EPA matched by one from the state—but it is limited to projects carried out in low-income communities. In addition, the state must institute rigorous evaluation, measurement, and verification (EM&V) for any energy efficiency efforts it hopes to count, consistent with the protocols the EPA requires for quantifying ERCs, even if the state has chosen a mass-based approach to compliance. The challenge is this: Instituting and operating the administrative frameworks necessary to secure credit for CEIP efforts over the program’s short two-year life could impose a greater burden than the perceived benefits of participating in the program.

Fortunately, the CPP gives states broad discretion over how they formulate their compliance plans. Some states are using this discretion to explore ways they may be able to recognize early efficiency and renewables actions under the CPP, thereby closing the gulf. Specifically, at least one state, Michigan, is considering the creation of an “early action credit pool” in the context of a possible mass-based compliance plan. A similar credit pool might be possible under a rate-based approach as well, denominated in ERCs rather than allowances.

Allowances to create the early action credit pool could come from reserving a fraction of a state’s CO₂ emissions budget for the first year of the CPP compliance period. Early action allowances from the pool would be distributed in 2022, one for each short ton of CO₂ reduced or avoided by qualifying efficiency and renewable energy actions during 2016–2021. Tons of CO2 reduced or avoided would be calculated by multiplying the MWh that a specific energy efficiency measure avoided or that a renewable energy project generated in a given year by a standard CO₂-per-MWh rate, determined by the state. Effectively, early actors could get a jump-start on compliance because they would be earning credit toward compliance with the state’s plan once it goes into effect. This jump-start could be as large or small as a state desires within the limits of its allowance budget.

The idea of an early action credit pool raises a number of questions, of course, including:

• How big should the pool be?
• Who is eligible to apply for credits from the pool—utilities, industrial facilities, small businesses, residential customers, or all of the above?
• Should the pool be split into separate efficiency and renewables sub-pools, and if so, in what shares?
• What if the pool is over-subscribed, with more qualifying tons reduced than allowances in the pool?
• What if it is under-subscribed, and unused allowances remain in the pool?

Further contemplation yields additional refinement possibilities:

• Could the pool be made larger, for example, by spreading the allowances it requires over the full 2022-2030 compliance period rather than taking them all out of the first-year 2022 budget?
• Might the state want to encourage efficiency and renewables development throughout the CPP compliance period by maintaining the pool beyond 2022?

This may sound like a long, complex list, but most states already have stakeholder processes underway that could readily address these and other issues.

These and many other questions remain to be addressed if state early action credit pools move forward. But their creation would certainly help close the 2016–2021 gulf under the CPP, and warm any chilling effect it may have on energy efficiency and renewable energy development. Recognizing early efficiency and renewables action during the pre-compliance period is likely to help states benefit from lower compliance costs and lower energy bills once the CPP is in effect.

The financial value of CPP allowances to developers is unlikely to be “make-or-break” for project finance; it will certainly pale in comparison to Congress’s recent extension of the production tax credit for wind and investment tax credit for solar PV. But it could nevertheless be a welcome addition. Project finance hinges on certainty, cost, and policy, and a state’s decision to recognize early efficiency and renewables action under the CPP conveys a positive message on all three fronts.

Existing Methods Can Help States, EPA Use Energy Efficiency for Clean Power Plan

In a new policy brief, the Regulatory Assistance Project (RAP) recommends several ways that the U.S. Environmental Protection Agency (EPA) and states can ensure that energy efficiency is utilized to meet air quality standards. Driving Energy Efficiency: Applying a Mobile Source Analogy to Quantify Avoided Emissions suggests that the same approaches used to quantify emissions from the country’s cars, buses, and trucks can also be used to quantify the emissions avoided by energy efficiency programs.

“Energy efficiency is cost-effective, reduces multiple pollutants at once, and provides numerous co-benefits to society,” said Rich Sedano, principal and director of US programs at RAP. “States invest more than $6 billion in energy efficiency every year, but they don’t get credit for the emissions reductions associated with that investment. The proposed Clean Power Plan offers a unique opportunity for EPA to support new approaches to quantifying those avoided emissions in a way that will help realize the full potential of energy efficiency as an air quality control strategy. ”

Mobile sources of pollution—cars, trucks, and buses—are numerous, dispersed, and decentralized. Individual drivers decide when, where, and how to operate their vehicles. The authors argue that the same characteristics apply to energy efficiency. Lights and appliances are decentralized too, and homeowners decide how often to turn on their lights and when to run the dishwasher.

“EPA already uses statistical assessments and assumptions about how and when vehicles are driven to estimate the impact they have on air quality. We think they can do the same thing with energy efficiency,” added Ken Colburn, coauthor of the brief and senior associate at RAP. “We call this approach the ‘mobile source analogy’.”

State and utility energy efficiency programs are subject to rigorous evaluation, measurement, and verification processes to determine the amount of energy saved, but calculating the emissions avoided by these energy savings adds additional complexity. The authors believe that by applying a mobile source analogy, states and EPA already have many of the tools they need to quantify the emissions impact of energy efficiency programs across the country. The missing piece is clear approval from EPA of this analogous methodology.

“Although a few states measure the impact of their efficiency programs on air quality, almost none have asked EPA for credit under the Clean Air Act, because of uncertainty regarding the level of rigor needed in these analyses,” said Mr. Colburn. “EPA must provide specific guidance to state air regulators on how to estimate the impact of energy efficiency programs on air quality. We believe that methods similar to those already approved for mobile sources provide sufficient rigor.”

The authors offer three complementary approaches EPA could take to connect the dots between energy saved and emissions avoided. A “deemed emissions approach” may be the quickest and easiest way for regulators to estimate the avoided emissions resulting from energy efficiency. Under this approach, EPA would establish default emissions reductions for a host of well-established efficiency measures with well-documented outcomes. A second approach suggests that EPA extend its existing AP-42 approach for establishing acceptable emission factors to include acceptable emissions reductions from energy efficiency measures. A third, more arduous approach would utilize modeling to determine location-specific emissions reductions when important for meeting ambient air quality standards.

RAP Encourages Efficiency Professionals to Calculate Avoided Emissions as Part of EM&V and Potential Studies

In a new paper, the Regulatory Assistance Project calls on the efficiency community to include avoided emissions in both potential studies and evaluation, measurement, and verification (EM&V) reports. Calculating Avoided Emissions Should be a Standard Part of EM&V and Potential Studies argues that efficiency professionals possess both the skills and resources to effectively quantify avoided emissions—information increasingly valuable to state and local air pollution regulators.

Thanks in large part to recent guidance and proposed federal regulations by the U.S. Environmental Protection Agency, state and local air pollution regulators have a growing interest in using energy efficiency as a strategy to improve air quality. Air pollution regulators, however, don’t always have the knowledge or resources to quantify the impacts of energy efficiency programs in a way that is suitable for regulatory purposes. That’s where the efficiency community can help.

To measure the air quality impacts of efficiency, one has to begin with an assessment of energy savings. However, assessing the timing and location of energy savings is also critically important for estimating avoided emissions. Efficiency professionals are better suited to this task of quantifying current or potential future avoided emissions than the air pollution regulators themselves.

“It’s a win-win situation,” says John Shenot, author of the report. “Avoided emissions can form a significant component of the economic benefits of efficiency programs while justifying the programs as air quality improvement mechanisms. Both should lead to more resources for energy efficiency programs and cleaner air.”

RAP envisions a collaborative environment in which efficiency professionals work closely with air quality regulators to refine EM&V protocols to include useful air quality data. This is best done at the program evaluation planning (or potential study scoping) stage, with oversight and support from energy regulators, before EM&V data are collected. In time, these modified EM&V practices may become standardized to the point where air regulators become data “customers” and are no longer involved in program evaluation planning.

The paper, presented at the American Council for an Energy-Efficient Economy’s Summer Study, also highlights Wisconsin, Texas, and several Northeast states that already quantify avoided emissions in their EM&V studies.

France’s Innovative Efficiency Obligation in the Transport Sector Leads to Efficiency Gains in Buildings

A new analysis of France’s energy efficiency obligation scheme evaluates the effectiveness of extending energy efficiency obligations to include the road transport sector. In French White Certificates and Energy Savings in the Transport Sector, the Regulatory Assistance Project (RAP) examines the first four years of the scheme’s road transport operation and concludes that although efficiency gains in transport are possible, other policies will be more effective at capturing the energy savings.

Traditionally, energy efficiency obligations have focused on stationary end uses. These programs have successfully delivered energy savings around the globe for the past two decades.

“France’s simple adaption of these obligations to the road transport sector has been an interesting exercise,” said Dr. Eoin Lees, author of the report.

Under the scheme, road transport fuel importers have the option of meeting their obligation in the transport sector, as well as through energy savings measures in other end-use sectors. They have, in fact, met their obligations overwhelmingly through end-use measures outside the transport sector. This is primarily due to the poor cost effectiveness of energy savings for road transport measures compared to energy savings measures in other sectors.

“The French experience demonstrates that energy efficiency obligations are not the best policy vehicle to achieve road transport savings. While energy efficiency in transport is very important, other policy options may be better suited to the task,” added Dr. Lees. “For example, regulation of automobiles through a series of European Union Directives has dramatically improved the fuel efficiency of road vehicles and reduced related airborne emissions in Europe.”

As France’s experience demonstrates, including the road transport sector under an energy efficiency obligation is an effective way to increase investment in end-use efficiency in other sectors and achieve economy-wide energy savings.

Energy Efficiency a “No-Cost” Air Quality Strategy

With more than 150 million Americans living in areas that do not meet current national ambient air quality standards, and the possibility of even more stringent future standards, state air quality agencies cannot afford to overlook the emissions avoided by energy efficiency programs. RAP’s new paper, Quantifying the Air Quality Impacts of Energy Efficiency Policies and Programs, provides an introduction to the rationale and opportunities for using energy efficiency as an air quality improvement strategy.

“Energy efficiency is the only available tool to reduce multiple air pollutants at no cost to society. State air quality regulators need to start planning now so that they can use efficiency to meet upcoming air quality standards,” said John Shenot, RAP associate. “While no regulator should expect to solve all air quality challenges through one strategy alone, efficiency has distinct advantages over other pollution control methods,” he added.

Energy efficiency addresses multiple air pollutants simultaneously, and many states already have efficiency programs in place. Energy efficiency is also an investment in the power sector, which lowers the total system-wide cost of serving all customers’ energy needs. By contrast, traditional pollution controls are an expense to the system, which drives up the cost of supplying customers.

Although the United States Environmental Protection Agency is prepared to recognize these benefits in state implementation plans, few states have experience with documenting the air quality impact of their efficiency programs. RAP’s paper identifies useful data sources and outlines four basic steps state air regulators can follow to quantify the air quality impacts of energy efficiency policies and programs.

Join the Sources of Energy Efficiency Program Savings for Air Regulators webinar on Wednesday, September 11 from 2:00 to 3:30 p.m. EDT to learn more. Author John Shenot will highlight the opportunity to use efficiency as an air quality strategy and provide an overview of the steps to quantify the emissions reductions those policies achieve.