The RAPPORT, Europe edition, September 2023

Implications of the Fit for 55 package on Member States’ energy saving obligations

The Council of the European Union voted on 25 July 2023 to adopt the final text of the recast of the Energy Efficiency Directive. This was the last step in the decision-making process and is the right time to consider the implications of the latest changes in the EU legislation.

What will EU Member States need to do to meet their new energy savings obligations under the Energy Efficiency Directive (EED)?

1. More ambitious energy efficiency policies.
2. Target action amongst households in energy poverty.
3. Stop supporting fossil fuel combustion technologies like gas boilers.

And how will the Fit for 55 package affect Member State implementation?

1. Most new legislation complements the EED; energy efficiency helps to meet higher climate change and renewable energy targets, and lowers the price of Emissions Trading Scheme (ETS) allowances.
2. More ambitious eco design and new vehicle CO2 standards reduce some of the additional energy savings available to national policy.
3. Some new legislation has both effects. The ETS increases energy prices, simultaneously supporting previously uneconomic energy efficiency actions and driving autonomous energy efficiency improvements amongst the most cost-effective actions.

This report, part of the ENSMOV Plus project, gives a bird’s eye view of all the changes that affect the implementation of the EED energy savings obligation. More to come on this topic from once the EPBD is negotiated.

ENSMOV Plus shares experience to meet the challenge of higher energy savings targets

AMSTERDAM — Energy savings and efficiency have become central topics in the last years, having faced multiple crises. This has made many reconsider how they consume energy individually and globally. In European Green Deal, the EU is clearly increasing its climate ambition and aims at becoming the first climate-neutral continent by 2050.

Article 7 of the Energy Efficiency Directive (EED) is a key element of the European Union’s Fit for 55 Package. To meet the EU’s 55% net emissions reduction target and address energy poverty, national energy efficiency policy measures will be essential complements to EU law, such as eco-design and carbon pricing regulations.

With the EED recast, Article 7 will soon become Article 8, and will keep requiring Member States to achieve final energy savings. The changes brought by the EED recast are under final negotiations. What is clear already is that, likely from 2024 on, the rate of energy savings required will significantly increase, a share of these savings will need to be delivered amongst energy poor households (or other priority groups), and savings from new fossil fuel technologies would be excluded.

This means that Member States will need to ramp up the ambition of their policy measures, target specific end-users and shift the focus of technology support towards low-carbon options. These ambitious changes are entirely consistent with the 55% target, the EU Green Deal and the Renovation Wave, but they are also challenging. To meet these challenges, they can build on successes of the first Art. 7 EED obligation period (2014-2020) and continue to improve evaluation, measurement and verification (EM&V) practices to provide confidence in the impacts of policy measures.

This is why the ENSMOV Plus project will therefore play a central role by helping Member States to better navigate policy development, implementation and evaluation, and to learn from each other. This will be done through experience-sharing activities and resources tailored to the achievement of Article 7 EED objectives. Launched in December 2022, ENSMOV Plus is a three-year European project of the LIFE programme and builds on the previous ENSMOV project with a strong consortium that includes national energy agencies, national associations of stakeholders and research institutes from 12 Member States: Austria, Croatia, France, Germany, Greece, Hungary, Italy, Lithuania, the Netherlands, Poland, Romania and Slovenia.

“Based on the Commission’s report on the achievement of the 2020 energy efficiency targets, 21 Member States achieved their headline target in terms of final energy consumption not to exceed in 2020. And the EU headline energy efficiency target for 2020 was achieved. But this was partly due to COVID and the resulting lower energy demand,” says Jean-Sébastien Broc, coordinator of ENSMOV Plus at IEECP.  

“The picture is even more mixed when looking at the Article 7 target about cumulative energy savings over 2014-2020: 14 Member States met their energy savings, with seven of them overachieving their target by more than 20% (and even sometimes by more than 50%). Whereas ten other Member States did not meet their energy savings obligation, with five of them missing their target by 25% or more. The over-achievements show that doing more is feasible, whereas the under-achievements remind us that not all policies have been successful. Every country and stakeholder can learn from what happened in other countries, provided that experience is analysed and discussed. This is what ENSMOV and now ENSMOV Plus are doing. In addition to make state-of-the-art knowledge easy to find and acquire, the project provides a unique forum for public bodies and private stakeholders from all EU27 countries to exchange.”

National authorities and market stakeholders have welcomed the opportunity to share experiences, and discuss challenges and solutions related to energy efficiency obligation schemes (EEOSs) and alternative measures. The previous ENSMOV project organised more than 100 events (EU & regional workshops, webinars and national meetings), gathering a total of more than 1,500 unique participants.

ENSMOV Plus will provide solutions to facilitate and expand sharing of knowledge and experience amongst Member States for the implementation of policies under Art.7 EED, and will further develop the already existing knowledge transfer platform.

For more information on the ENSMOV Plus project: https://ieecp.org/projects/ensmov-plus/

Contact:
Axelle Gallerand, Communication lead
[email protected]
+33 640 606 673

Staying the course: Keeping the key role of the energy savings obligation in focus as negotiations reach their endgame

As we move towards the endgame in the Energy Efficiency Directive (EED) revision, what should negotiators be considering as they recraft the key energy saving provisions — the energy savings obligation?

The right level of ambition …

As part of their response strategy to the energy crisis, EU legislators have committed to finalise the revision of the EED, the main legislation to deliver energy savings. Legislators are planning to meet on 2 March to advance this discussion. Last year, the Commission proposed a 13% energy efficiency target for 2030 and urged legislators to align the energy savings obligation (Article 8) with the REPowerEU goals.

The Russian invasion of Ukraine, the consequent disruption in fossil fuel supplies and the resultant increase in energy prices make action on energy efficiency more urgent than ever. The Council’s position is to gradually increase ambition over time, when what is needed is a ramp up in ambition now.

Looking ahead to 2030, Article 8 is a key delivery mechanism of the Fit for 55 Package. It would provide more than half of the energy savings needed to meet the proposed energy efficiency target, while pivoting the EU away from fossil fuel subsidies and ensuring the delivery of energy efficiency actions amongst energy poor households.

… without the loopholes

As political deadlines to resolve negotiations loom, it is important that last minute, seemingly innocuous changes do not undermine the good work put in over the preceding months.

This is particularly problematic with provisions such as Article 8, with its highly technical measurement processes set out in Annex V of the directive. The one non-negotiable technicality is the principle of additionality to EU law. Without this principle, the energy savings obligation will not play its role in meeting the Fit for 55 and REPowerEU targets, endangering their achievement. For example, energy savings from EU product and equipment standards require minimum energy performance levels that cannot be counted towards Member States obligations.

As political deadlines to resolve negotiations loom, it is important that last minute, seemingly innocuous changes do not undermine the good work put in over the preceding months.

The introduction of a new EU Emissions Trading System (ETS) does not significantly impact the delivery of energy efficiency policy measures under Article 8. During the most recent obligation period (2014-2020), countries reported numerous policy measures that saved energy covered by the current EU ETS — amongst both energy intensive industries and electricity consumers. The ETS meant that subsidy rates might have been a little lower than otherwise needed.

The extension of emissions trading to other energy sources used in buildings, transport and industry, will not significantly shrink the amount of savings that Member States can achieve through their national energy efficiency schemes. Indeed, Article 8 is the perfect complement to ETS 2. Emissions trading internalises the external costs of carbon, while Article 8 tackles the other market failures and barriers affecting energy efficiency take-up.

Removing indefensible fossil fuel subsidies

In its Net Zero by 2050 strategy, the International Energy Agency said that there should be no new fossil fuel boiler sales after 2025. The EED proposal moves in this direction by excluding energy savings from fossil fuel combustion technologies in its proposal. This makes a lot of sense, especially in the buildings sector, where the continued subsiding of fossil fuel boilers creates stranded assets that will need to be removed before the end of their lifetimes as carbon emissions becomes scarcer in the 2030s.

For Member States wishing to fulfil their energy savings obligations through buildings sector policy measures, the fossil fuel exclusion makes very little difference. The most efficient fossil fuel boilers are only slightly more efficient than the minimum standard boilers required through EU Ecodesign regulations. Policy measures that persuade consumers to switch to electrically powered heat pumps deliver around 15 times the energy savings than even the most efficient boilers, making electrification policies a no-brainer from an energy efficiency standpoint.

Delivering a more equitable energy transition

The one area where the negotiators’ positions appear to converge is on the benefits of targeting energy efficiency actions amongst vulnerable groups. The Commission’s proposal requires a minimum proportion of energy savings to be made amongst energy poor, vulnerable or households living in social housing. This aligns well with the social objectives of the Fit for 55 Package, including the use of ETS 2 revenues through the Social Climate Fund.

All these issues must be considered as negotiators move towards finalising the legal text in March. Energy efficiency policies lie at the heart of a cost-effective and equitable Fit for 55 Package. An ambitious energy savings obligation is the way to ensure this happens.

Options for the better integration of demand-side resources

Options for the better integration of demand-side resources was written by Zsuzsanna Pató for the Directorate-General for Energy, European Commission. It covers options to further mobilise energy efficiency and demand-side flexibility in European power markets. These options are clustered into: 

• Short-term actions: No need for legislative change, but will help energy efficiency and demand-side flexibility this winter and could be promoted as best practices. 
• Solutions requiring legislative changes, including:
  • Limited edits or potential placeholders for further revisions that could be agreed on during the upcoming revision of the Electricity Directive and the Electricity Regulation, and potentially the ongoing finalisation of the Energy Efficiency Directive and the Energy Performance of Buildings Directive.
  • New ideas within the remit of these legislation pieces that could be introduced in the next round of revisions

This report is reprinted here with permission. 

How the European Union incentivises inefficient renewable heating

The EU’s renewables directives count what fuel is burned for heating, as opposed to the amount of heat produced.

Never has the spotlight shone so brightly on Europe’s heating and cooling sector. And for a good reason. Fossil gas makes up around 39% of the energy used to heat buildings and much of Europe wants to rapidly phase it out.

To help do so, the European Parliament recently voted in favour of a key amendment to the Renewable Energy Directive (RED): raising the annual target for the share of renewable energy in heating and cooling.

The new goal—a 2.3 percentage-point increase each year until 2030—is roughly double the one proposed in the Fit-for-55 package unveiled in 2021.

The clear signal has been set, yet there is something off with the way the metric is measured. By counting fuel burned instead of heat produced and not including electricity used for heating or cooling, the RED favours inefficient technologies.

Ignoring the mushy peas on the floor

Imagine a toddler having lunch. Her father has prepared a bowl of 300 grams of mushy peas and figures that this meal should meet half of the two-year-old’s nutrient needs for the day. She is a messy eater though and jettisons around half of her food on the ground. Once her dad sees the empty plate, he pats himself on the back, thinking that he filled her belly. He should look at the floor.

Measuring the renewable share of heating and cooling in the RED is simple. It tallies all the energy used to heat and cool from renewable sources, then divides it by the total. The key question is: which energy counts as renewable?

Unfortunately, the RED’s answer to this is flawed. It only counts final energy use or, in other words, the fuel that is delivered to the customer to use in their heating appliance. That means if someone burns a log in a fireplace at 50% efficiency and it produces 100 kilowatt-hours (kWh) of heat, how much “renewable heat” does that account for?

If you were thinking “100 kWh” you would be wrong. The RED counts that as 200 kWh, since that is the energy content of the biomass that was combusted at 50% efficiency.

That is a big problem because heating systems have different efficiencies. An electric heat pump typically produces 100 kWh of heat with 33 kWh of input electricity. The remaining 67 kWh is drawn from the ambient air for free. An 85% efficient pellet boiler needs 117 kWh.

The point: Less efficient technologies need more input energy for the same useful heat outcome. The RED discourages switching to more efficient heating appliances and electrification. It counts the full weight of the mushy peas, not just those that were eaten.

Anti-electrification policy

The other problem with the RED methodology is its scope. It does not consider the renewable electricity used for heating and cooling at all. Whether it is used to drive a heat pump or just an electrical resistance heater, it does not count toward the renewable heating and cooling target. Even for cooling, which is virtually only based on electricity.

This is an effort to avoid double-counting. The data wranglers do not want to count renewable electricity in both the power sector and the heating and cooling sector. As a data wrangler myself, I appreciate their commitment to neat allocation. But in this case, neatness has its downside.

Electricity providing a heating or cooling service should be considered towards the renewable heating and cooling target. Otherwise, heat pumps could be undervalued in terms of their contributions. If the methodology does not even consider where the electricity comes from, the heat output of the heat pump can never be fully renewable.

If the renewable share of electricity would be considered in the RED’s methodology as a heating and cooling service, the incentive to promote heat pumps would even be stronger. Member States will thus be encouraged to implement policies that aim to achieve the heating and cooling target, with the ancillary benefit of growing the deployment of efficient heat pumps to do so.

As it stands, the least efficient and least electric technologies are those that have the most potential to meet the goals under the RED. More efficient and electricity-based heating appliances risk falling behind.

The way forward

Getting metrics right is crucial to ensuring a rapid and balanced transition to clean heating and cooling. The Renewable Energy Directive’s goal should be to promote efficient heating and cooling technologies that maximise useful energy while minimising input energy.

This means counting the useful heat that is produced by a heating system, not the input energy needed. It also means including the electricity used for renewable heating and cooling.

Since electricity realistically contributes to both the headline renewable energy target (32% in the RED II and voted to increase to 45% by the European Parliament), as well as the renewable heating and cooling target. Both calculations should factor it in so that the statistics are accurate.

Double-counting can be avoided by ignoring the electricity used in the heating and cooling sector when calculating the headline target.

Metrics matter. Only by counting the useful heat produced can the Renewable Energy Directive provide the right incentives for phasing out fossil gas and spurring the clean electrification of heat.

A version of this article originally appeared on Foresight Climate & Energy.

Photo: Holger Schué from Pexels.

Levelling the playing field: Aligning heating energy taxes and levies in Europe with climate goals

Taxing energy in line with its environmental harm aligns the prices facing consumers with policy objectives. Energy taxes and levies encourage energy efficiency and raise revenues for governments, which can then dedicate them to energy transition projects. Not all energy sources are equal, however, when it comes to their environmental-damage costs. Adding taxes and levies disproportionately to electricity encourages the continuation of an emissions-intensive status quo and discourages investments in key decarbonisation technologies, such as heat pumps. This paper shines a light on the imbalance in energy taxation across almost all European markets and makes the case for reform.

The authors explain the current structure of energy taxes and levies in five key European countries where reform would be beneficial: Italy, Spain, the United Kingdom, Belgium and Germany. All five countries overtax electricity — in three cases by more than 200% — and undertax oil and fossil gas while not taxing wood use at all. Only in Italy is the tax rate on heating oil close to the value of the environmental costs caused by its use.

The European Commission’s proposals in the Fit for 55 Package would go a long way towards addressing the taxation issue. But these proposals would need to be implemented and there’s no guarantee they’ll survive the upcoming negotiation process. Member States wishing to align their tax and levy policies with their climate targets can act now to begin the process of rebalancing.

The authors detail four approaches to rebalance energy taxes and levies, drawing on examples from around the continent.

• Option 1: Lower tax on electricity for heating
• Option 2: Environmental taxation
• Options 3 and 4: Shift levies to public budget or fossil fuels

Boosting the EU energy savings obligation

As part of the Fit for 55 legislative package, the European Commission proposed a recast of the Energy Efficiency Directive in July 2021. The recast includes significant changes to the Directive’s cornerstone article on the energy savings obligation, Article 7 (now Article 8). As a next step, EU legislators – the European Parliament and the Council of the EU – have to agree on a common text. The energy savings obligation in Article 8 requires EU Member States to trigger a certain amount of energy savings among end users. Getting the specifics of this obligation right is vitally important for Europe’s energy transition.

RAP’s Marion Santini, Samuel Thomas and Louise Sunderland analysed the negotiations on Article 8 on 15 June 2022, to assess three critical requirements: the energy savings rate, the exclusion of fossil fuel technologies and the energy poverty sub-target. They identify the important issues and options for decision-makers who are looking to align the Energy Efficiency Directive with climate neutrality, energy security and equity goals.

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.