# EUR-Lex - 52014SC0255 - EN

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# 52014SC0255

**COMMISSION STAFF WORKING DOCUMENT IMPACT ASSESSMENT Accompanying the document Communication from the Commission to the European Parliament and the Council Energy Efficiency and its contribution to energy security and the 2030 Framework for climate and energy policy /* SWD/2014/0255 final */**

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Contents

1.      Procedural issues
and consultation of interested parties. 3

1.1.     Organization and timing. 3

1.2.     Consultation and expertise. 3

1.2.1.         Consultation. 3

1.2.2.         External expertise. 4

1.3.     Opinion of the Impact Assessment Board. 5

2.      Problem definition. 6

2.1.     Policy context. 6

2.2.     Progress achieved and lessons learned. 7

2.2.1.         Trends in energy consumption and energy
efficiency. 8

2.2.2.         Policy developments. 11

2.2.3.         Projections of progress towards the 2020
target. 12

2.2.4.         Interactions with other elements of the
present energy and climate framework. 14

2.2.5.         Current energy efficiency trends compared
to the identified cost-effective energy-saving potentials and the EU
decarbonisation goals. 16

2.3.     What is the problem?. 16

2.3.1.         General problem.. 16

2.3.2.         Specific problems. 17

2.4.     What are the drivers for the problem?. 18

2.5.     The Union's right to act, subsidiarity and
proportionality. 20

3.      Scope and Objectives. 20

3.1.     Context and scope. 20

3.2.     Objectives. 21

3.2.1.         General objective. 21

3.2.2.         Specific objectives. 21

3.2.3.         Operational objectives. 21

3.3.     Consistency with other policies. 22

4.      Policy Options. 22

4.1.     Options for closing the gap towards the 2020
target. 22

4.2.     Analysis of the optimal level of savings for
2030. 22

4.3.     Options for the architecture of the energy
efficiency framework post-2020. 29

5.      ANALYSIS OF IMPACTS. 30

5.1.     Methodology. 30

5.2.     Policy options for 2020. 34

5.3.     Ambition level 2030. 36

5.3.1.         Energy system impacts. 36

5.3.2.         Economic impacts in the energy system.. 44

5.3.3.         Macro-economic impacts. 51

5.3.4.         Environmental impacts. 61

5.3.5.         Additional environmental and health
impacts. 63

5.3.6.         Competitiveness and Affordability of
energy. 64

5.4.     Architecture of the 2030 energy efficiency
policy framework. 65

5.4.1         Overall
architecture. 65

5.4.2         Formulation
of a 2030 target 67

5.5.     The role of financing. 69

6.      Conclusions. 71

6.1.     Policy options for 2020. 71

6.2.     Ambition level 2030. 71

6.2.1          Energy system
impacts including security of supply. 71

6.2.3 Social impacts. 73

6.2.4          Environmental
impacts. 73

6.3.     Architecture of the 2030 policy framework. 74

6.4.     Financing. 74

1. 
Procedural issues and consultation of interested
parties 
1.1. 
Organization and timing

The preparation of the Impact Assessment
(IA) for the Energy Efficiency Review started in 2012 following the adoption of
the Energy Efficiency Directive (Directive 2012/27/EC, 'EED') which requires
it. Its scope was broadened by the Communication “A policy framework for
climate and energy in the period from 2020 to 2030” (2030 Communication), and
the IA builds on the preparatory work and impact assessment done for that
Communication[1].

Interservice meetings at Director level
were held on 22 March and 9 April 2014. The energy efficiency interservice
group (ISG) discussed the IA 4 times, on 13 March, 28 March, 30 April and 13
May 2014. The lead DG is Energy. The services invited to the ISG were
Agriculture and Rural Development; Budget; Communications Networks, Content and
Technology; Climate Action; Competition; Economic and Financial Affairs;
Employment, Social Affairs and Inclusion; Enterprise and Industry; Environment;
Eurostat; Health and Consumers; Infrastructure and Logistics in Brussels;
Internal Market and Services; Joint Research Centre; Mobility and Transport;
Regional and Urban Policy; Research and Innovation; Secretariat-General;
Taxation and Customs Union; Legal Service; and the Executive Agency for Small
and Medium-sized Enterprises.

1.2. 
Consultation and expertise
1.2.1. 
Consultation

Public consultation was conducted
between 3 February and 28 April 2014. Stakeholder views were sought on (i) the
right approach for addressing the shortfall in progress towards the 2020
target; (ii) the design of a possible future energy efficiency target; (iii)
possible additional measures to address the economic saving potentials in
different sectors. 733 responses were submitted representing a broad spectrum
of stakeholders.[2] The
Commission's minimum consultation standards were met. The report of the public
consultation is in Annex I.

The review was discussed with Member
States in the Energy Efficiency Directive Committee on 14 March 2014. A
high-level stakeholder conference was held on 22 May 2014. It provided useful
first-hand accounts on the major issues addressed by the consultation and
complemented the formal public consultation.

Those Member States that took part in
the public consultation (8 Member States), have stated diverging views with two
calling for a binding target and 5 being against energy efficiency targets,
some of them suggested waiting for clearer results of the impact of the
existing measures, and/or pleading for the reinforced implementation of the
existing measures.

In addition to the views received to the
public consultation, five additional Member states called for a binding energy efficiency
target in an open letter to the Commission in view of the EED Review (dated 17
June 2014).

Box 1: Main findings of the public
consultation

Many respondents argued that energy efficiency is a sound response to the prevailing energy security issue in Europe and also an effective tool for climate mitigation. It triggers innovation and creates new jobs. A number of replies indicated in particular that there is still untapped potential in manufacturing industry and that more needs to be done in buildings. Most respondents considered that the shortfall in achieving the EU energy efficiency objective for 2020 should be addressed through targets or new policy measures. 108 respondents suggested other means of tightening the gap. Among 312 respondents favouring targets for 2020 and/or 2030, 43% considered that these should be expressed in terms of absolute energy savings; 20% in terms of energy intensity; and 30% as a combination of the two. Respondents favouring targets argued for them at EU (218), national (205) or sectoral (110) level. 221 respondents (70%) favoured legally binding targets while 70 (22%) would prefer indicative targets. 534 respondents saw the need for additional financing instruments and mechanisms at EU level. For many, this should go hand in hand with reducing the market and non-economic barriers and raising awareness of the underlying benefits of energy efficiency. One group of stakeholders stressed the need for the development and uptake of new technologies, while a second emphasised that the necessary solutions are already available and should be promoted through demand side policies and exchange of best practice, awareness raising and information campaigns.

1.2.2. 
External expertise

The IA is supported by:

- 
Analysis
of security of supply through energy system modelling using the PRIMES
partial equilibrium model, developed and used by the National Technical
University of Athens (NTUA). The model provided projections of energy
consumption and import dependency. A number of energy efficiency scenarios were
modelled to analyse their impacts on import dependency;

- 
Analysis
of European competitiveness on the basis of the Communication and
assessment of energy prices and costs in Europe[3] and
accompanying ECFIN report[4];
macroeconomic
modelling using GEM-E3, a general equilibrium model, maintained and used by
NTUA; and macroeconomic modelling using E3MG, a macro-econometric model run by
Cambridge Econometrics. GEM-E3 and E3MG were used to assess GDP, employment and
related impacts of the energy efficiency scenarios;

- 
Analysis
of sustainability aspects through the PRIMES model;

- 
Analysis
of impact on energy prices through the POLES model;

- 
Analysis
of potentials and progress through:

o Bottom-up
analysis of the impact of current EU and Member State energy efficiency
measures; decomposition analysis of factors contributing to changes in energy
consumption in the EU; and bottom-up analysis of sectoral energy-saving
potentials by Fraunhofer ISI;

o Analysis
of Member States' energy efficiency obligation schemes and alternatives under
the Energy Efficiency Directive (EED)[5]
by CE Delft.

1.3. 
Opinion of the Impact Assessment Board

The
draft IA was submitted to the Impact Assessment Board (IAB) on 14 May and was
discussed at the IAB hearing on 4 June 2014, following which the IAB asked for
a revised submission. The board asked for clarifying the context of the
initiative and the logic behind the impact assessment. This was done by
including a clearer description of the link and complementarity of the Energy
Efficiency Review with the relevant initiatives, notably the “2030”
Communication (section
2.1).

Regarding
the analysis of progress towards the 2020 target the board requested more
evidence on the basis of which certain assertions are made, in particular the
expected size of the gap to the target. The revised impact assessment includes
up-to-date and more extensive information .

The
board also requested to include an analysis, based on experience with the
current framework, of the interactions between different sets of targets (EE,
RES, GHG) and, more broadly, pricing/market-based instruments and other types
of policies. A dedicated section has been added in section 2.

In
line with the request from the board section 2 has been restructured to provide
clear information on the baseline should be clarified.

The
analysis of options for bridging the gap to 2020 (section 5.2) includes more
details on the underlying assumptions and expected impacts.

Regarding
the analysis of options for the optimal level of energy efficiency policy for
2030 the board asked to justify the logic behind modelling different levels of
ambition rather than different options for achieving 25% savings by 2030,
mentioned in the 2030 Communication. This is
addressed in section 4 (4.2) and 5 (5.1).

Section
3 (objectives) has been restructured to make clearer links with section 2
(problem definition) and 4 (policy options) and correspond to the IA
guidelines.

The
board also indicated that the impact analysis of the different levels of
ambition for 2030 needs to be strengthened, in particular regarding possible
interactions with the EU Emission Trading Scheme (ETS). Additional information
in this respect was added in section 2.2.4, 3.1 and Annex V.

Finally
the board asked to explain how the option of a binding target would be
translated into concrete actions and legislative acts (e.g. for the building
sector, CO2 reduction targets for cars, and
on eco-design), and assess the related according costs and benefits. The scope
of the review was clarified in section 4.2.

2. 
Problem definition 
2.1. 
Policy context

In 2007 the European Council set the
target of saving 20% primary energy by 2020 (compared to 2007 projections). The
Energy Efficiency Directive (EED) establishes a common framework of measures
for the promotion of energy efficiency to ensure the achievement of the target.
It requires the Commission to assess by June 2014 whether the EU is likely to
reach the target and to propose further measures if necessary[6].

Amid concerns over current events in the
Ukraine on the one hand, and growing energy costs for EU consumers and
businesses on the other, the European Council of 21 March 2014 invited the
Commission to consider the role energy efficiency should play in:

- 
 increasing
the security of energy supply to the EU market; and

- 
 hedging
against energy price increases.

The Council highlighted the timely
review of the EED and the development of an energy efficiency framework as
elements to reach an early agreement on a new policy framework for energy and
climate in the period 2020 to 2030.

The recent European Energy Security
Strategy (EESS)[7]
highlights moderating energy demand as "one of the most effective tools
to reduce the EU's external energy dependency and exposure to price hikes". The
strategy primary
focus is on short-term measures that can increase the EU energy security and so
it does not analyse in a detailed and quantified way the long-term relationship
between increased energy efficiency and greater security of supply.

The “2030”
communication lays
down the broad modalities of the EU climate and energy framework for the period
between 2020 and 2030, including proposals for binding targets of 40%
greenhouse gas reduction and 27% share of renewable energy in final energy
demand by 2030[8].
While the communication states that “A greenhouse gas emissions reduction
target of 40% would require an increased level of energy savings of
approximately 25% in 2030” it indicates that the exact ambition of future
energy savings policy and measures necessary to deliver it are to be
established in the review of the EED building on the analysis underpinning the
2030 framework and the targets and objectives for greenhouse gas reductions and
renewable energy. It also requires the review to consider whether “energy
intensity improvements of the economy and economic sectors, or absolute energy
savings or a hybrid of the two represents a better benchmark upon which to
frame a 2030 objective”. The logic behind this is two-fold:

- 
A
decision on the modalities of the energy efficiency framework beyond 2020 needs
to build on the lessons learned from the current framework, including which
policies had worked and what were the drivers of energy efficiency developments
in recent years. The review under the EED can provide such an ex-post analysis,
notably because it benefits from up-to-date information submitted by the Member
States as part of reporting obligations under that directive.

- 
While
the impact assessment accompanying the “2030” communication
established
that a 40% decrease of greenhouse gas emissions matched by 27% renewables and
25% energy savings represent the lowest energy system costs for achieving the
40% GHG reduction, it also indicated that savings going beyond that threshold
result, for relatively limited cost (up to a point), in substantial benefits in
terms of increased security of supply, health, employment and, under relevant assumptions,
economic growth, while remaining consistent with the other targets. The
decision on the optimal level of policy ambition in 2030 needs to find the
right balance between these elements and would benefit from an analysis of a
broader set of scenarios focusing on energy efficiency in the context of this
broad set of impacts and taking into account current EU policy priorities..

2.2. 
Progress achieved and lessons learned

2.2.1. 
Trends in energy consumption and energy
efficiency

The European Union's energy efficiency
target for 2020, adopted in 2007, equates to primary energy consumption of no
more than 1483 Mtoe.

Having increased from 1618 Mtoe in 2000 to
1721 Mtoe in 2006, primary energy consumption has since decreased to 1584 Mtoe
in 2012. As
Figure 1 shows 2006 marked a turning in decoupling economic growth from energy
consumption. This was a result of increased energy efficiency. Since then this
decoupling has accelerated driven both through price signals and a
comprehensive set of energy efficiency policies.

Figure
1. Evolution of energy consumption and GDP in the EU 1995-2013

Source: European Commission

While the economic crisis that began in
2008 had a significant impact on energy demand, the effect of efficiency gains
(driven by prices and policies) was greater. This can be observed on Figure 2
which compares the developments in primary energy consumption under 2007
Reference projections on which the 2020 target is based (red line) with real
developments projected so far, where the impact of energy efficiency (brown
line) and economic drivers (green line) has been stripped out[9]. As
the graph shows if current trends continue by 2020 roughly 1/3 of reduction in
energy consumption compared to the 2007 Reference will stem from lower growth
than anticipated, and about 2/3 from increasing energy efficiency improvements.

Figure
2. Comparison of primary energy evolution under 2007 Reference with registered
and projected developments (including the impact of energy efficiency and
economic/activity factors)

Source: European Commission, PRIMES 2014

At sectoral level as can be seen in
Figure 3, the efficiency gains had the biggest impact on reducing energy demand
in absolute terms in transport, followed by households and industry. The pace
of energy efficiency improvements has also increased, especially in transport.
Whereas the efficiency of the power and services sector deteriorated between
2000 and 2008, this trend was reversed in subsequent years.

Figure
3. Absolute reductions in primary energy consumption at sectoral level
attributable to increased energy efficiency (2000-2008 and 2008-2012).

Source: European Commission, Fraunhofer
(based on the decomposition analysis included in Annex III)

Progress in energy efficiency within the
different sectors can be exemplified by the following elements[10]:

- 
Between
1995 and 2010 the average specific consumption of new cars in the EU was more
than 2 litres less than in 1995 (reduction from 7.7 l/100 km to 5.6 l/100 km);

- 
New
dwellings built today consume on average 40% less than dwellings built 20 years
ago;

- 
The
share of refrigerators meeting the highest energy efficiency labelling classes
(A and above) increased from less than 5% in 1995 to more than 90% 15 years
later;

- 
EU
industry improved its energy intensity by almost 19% between 2001 and 2011,
compared with 9% in the US[11].

Although it is in general difficult to
single out the effect of policies from prices and other factors influencing
energy efficiency, the figures and examples above allow concluding that 
policies work and there is a clear correlation between the roll-out of certain
policies  in the EU over the last years and energy efficiency trends. For example
the increased savings in the transport sector as of 2008 can be to a large
extent attributed to the effect of fuel-efficiency standards for passenger
cars.

At the same time without lower economic
growth than expected the target would probably not be met. The 85 policy
measures included in the 2006 Energy Efficiency Action Plan[12] when
the target was proposed were expected to bring 14% savings by 2020. In 2011 the
Commission estimated that the EU was on track to reach only 11% of savings and
hence proposed the Energy Efficiency Directive which was supposed to bridge the
gap to the 2020 target. The directive as adopted by the European Parliament and
the Council was however weakened by about 25% compared to the original
Commission proposal. Hence it can be concluded that the EU and Member States
equipped themselves with the policy tools matching the 2020 target, but only
with the lower economic growth taken into account.

2.2.2. 
Policy developments

The EU policy framework (including an
indicative EU target and concrete measures in the fields of buildings,
appliances, power generation, transport and industry) seems to have served as an
effective framework to support this progress in energy efficiency, while
needing to be accompanied by appropriate action in the fields of financing and
of policy implementation.

The energy efficiency policy framework has
been developed significantly in the last years. The EU target has been clearly
defined, providing political momentum, guidance for investors and a benchmark
to measure progress. In the areas of buildings and products, including cars,
progressive rules have been established although their implementation and
enforcement remains an issue in some cases. Despite the economic crisis
investment in energy efficiency is growing although it remains below the
thresholds necessary to realise the cost-effective efficiency potential of the
EU economy (see section 2.2.5). Experience from funding energy efficiency
indicates that what is needed is a robust framework enabling better understanding,
knowledge, transparency, performance measurement and de-risking at the EU
level, accompanied by tailored Financial Instruments at the appropriate level, which
will often be closer to final beneficiaries.

At European level, the most effective
policy so far have been product efficient standards including ecodesign and
energy labelling of products and the cars and CO2 legislation.   The
Energy Performance of Buildings Directive and the Energy Efficiency Directive
of 2012 have the potential to drive energy efficiency in the EU provided they
are properly implemented by Member States. The long-term potential of the EED is
however limited as some of the key provisions stop applying in 2020.

Between 2008 and 2012, primary energy
consumption fell in all Member States except Austria, Estonia, Latvia,
Lithuania, Luxembourg and Poland. Changes in the level of economic activity
played a big part in this, as did changes in the electricity generation mix and
changes in industrial structure. In certain countries – especially in Bulgaria,
Croatia, Latvia, Lithuania and Romania – the effect of these factors was
countered by changes in the level of consumption (e.g. increasing average size
of dwellings). When the effects of these factors and of climatic variation are
stripped out, the Member States that made the greatest improvements in final
energy consumption per unit of energy service were Bulgaria, Denmark, Greece,
Hungary and Slovakia. Details are in Annex III.

At national level, Member States report
success with different policy measures. Examples include taxation (e.g.
Sweden), voluntary agreements with industry (e.g. Netherlands, Finland), credit
for building owners (e.g. Estonia, Germany). Energy efficiency obligations for
utilities have been an effective tool in the five Member States – UK, Denmark,
Italy, France and Belgium - that have had them in place for some time.

The up-to-date information submitted by
Member States in their 2014 National Energy Efficiency Action Plans indicates
further strengthening of national policies, including new measures to implement
the Energy Efficiency Directive, in many Member States. Energy efficiency
obligations for utilities to implement energy-saving measures among their
customers, involving actors that have the most direct link to energy consumers
and who previously had little or no incentive to limit energy demand, have
changed the business model of energy providers and created a stable source of
financing for energy efficiency. Following the adoption of the Energy Efficiency
Directive the number of Member States applying such schemes is expected to go
from five to sixteen. Other countries will strengthen existing schemes: for
example in France savings required the ambition level of the current utility
obligations scheme will be doubled from 2015. Several Member States' new
national building renovation strategies indicate that they are linking a better
knowledge of their building stocks with policies to stimulate cost-effective
deep renovation of buildings and with suitable financial support[13]. The
draft Operational Programmes beginning to be submitted under the European
Structural and Investment Funds indicate an increase in sums allocated for the
low–carbon economy (in some cases significantly above the minimum requirements
for this objective). Financing mechanisms are being diversified, with less
focus on grants and greater use of financial instruments (leveraging private
capital), such as soft loans or guarantees.

While the overall trend both in terms of
energy consumption and efficiency and in terms of the policy framework that
aims to foster it is positive, implementation of EU rules is often incomplete
and delayed (details are provided in section 2.4).

More details on EU and national policy
developments are given in Annex II.

2.2.3. 
Projections of progress towards the 2020 target

The latest projections using PRIMES are
for primary energy consumption of 1539 Mtoe in 2020 - savings of 16.8%. These
projections serve as the baseline for this impact assessment. These projections
are based on the PRIMES Reference Scenario 2013 "EU Energy, Transport and
GHG Emissions – Trends to 2050"[14]
("Reference 2013"), which was also used in the Impact Assessment of
the 2030 framework. A reference scenario follows the logic of including only
policy measures which have been adopted until a certain cut-off date, without
including new policies not yet officially adopted. In the Reference 2013
scenario, the cut-off date was spring 2012 (the EED was therefore included,
with strongly conservative assumptions as to its implementation).

In order to have as accurate as possible
a review of the effects of possible new energy efficiency measures and their
overall level of ambition, it was necessary to update this Reference Scenario
2013 with regard to recently adopted and proposed policies especially with
regard to legislation influencing energy consumption. The update of the
Reference Scenario 2013 is called the Reference Plus Scenario
("Reference+") and features the policies that were adopted between spring
2012 and January 2014. A detailed description of both scenarios is included in
Annex V. The Reference+ scenario projects energy savings in 2020 at 17.0%.

However, the energy consumption estimates
referred to in the previous paragraphs are likely to be too high for two
reasons:

Member States' latest reports on
  their national targets and planned measures under the EED suggest that
  these will deliver significantly more savings in 2020 than assumed in
  PRIMES[15].
  While the national targets notified in 2013 summed up to 17% savings, the
  latest notifications (submitted at the end of April 2014 therefore already
  after the cut-off date of new measures included even in the updated
  baseline) give a more positive picture: 6 Member States are expecting that
  savings resulting from the measures included in the latest National Energy
  Efficiency Action Plans will lead to lower energy consumption than the
  respective national targets. In the case of 3 among them this difference
  exceeds 10%. If these elements are taken into account the latest notified
  national targets and accompanying national measures sum up to 18%. PRIMES
  also made certain conservative assumptions regarding the implementation of
  relevant legislative provisions. In PRIMES it is assumed that Article 7
  obligations will not be fully achieved in any Member State to take into
  account uncertainties regarding the implementation of this article. In
  fact it is assumed that the whole EED will lead to a reduction in annual
  final energy consumption of 39 Mtoe in 2020. By contrast, the targets
  notified by Member States for the implementation of Article 7 of the
  Directive alone sum, if fully achieved, to savings of 59 Mtoe in 2020.

The EU economy has recently on
  aggregate performed less well than assumed in PRIMES Reference scenario –
  so that at the end of 2013, GDP was 3% lower than assumed. Unless growth
  accelerates rapidly to make up this shortfall, this will translate into
  additional energy savings in 2020. Sensitivities accounting for high and
  low economic growth performed on the PRIMES Reference showed the following
  impacts:

Table 1.
Sensitivies on GDP growth rate for the PRIMES 2013 Reference scenario and
according impact on energy consumption.

Growth rate (av. annual 2010-2030) || Savings achieved in 2020 (compared with 2007 Reference)

1.2% (low) || 18%

1.5% (normal) || 17%

1.9% (high) || 15.5%

Source:
PRIMES

According to the latest economic
forecasts[16],
average GDP growth between 2010 and 2015 will be 1%. If the shortfall in
economic growth up to 2014 is not made up later in the decade, energy
consumption will probably be lowered by 0.5-1%.

It is therefore expected that on current
trends, the EU will achieve primary energy savings in 2020 in the range of 18-19%,
corresponding to a gap of 20-40 Mtoe relative to the 20% target. This
conclusion rests on the assumption that (a) current economic trends will not
significantly change in the coming years; and, more importantly, that (b) the
energy efficiency plans recently notified by Member States will be realised with
reasonable effectiveness. It is important to note that taking into account
these notifications does not imply an assumption of full implementation of the
current policy framework as important delays and gaps in this implementation as
described in Section 2.4 remain and, if not rectified, will lower the chance of
meeting the 2020 energy efficiency target.

2.2.4. 
Interactions with other elements of the present
energy and climate framework

In
line with the Impact Assessment accompanying the “2030” communication the
following interactions between policies aimed at increasing energy efficiency,
fostering the development of renewables and abating GHG emissions can be
identified:

- 
As
indicated in the Impact Assessment accompanying the 2030 communication the 2020
energy efficiency target has been instrumental in ensuring progress in
improving energy efficiency of the EU economy as well as in progressing towards
meeting the GHG target. A quantified target has provided a political momentum
and guidance for investors. The energy efficiency targets gave a clear mandate
for the Commission to come up with specific efficiency measures, which are
necessary to correct certain market failures. This was the case for example in
2011 when the Commission proposed the EED because the EU was not on track to
meet the target.

- 
Specific
measures promoting energy efficiency and renewables can in some cases lead to
higher costs of GHG abatement than the marginal cost of abatement required to
reach the cap in the ETS sector. At the same time such measures produce
additional benefits, in terms of spurring innovation or synergies with resource
efficiency. Energy efficiency measures are often complementary to the ETS since
they address non-price barriers such as imperfect information. In addition,
energy efficiency targets have most of their effect in the non-ETS sector,
where Member States have national targets under the Effort Sharing Decision[17]. EU
action to support energy efficiency targets brings down the cost of national
action to achieve these targets – for example through harmonised product
efficiency standards (ecodesign) and common approaches to the certification of
buildings' efficiency.

- 
By
reducing electricity consumption in buildings and products, EE targets have an
indirect effect on the demand for electricity, which is part of the ETS sector.
Because EE targets reduce the demand for electricity, the ETS has to do
"less work". As a result, the price of allowances is lower than it
would otherwise be. It should however be pointed out that so far Commission
assessments, including the impact assessment of the “2030” communication, have not
found evidence of this in the current framework as the decrease in the prices
of allowances was primarily driven by lower economic activity and other
factors. In the future this might change, although the proposed Market
Stability Reserve, by reducing the surplus, would counteract this effect and
stabilise the level of emission allowance prices.

- 
The
current low price of allowances is primarily due to low economic activity, and
not to spill-over effects of specific energy efficiency measures.

- 
Policies
based on price signals, such as the ETS, are less effective in certain sectors,
such as residential due to the fact that consumers are not very price sensitive[18] and
the potential of energy efficiency is not realised to a large extent due to
barriers that cannot be addressed by price signals alone, such as split
incentives between landlords and tenants.

- 
Energy
savings help to ensure progress towards higher shares of renewables, as lower energy
consumption means a lower denominator in the ratio between consumption of renewables
and gross final energy consumption. Reversely, non-thermal renewable energy typically
has much lower transformation losses than conventional energy sources, lowering
the primary energy consumption for any given final energy consumption. Higher
shares of renewable energy can therefore help to make progress towards the
energy savings target, as the target relates to primary energy consumption.

2.2.5. 
Current energy efficiency trends compared to the
identified cost-effective energy-saving potentials and the EU decarbonisation
goals

Looking
at long-term trends, analyses have shown that current improvements in energy
efficiency in the EU are below the cost-effective energy-saving potential and
are not sufficient to fully contribute to the EU decarbonisation goals. A study
by Fraunhofer ISI[19]
concluded that significant cost-effective potentials remain in all sectors at
the EU level, notably in buildings. The findings of this study are broadly in
line with the analysis of the IEA[20].
According to the IEA, efficiency gains compared to current trends could
increase EU GDP by 1.1% in 2035; additional investments required in end-use
efficiency are $2.2 trillion over 2012-2035 compared with reduced energy
expenditures of $4.9 trillion during that period.

The
Impact Assessment accompanying the “2030” communication established that under
current trends (the Reference 2013 Scenario) only 21% savings compared to
projections would be achieved; whereas 25% savings would be needed to meet the
2030 GHG reduction objectives, with improvements above 25% having positive
impacts on employment and the security of supply. The Impact Assessment also
made it clear that these savings could not be driven by the EU Emission Trading
Scheme alone and more policies will be needed in the non-ETS sectors post 2020[21]. The
Reference 2013 Scenario shows that under the current policy setting, the energy
efficiency improvements will slow down after 2020.

2.3. 
What is the problem?

2.3.1. 
General problem

The general problem is that despite
policies which foster energy efficiency being already in place, certain
persistent barriers to energy savings still remain and the cost-effective
energy-saving potential (both short- and long-term) is not fully realised.

The scale of the problem is smaller
within the 2020 perspective as it is now expected that the 2020 target,
identified as the cost-effective saving potential, will be missed by 1-2
percentage points only. For 2030 the mismatch between the expected efficiency
trends and the underpinning policies, on the one hand, and the efforts required
to reach the climate objectives or realise the cost-effective potential
mentioned in section 2.2.5 is greater.

Therefore, energy efficiency does not
presently and, to a greater extent, is not expected in the future to
sufficiently contribute to the EU's energy policy objectives. This has the
following consequences:

- 
In
terms of security of supply, high energy demand increases the dependence
of the EU on energy imports, notably of gas. (In 2011, energy dependency was already
54% and gas imports were at 394[22]
Mtoe.) While international trade, including in commodities, is one of the
foundations of the global economy and relatively small indigenous fossil fuel
resources in the EU are a geological fact, the overexposure of several Member
States to fossil fuel imports from single providers and dependency on single
import routes create several risks, including price volatility and sudden
disruptions of supply. Reliance on single providers has also negatively
affected the EU internal energy market by fragmenting it.  The potential
savings to be made on fuel import bills could instead be invested in other
areas of the EU economy – leading to economic growth and job creation.

- 
In
terms of affordability (for households) and competitiveness (for the
EU economy), the unused energy efficiency potential hampers the economy in
several ways: it limits productivity and economic output; it negatively affects
the trade balance of the EU; it limits employment especially in the current
economic environment with significant spare capacity; it creates uncertainty on
markets given their exposure to the volatility of energy prices; and it leads
to a loss of budget revenue.

- 
High
energy demand for fossil fuels makes the transition to a low-carbon economy more
difficult and costly.  Insufficient energy efficiency means that the EU will
not be on track to reach its long-term climate objectives (and will also be
confronted with higher costs linked to health problems). Energy efficiency
measures are among the cheapest options for GHG abatement.

2.3.2. 
Specific problems

This general problem is underpinned by
the following specific problems:

1) Despite
existing policies the EU energy savings target for 2020 will not be fully met

Significant
progress has been made since the analysis carried out in 2010 that showed that
the EU was far from reaching its target and needed to double its efforts on
energy efficiency. Now the gap is projected to be much smaller also thanks to
new policies such as the Energy Efficiency Directive, but still remains at
1-2%. In addition, as shown in section 2.2.1 it is expected that about 1/3 of
the progress by 2020 will be attributable to lower growth than expected at the
time of setting the target. Consequently, some of the short-term energy
efficiency potential of the EU economy remains untapped and will remain so
under current trends.

2) The
2020 time horizon is not sufficient to create investment security

In
the absence of a clear objective post-2020 there is no signal orienting the
market to the outcomes that public policy aims to achieve. This is a particular
problem given the long timeframe of investments in some sectors, especially
energy generation and buildings. The viability of such investments needs to be
weighed against long-term projected energy demand which can be heavily affected
by energy efficiency policies. The period up to 2020 is also insufficient for
the establishment of business solutions and of markets for energy efficiency
and services. A long-term and coherent policy framework is needed to reduce the
perceived risk amongst investors and consumers alike.

From
a policy perspective in the absence of these long-term determinants, the choice
of present policy instruments risks to be driven by short term analysis.

3) Ensuring
coherence of different targets and policies

Given
the key role of energy efficiency for energy security, competitiveness and GHG
reductions, as well as the interactions between GHG, renewables and energy
efficiency targets and policies, the future energy efficiency framework needs
to be defined in a coherent way with the general 2030 framework. Otherwise
there is a risk that different policy instruments within the energy and climate
framework will be set up and applied in an incoherent way driving down their
effectiveness, undermining the internal market and increasing the overall cost.

2.4. 
What are the drivers for the problem?

There
is a broad body of evidence and theoretical analysis of barriers preventing
consumers and investors from adopting cost-effective energy efficiency
measures. These have been categorised into economic, behavioural and
organisational barriers[23] or alternatively
into market and non-market failures[24].

The current policy framework addresses
market, regulatory and behavioural failures in several ways. There is however
evidence that this framework does not address existing barriers sufficiently.
The following elements with respect to this framework can be singled out:

- 
Incomplete
implementation: the principal reason why the 2020 target is
expected to be missed is insufficient Member State level implementation of the
existing legislative framework. Regarding the EPBD the following main issues
arise: (i) there is not enough national supervision and technical capacity for
checking at local and/or regional level the compliance of energy performance
requirements in building energy codes; (ii) the reliability of  Energy
Performance Certificates is undermined by a lack of transparency of how they
are established for establishing them use underlying calculations which are
often not sufficiently transparent for the outcomes to be directly comparable. Regarding
Ecodesign the main problem driver is insufficient market surveillance. Only 5
Member States are estimated to have an active policy in that regard and the
total amount spent on it is estimated to represent some 0.05% of the value of
lost energy savings[25].

- 
Short-term
perspective: some of the key policy tools were designed within
a 2020 timeframe and therefore do not provide long-term incentives for
investing in energy efficiency. Examples include the fact that Article 7 of the
EED, ceases to apply after 2020 and there is no post-2020 overall target.

- 
Inadequacy:
certain existing policy tools need to be revised to address existing barriers
more effectively. As an example under the Energy label the A+, A++ and A+++
labelling scales that were introduced during the previous revision of the Directive
have been shown to affect consumers' motivation to buy more energy efficient
products less effectively than the previous scale. This change has weakened the
market transformation impact of the label.

- 
Incompleteness: Regarding
financing, important barriers that hamper further uptake of energy efficiency
investments in buildings continue to be in place, including a lack of awareness
and expertise regarding energy efficiency financing on the part of all actors;
high initial costs, relatively long pay-back periods and (perceived) credit
risk associated with energy efficiency investments; and competing priorities
for final beneficiaries[26].

An overview of the current status of
implementation of the relevant EU provisions is included in Annex IX.

2.5. 
The Union's right to act, subsidiarity and
proportionality

The EU's
competence in the area of energy in general and energy efficiency in particular
is enshrined in the Treaty on the Functioning of the European Union, Article
194(1). In acting, the EU needs to respect the principles of subsidiarity and
proportionality. Member States are at the centre of the realization of energy
efficiency policy and EU intervention should be well targeted and supportive to
their actions. The EU's role is in:

Establishing a common framework
  which creates the basis for coherent and mutually reinforcing mechanisms
  while leaving in being the responsibility of Member States to set, in a
  transparent and comparable way, the concrete means and modalities to
  achieve the agreed objectives;
 Creating a platform for exchanging
  best practice and stimulating capacity building; 
 Setting minimum requirements in
  areas where there is a risk of internal market distortions if Member
  States take individual measures; 
 Using EU instruments to promote
  energy efficiency, e.g. through financing, and to mainstream it in other
  policy areas.

3. 
Scope and Objectives
3.1. 
Context and scope

EU
leaders have set the objective of saving 20% of the EU's energy consumption
compared to projections for 2020. This target is recognised as an integral
element and essential part of the EU energy policy, with its triple objectives
of competitiveness, sustainability and security of supply. In March 2014 EU
leaders have reiterated that the 20% energy efficiency target has to be met. As
established in section 2 of this Impact Assessment this will not happen under
current trends. Specific short-term options for bridging the gap to the target
need therefore to be identified and analysed.

The “2030”
communication has set the broad framework for the energy and climate policy
after 2020. It indicated that the specific level of energy savings aimed at in
2030 needs to be established, while ensuring full coherence with the GHG and
RES targets. The GHG target is (40% domestic reduction wrt. 1990 levels, of
which the sectors covered by the EU Emissions Trading System (ETS) would have
to deliver a reduction of 43% in GHG in 2030 compared to 2005, by means of a
strengthening of the EU ETS cap and an ETS market stability reserve, for which
a legal proposal has been made, which makes the system more robust. Ensured by
binding national targets, the non-ETS sector is expected to deliver a reduction
of 30% both compared to 2005) and renewable energy target (at least 27% share
of renewables in the final energy consumption). Similarly as in the case of the
impact assessment underpinning the “2030” communication the aim here within the
mid and long-term perspective (i.e. beyond 2020) is to: (i) focus the analysis
on the desired level of a possible energy efficiency target from the
perspective of the general aims of the EU energy policy and of the interaction
of  this target with the other elements of the energy and climate policy
framework; and (ii) to propose the general direction of policy development in
the energy efficiency area, without entering into the details of specific
policy options, which will be underpinned by appropriate impact assessments in
the future.

3.2. 
Objectives

In
this context the objectives of the initiative are:

3.2.1. 
General objective

To
ensure that energy efficiency contributes to the development of a competitive,
sustainable and secure EU energy system.

3.2.2. 
Specific objectives

· 
To
agree on the measures necessary to achieve the 20% energy efficiency target
providing thus the relevant actors with information on the actions that need to
be undertaken in the short term;

· 
To
agree on the level and general direction of energy efficiency policy in the
long term providing thus Member States and investors with more predictability
and certainty.

3.2.3. 
Operational objectives

Theses
general and specific objectives are to be achieved by:

· 
Proposing
actions to bridge the gap to the 2020 target;

· 
Setting
a level of energy efficiency policy ambition for 2030 consistent with the goals
of the EU energy policy and coherent with the other headline targets of this
policy framework;

· 
Proposing
a long-term energy efficiency policy architecture, including the formulation of
a possible target.

3.3. 
Consistency with other policies

The above objectives
are in line with other EU policies. They:

· 
Promote economic recovery and enhance the
competitiveness of EU industries in line with the Europe 2020 Strategy,
contributing to the Resource Efficiency flagship initiative and the
sustainability layer of Europe 2020;

· 
Increase security of energy supply as called for
in the European Energy Security Strategy create jobs and reduce energy poverty
in support of the EU's social agenda.

· 
Enable further reductions of GHG emissions up to
2020 and thus contribute to reaching the EU's climate objectives.

· 
Facilitate further commitments on GHG emission
reduction after 2020.

4. 
Policy Options

4.1. 
Options for closing the gap towards the 2020
target

The following options are considered:

No action.

2. New
primary legislation laying down binding national targets or additional binding
measures.

Strengthened implementation of
  current policies.

Option 1 is discarded from further
detailed analysis as the 2020 target would not be fully achieved and the
benefits associated with meeting it would not be realised.

4.2. 
Analysis of the optimal level of savings for
2030

Building on the 2030 Communication and
its accompanying IA, six scenarios with a stepwise increase in
the ambition of energy efficiency efforts (in all sectors targeted by current
policy measures) were modelled and the impacts that these efforts would have on
security of supply, competitiveness and sustainability were assessed both in
2030 and in 2050 perspective.

The 2030 IA also itself investigated a
range of scenarios with energy efficiency policies reaching higher levels of
energy savings than the Reference scenario. While the Reference scenario
achieves 21% energy savings (in comparison to 2007 PRIMES baseline for 2030[27]), the
scenarios presented in the 2030 IA achieve between 23 and 34% savings. The 2030
Communication states that achieving the proposed 2030 GHG (40% reduction) and
RES (at least 27% share) targets cost-effectively would require 25% energy
savings (which corresponds to GHG40 scenario). At the same time, the 2030 IA
indicated that a higher ambition in energy efficiency would have additional
benefits in terms of energy security, growth and jobs and lowered imports bill
as well as on health – while incurring higher costs within the energy system.

The scenarios included in the IA
underpinning the 2030 Communication modelled EE with
different approaches (with reference settings or in the context of enabling
conditions, with carbon values (in GHG40 scenario) or with concrete (and
ambitious) EE policies (in  GHG40/EE and GHG40/EE/RES30 scenarios) and the very
ambitious EE policies (in GHG40/EE/RES35) scenario).

In the GHG40 scenario, the 25%
cost-efficient energy savings were reached without modelling additional energy
efficiency policies compared to the References scenario 2013 by 2030. However,
more stringent CO2 standards for passenger cars are assumed in the GHG40
scenario after 2030, going down from 95gCO2/km to 25gCO2/km in 2050 (and also
for vans – see table below). The level of 25% energy savings in 2030 is
achieved in the GHG40 scenario with a) the existing EE legislation in place plus
tighter CO2 standards for passenger cars after 2030 and b) with a 40% GHG
target triggering energy efficiency mainly through carbon values in the non-ETS
sector[28]
and c) in the context of the assumption of enabling settings[29]. The
GHG40 scenario does not model specific EE policies beyond the ones indicated
above. In contrast, this IA proposes scenarios which achieve higher levels of
energy savings with concrete EE policies. It should be noted that by
construction, the GHG40 scenario, working with carbon values in the non-ETS
sector, depicts the lowest possible cost of achieving 40% GHG savings in 2030.

In this IA, a broader range for EE
ambition is explored aiming for up to 40% energy savings in 2030 with the aim
of analysing energy system cost impact and broader impact in terms of security
of supply, job creation and economic growth.

In the present IA, the analysis from 2030
IA is continued in a coherent way, taking into account not only the modelling
results but also the progress that Member States are making
towards their national targets under the EED and taking into account studies on
energy-saving potentials and responses to the public consultation. .
Six energy efficiency scenarios were modelled with primary energy reductions in
2030 relative to PRIMES 2007 projection of around 27 %, 28%, 29%, 30%, 35% and
40%. Chapter 5 analyses the energy system impacts of these scenarios, their
macro-economic impacts and, in addition, Annex VII shows the results of
specific EE policies in their specific fields (e.g. improvement in performance
of appliances, rate of renovations, energy savings in industry etc.). The
scenarios are based on common assumptions regarding GDP
and population growth, imported fossil fuel prices and technology costs as all
of them are built on and later on compared to the Reference Scenario 2013
("Reference") – the same as used in the 2030 IA.

The mix of energy efficiency policies
assumed for the scenarios follows the logic of the current set of EE legislation
including the EED,
EPBD, regulations adopted under ecodesign/energy labelling . Only
the overall level of ambition is intensified. In this sense,
the IA is conservative – it does not analyse measures or propose new mechanisms
(e.g. in EED). For transport, the policy measures put forward in the 2011 White
Paper on Transport are assumed to be implemented. For industry the Best
Available Technology (BAT) uptake is modelled. At this stage, it is however
clear that the main effort will be concentrated on buildings/products
reflecting lower GHG abatement potential in the transport sector and the fact
that EE in industry is chiefly driven by costs of energy and competitiveness
aspects. Different policy mixes and specific policy instruments might be
necessary or desired in the future but entering into such considerations goes
beyond the scope of the Energy Efficiency Review and could pre-empt future
policy choices. Future policy choices will translate - into specific policy or
legal proposals which will be accompanied by dedicated IA assessing costs and
benefits for specific sectors or economic actors.

In the context of all energy efficiency
scenarios analysed here, it is assumed
that the EE legislation continues after 2020 and further intensifies in terms
of saving obligations. The following policies are assumed to intensify until
2030 and then intensify only moderately beyond 2030:

· 
EED with annual savings obligation beyond 2020
and intensifying;

· 
CO2 standards for cars and light commercial
vehicles (LCVs) becoming more stringent beyond 2020 and other transport policies
leading to energy efficiency savings;

· 
EPBD with stronger requirements leading to
higher and deeper (in terms of EE) renovation rates;

· 
Eco-design requirements excluding less
performing technologies currently still present on the market and stretching to
new categories of products leading to a more accelerated uptake of efficient
technologies in the demand sectors enabled by lowering perceived cost
parameters;

· 
Measures promoting increased use of CHP and
district heating and cooling;

· 
Measures aimed at higher uptake of BAT in the
industry;

· 
Measures limiting grid losses.

Other transport policy measures, in
addition to CO2 standards for light duty vehicles, are in line with the 2011
White Paper on transport and are assumed to be included in all scenarios  but
their intensity is not varied between scenarios (i.e. measures leading to 1.1%
improvements per year in the fuel efficiency of heavy duty vehicles (HDVs), development
of infrastructure for alternative power-trains, internalisation of external
costs, introduction of a CO2-related element in vehicle taxation, wide
deployment of intelligent transport systems and other soft measures like fuel
labelling and eco-driving).

The energy efficiency assumptions imply
reduced demand for energy by end-users and also reduced demand for electricity.
For each scenario the model simulates a new equilibrium in the energy market.
This means that the lowered energy demand in each scenario affects, to a
different extent, the electricity prices, the fuel mix, the need for new
generation capacities, electricity/gas networks or other energy system
components. Also the ETS is affected by the reduced demand.

The table below
shows the assumptions on energy efficiency measures in the scenarios that have
been modelled and for comparability reasons the assumptions of the GHG40.

Table 2. Assumptions of
the GHG40 scenario and the policy scenarios assessed in this impact assessment[30]
[31]

GHG 40 || Primary energy savings: 25.1% GHG reduction in 2030 (wrt. to 1990): 40.6% RES share in 2030: 26.5% Energy efficiency policies: ñ Adopted energy efficiency regulations until spring 2012 as in the Reference Scenario 2013; ñ no strengthening of policies before or after 2020 (except for CO2 standards for cars and vans – see below); ñ Carbon values drive some additional energy efficiency in comparison to the Reference.  Measures reducing energy consumption in transport and driving the electrification in the long-run: CO2 standards for passenger cars of 95 gCO2/km in 2030 (25 gCO2/km in 2050) and CO2 standards for LCVs of 147 gCO2/km in 2030 (60 gCO2/km in 2050). The scenario is set in enabling conditions.

EE28 || Primary energy savings: 28.3% GHG reduction in 2030 (wrt. to 1990): 40.2% RES share in 2030: 27.7% Energy efficiency policies: ñ Increasing energy efficiency of houses and buildings leading to renovation rates of 1.48% in 2015-2020, 1.84% in 2021-2030 and 1.15% in 2031-3050 which will bring average energy savings after renovation of 21.93% in 2015-2020, 44.55% in 2021-2030 and 45.79% in 2031-3050; ñ Elimination of market failures and imperfections reflected in the reduction of discount rates from 12% in 2020 progressively to 10.2% (by 2050) in the residential sector and from 10% to 9% (by 2050) in the tertiary sector; ñ Increased uptake of advanced technologies (Ecodesign); ñ Increased uptake of BAT in industry; ñ Higher penetration of district heating; assuming that 11% of households will be connected to district heating networks in 2030; ñ Measures limiting grid losses; ñ Measures reducing energy consumption in transport and driving the electrification in the long-run (e.g. CO2 standard of 75 gCO2/km in 2030 (26 gCO2/km in 2050) for passenger cars and 110 gCO2/km in 2030 (60 gCO2/km in 2050) for LCVs). The scenario is set in enabling conditions.

EE29 || Primary energy savings: 29.3% GHG reduction in 2030 (wrt. to 1990): 40.1% RES share in 2030: 27.7% Energy efficiency policies: ñ Increasing energy efficiency of houses and buildings leading to renovation rates of 1.53% in 2015-2020, 2.11% in 2021-2030 and 1.22% in 2031-3050 which will bring average energy savings after renovation of 22.04% in 2015-2020, 45.04% in 2021-2030 and 47.55% in 2031-3050; ñ Elimination of market failures and imperfections reflected in the reduction of discount rates from 12% in 2020 progressively to 10.2% (by 2050) in the residential sector and from 10% to 9% (by 2050) in the tertiary sector; ñ Increased uptake of advanced technologies (Ecodesign); ñ Increased uptake of BAT in industry; ñ Higher penetration of district heating; assuming that 11% of households will be connected to district heating networks in 2030; ñ Measures limiting grid losses; ñ Measures reducing energy consumption in transport and driving the electrification in the long-run (e.g. CO2 standard of 74 gCO2/km in 2030 (26 gCO2/km in 2050) for passenger cars and 110 gCO2/km in 2030 (60 gCO2/km in 2050) for LCVs). The scenario is set in enabling conditions.

EE30 || Primary energy savings: 30.7% GHG reduction in 2030 (wrt. to 1990): 40.1% RES share in 2030: 27.7% Energy efficiency policies: ñ Increasing energy efficiency of houses and buildings leading to renovation rates of 1.61% in 2015-2020, 2.21% in 2021-2030 and 1.26% in 2031-3050 which will bring average energy savings after renovation of 22.08% in 2015-2020, 45.82% in 2021-2030 and 48.48% in 2031-3050; ñ Elimination of market failures and imperfections reflected in the reduction of discount rates from 12% in 2020 progressively to 9% (by 2050) in the residential sector and from 10% to 8.5% (by 2050) in the tertiary sector; ñ Increased uptake of advanced technologies (Ecodesign); ñ Increased uptake of BAT in industry; ñ Higher penetration of district heating; assuming that 12% of households will be connected to district heating networks in 2030; ñ Measures limiting grid losses; ñ Measures reducing energy consumption in transport and driving the electrification in the long-run (e.g. CO2 standard of 72 gCO2/km in 2030 (25 gCO2/km in 2050) for passenger cars and 110 gCO2/km in 2030 (60 gCO2/km in 2050) for LCVs). The scenario is set in enabling conditions.

EE35 || Primary energy savings: 35.0% GHG reduction in 2030 (wrt. to 1990): 41.1% RES share in 2030: 27.4% Energy efficiency policies: ñ Increasing energy efficiency of houses and buildings leading to renovation rates of 1.64% in 2015-2020, 2.39% in 2021-2030 and 1.32% in 2031-3050 which will bring average energy savings after renovation of 22.10% in 2015-2020, 46.19% in 2021-2030 and 48.84% in 2031-3050; ñ Elimination of market failures and imperfections reflected in the reduction of discount rates from 12% in 2020 progressively to 9% (by 2050) in the residential sector and from 10% to 8.5% (by 2050) in the tertiary sector; ñ Increased uptake of advanced technologies (Ecodesign); ñ Increased uptake of BAT in industry; ñ Higher penetration of district heating; assuming that 14% of households will be connected to district heating networks in 2030; ñ Measures limiting grid losses; ñ Measures reducing energy consumption in transport and driving the electrification in the long-run (e.g. CO2 standard of 70 gCO2/km in 2030 (17 gCO2/km in 2050) for passenger cars and 110 gCO2/km in 2030 (60 gCO2/km in 2050) for LCVs). The scenario is set in enabling conditions.

EE40 || Primary energy savings: 39.8% GHG reduction in 2030 (wrt. to 1990): 43.9 % RES share in 2030: 27.4 % Energy efficiency policies: ñ Increasing energy efficiency of houses and buildings leading to renovation rates of 1.65% in 2015-2020, 2.42% in 2021-2030 and 1.33% in 2031-3050 which will bring average energy savings after renovation of 22.11% in 2015-2020, 46.18% in 2021-2030 and 48.85% in 2031-3050; ñ Elimination of market failures and imperfections reflected in the reduction of discount rates from 12% in 2020 progressively to 9% (by 2050) in the residential sector and from 10% to 8.5% (by 2050) in the tertiary sector; ñ Increased uptake of advanced technologies (Ecodesign); ñ Increased uptake of BAT in industry; ñ Higher penetration of district heating; assuming that 14% of households will be connected to district heating networks in 2030; ñ Measures limiting grid losses; ñ Measures reducing energy consumption in transport and driving the electrification in the long-run (e.g. CO2 standard of 70 gCO2/km in 2030 (17 gCO2/km in 2050) for passenger cars and 110 gCO2/km in 2030 (60 gCO2/km in 2050) for LCVs). The scenario is set in enabling conditions.

Source: European Commission, PRIMES2014

This IA does not aim at assessing in
detail specific policy measures within a 2030 perspective. Neither does it
compare the impact of typical policy alternatives (regulation, voluntary
agreements, financing, training and awareness) as it is likely that they would
all play a role within the long timeframe considered. Rather, the IA aims at
identifying the optimum strategic direction, to be complemented by specific IAs
in the future.

4.3. 
Options for the architecture of the energy
efficiency framework post-2020

The current, 2020
framework is based on:

- 
an
indicative EU target underpinned by indicative national targets;

- 
EU
legislation for products traded in the internal market;

- 
EU
legislation coupled with administrative support in other areas, such as
buildings and combined heat and power, providing general overall provisions
while leaving flexibility for the national and local level to implement them in
an appropriate way;

- 
national
and local provisions not linked to common EU rules

- 
financing
through European, national and local sources.

This design provides a
mutually-reinforcing set of instruments. At the same time it is the result of
an ‘organic’ evolution of policies and has not so far been thoroughly compared
with alternatives. This analysis with its long-term perspective allows such a
comparison.

The following
options for the architecture of the framework for 2030 are identified:

No action.
  This implies that post 2020, any EU target would be abandoned and efforts
  at European level would be based solely on specific instruments.
 Indicative
  EU target, coupled with specific EU measures. This would be a continuation
  of the current framework.
 Binding EU
  target, coupled with specific EU measures. This would replicate the
  approach proposed by the Commission in the 2030 Communication for RES.
 Binding MS
  targets, coupled with EU polices solely in areas linked to the internal market.

In
addition, irrespective of the character and level of a possible target, it
needs to be considered how it could be formulated. The following options for
target formulation are identified:

· 
Consumption target 
· 
Intensity target 
· 
Hybrid approach

5. 
ANALYSIS OF IMPACTS

5.1. 
Methodology

This IA follows and is fully consistent
with the 2030 Communication and its accompanying IA.

The 2030 Communication proposes two
binding targets for 2030: 40% GHG emissions reductions and at least 27% share
of renewable energy in final energy consumption. These targets were taken as
constraints[32]
in modelling of policy scenarios presented in this IA.

The policy scenarios of the 2030 Communication
build upon the Reference scenario 2013 which takes into account climate and energy
policies adopted up to June 2012. For comparability reasons, the policy
scenarios of this IA build on the same Reference 2013.

Given the requirement for the EED review
to assess whether or not the EU is on track for its 2020 energy saving
objective, it was necessary to update the Reference scenario with recently
adopted policies. This is why so–called "Reference+" scenario was
also developed  taking into account policies adopted (and some important
polices proposed by the Commission) up to January 2014. The Reference+ scenario
is described in Annex V and assessment of achievement of 2020 target is
presented in chapter 2.2.3.It should be noted that this exercise has shown that
the differences of the policy scenario including recently adopted policies are
minimal to the one without these policies. This is due to the fact that the
additional measures (e.g. eco-design measures which were adopted in the last 2
years) are part of the EE policy mix of the policy scenarios in any case which
are intensified between the different scenarios to achieve a higher EE level.

The internal logic of scenarios and the
key assumptions have not been changed from 2030 modelling exercise (see Table 3
below). The starting point of the present analysis is the GHG40 scenario, whose
results are shown in all summary tables for more convenient reference. The
policy scenarios presented in this IA are, however, not fully comparable with
the GHG40 scenario as they use concrete energy efficiency policies rather than
carbon values in the non-ETS sector. All policy scenarios analysed in this IA
are in fact similar in structure to the GHG40/EE scenario in the 2030 IA, which
featured concrete EE policies. Finally, while the overall energy savings in
2030  amounted to 25% (for GHG40) and 29% (for GHG40/EE), the range of ambition
is broader in the policy options analysed here.

Six scenarios were thus quantified,
assuming a stepwise increase in the intensity of energy efficiency
efforts after 2020 in sectors targeted by current policy measures. The energy saving (calculated against the 2007 PRIMES
baseline projections for 2030) achieved by the scenarios is the key metric,
which, because of its importance, is used for labelling of scenarios. The
scenarios achieve respectively energy savings in 2030 of around
27%, 28%, 29%, 30%, 35% and 40%. Later on they
are referred to as EE27, EE28, EE29, EE30, EE35 and EE40 scenarios. As explained in chapter 4, the mix
of energy efficiency policies is not altered among the scenarios (it always
follows the logic of current legislation) and only the overall level of
ambition intensifies. The specific policies are defined in a general manner and
the precise assessment of their impacts would have to be done on case-by-case
basis and will likely be done alongside specific legislative or other
initiatives of the Commission that will follow this proposal.

Table 3:
Methodological approach for modelling– consistency with 2030 communication

|| 2030 Communication || 2014 EED review || Notes

Reference scenario || Climate and energy policies adopted up to June 2012 || As "2030" For the purpose of assessment of achieving the 2020 target, Reference+ scenario was elaborated (as “2030”, plus policies adopted up to January 2014)[33] || For the Reference+ modelling results suggest that the 13 ecodesign/ energy labelling regulations adopted since June 2012 have no impact.[34]

GDP growth || 2010-20: 1.5% p.a. 2020-30: 1.6% p.a. || As “2030” ||

Fossil fuel prices (€'10/boe, 2020/30) || Oil 89/93; gas 62/65; coal 23/24 || As “2030” ||

Energy technology progress || Decreasing costs and increasing performances for specific technologies || As “2030” ||

Structure of EU28 economy || Increasing share of services in the gross value added of the economy || As “2030” ||

Population growth || 2010-20: 0.3% p.a; 2020-30: 0.2% p.a. || As “2030” ||

Degree days || Kept constant at 2005 level || As “2030” ||

Policy scenarios: GHG emissions || -40% || As “2030” || Most high-saving scenario: overshooting allowed

Policy scenarios: share of renewable energy || at least 27% || As “2030” ||

Representation of active public policy in energy efficiency and other sectors || “Carbon values”[35], and, post-2030, “enabling settings”[36]. In addition, tighter CO2 standards for cars after 2030. The 2030 IA also included some scenarios with modelling of additional energy efficiency measures[37]. || As "2030” || Carbon values and enabling settings in the case of energy efficiency, replaced by energy efficiency measures[38] .

Discount rates used to depict decision-making by economic actors || 8-17.5%; some energy efficiency measures can lower discount rates || As “2030”[39] ||

System costs || Calculated using standard (un-lowered) private discount rates[40] || As “2030” ||

5.2. 
Policy options for 2020

On present trends, EU primary energy
savings are likely to achieve 18-19% in 2020, a shortfall compared to the
target of approximately 20-40 Mtoe (Chapter 2). Chapter 4 identified two
options to address the gap:

· 
New
primary legislation laying down binding national targets or additional binding
measures

· 
Strengthened
implementation of existing legislation

Based on the precedents of the EED and
the Energy Performance of Buildings Directive (EPBD), new primary
legislation – whether binding measures or binding targets – would be
unlikely, even on an optimistic timetable, to enter into force before 2018.[41] The
EU would then need to reduce energy consumption, compared to what it would
otherwise have been, by an additional 12 Mtoe in each of the next three years, nearly
doubling the rate projected in the modelling. It is unlikely that this could be
achieved at such short notice.

The PRIMES modelling in question assumes
a level of implementation of the requirements of the EED, EPBD and
regulations adopted under ecodesign/energy labelling that falls well short of
full compliance.

Regarding
the EED, PRIMES assumes that it will lead to a reduction in annual final energy
consumption of 39 Mtoe in 2020. By contrast, the targets notified by Member
States for the implementation of Article 7 of the EED alone sum, if fully
achieved, to savings of 59 Mtoe in 2020, whereas the potential impact of the EED
- if fully implemented - calculated at the time when it was adopted was
estimated to be above 100 Mtoe. In this impact assessment under a conservative
approach, it is concluded on the basis of these numbers that another 20 Mtoe
could be saved through proper implementation.

Regarding
the EPBD, the impact assessment[42]
of that directive estimated its impact to be in the range of 60 Mtoe savings by
2030. A study by Fraunhofer ISI[43]
concluded that this potential will not be fully realised, unless it is properly
implemented, and that proper implementation which could bring an additional 15
Mtoe savings. The key elements that need to be strengthened are the reliability
of energy performance certificates, the effectiveness of certification
frameworks in all Member States, and better checks of the compliance of new and
renovated buildings with the relevant provisions in building codes.

Regarding
Ecodesign and Energy Labelling the combined impact of the 40 or so measures
adopted so far, based on engineering-type calculations, is 80 Mtoe. When
overlaps and rebound are taken into account it can be conservatively estimated
that at least half of these savings will materialise in practice. It is
estimated that approximately 10% of the savings could be lost due to poor
compliance[44].
This corresponds to additional 4 Mtoe could be saved through stronger
enforcement.

This analysis suggests that the approach
with the best potential to close the remaining gap to 2020 is strengthened
implementation of existing legislation. This conclusion is corroborated by the
study by Fraunhofer ISI which collated the expected impact of more than 500
national energy efficiency measures: according to that study assuming that
these measures will be implemented as planned and correcting for
double-counting the 2020 target could be fully reached[45]. The
list of the analysed national measures and their expected impact is included in
Annex VIII.

Strengthened implementation could be
achieved through:

· 
Full
implementation of EU legislation at national level, with effective monitoring;

· 
Reinforced
resourcing of market surveillance and better cooperation among national market
surveillance authorities;

· 
Strengthening
energy performance certificates under the EPBD through benchmarking of the
effectiveness of certification frameworks in all Member States, assisting
Member States in compliance checks and linking national schemes to reliable EN
standards;

· 
Making
wider use of innovative financing in the form of standardised investment
products to support energy efficiency financing products;

· 
Databases
on product and building energy performance and indicators for measuring
progress.

Accelerating secondary legislation in the
products sector could play a supporting role providing additional savings over
and above those stemming from improved implementation. Preparatory work is
under way for seven new product groups, including
windows, servers and data centres, steam boilers and water-related products.
Accelerated implementation (in collaboration with stakeholders, Member States
and the European Parliament) could bring this legislation into force a year
earlier – with adoption dates in 2015/16 rather than 2016/17. It is estimated
that this acceleration would increase primary energy savings by a further 5
Mtoe.

Accelerating secondary legislation in
the products sector would help achieving the target but is not a condition for
achieving it since strengthened implementation of existing rules would be
sufficient for that purpose. In order to bridge the gap Member States
would not be expected to implement requirements over and above those stemming
from existing EU legislation, the cost of which has been already assessed when
this legislation was proposed. For example in the case of the EPBD the impact
assessments of the proposal estimated that the abolishing the 1000 m2
threshold at which buildings had to meet minimum efficiency standards when
undergoing major renovation would lead to €8 billion/year additional capital
costs but would trigger €25 billion/year energy cost savings by 2020 and
therefore create negative CO2 abatement costs. Key conclusions from
the impact assessments of the EPBD and of the EED are included in Annex X.

5.3. 
Ambition level 2030

5.3.1. 
Energy system impacts

The main results of PRIMES modelling estimate the impacts of EE on
the energy system. All results for the different policy scenarios are compared
with the Reference 2013 scenario (later "Reference"). If it were assumed
that the European 2020 target on energy efficiency would be fully met (in the
light of discussion in chapters above), the baseline scenario would need to be
adjusted, also beyond 2020 and the comparisons would be different. As in this
IA a conservative approach is taken, the Reference was not adjusted in this
manner.

These impacts vary for different levels of ambition of EE as
portrayed by the scenarios analysed in this IA. The energy saving (calculated
against the 2007 PRIMES baseline projections for 2030) achieved by the
scenarios is the key metric, which, because of its importance, is used for
labelling of scenarios. The scenarios achieve respectively energy
savings in 2030 of 27.4%, 28.3%, 29.3%, 30.7%, 35.0% and 39.8%. Later they are referred to as EE27, EE28, EE29, EE30, EE35
and EE40 scenarios.

For all scenarios presented in this IA, GHG40 scenario from the
2030 IA is the starting point. With an overall increasing energy efficiency ambition,
the scenarios become more costly. Still they present additional benefits
(notably in security of supply – see below) which should be weighed against the
incremental cost increase.

Measured
as an absolute value, primary energy consumption[46] is clearly reduced in all scenarios analysed (8 to 24% in
2030 and 13 to 32% in 2050 in comparison to the Reference scenario) despite the
steady growth of the EU GDP that is assumed[47]. The reductions are higher for all new scenarios than for
the GHG40 scenario as the concrete EE policies have more impact than the carbon
values assumed in the GHG40. It should be also noted that some reduction in
primary energy consumption is due to the RES target of (at least) 27% present
in all new scenarios - thanks to high statistical efficiency of RES in
electricity production. This was also the case in GHG40.

As
a result of reduced gross inland energy consumption, the energy intensity of
the EU economy is reduced under all scenarios. The higher the energy
savings, the lower the energy intensity of the EU economy gets. Among the
sectors, lowering of the energy intensity is most visible in the residential
and tertiary sectors reflecting the fact that the policies proposed for the
policy mix in all scenarios affect mostly these two sectors.

The
policy scenarios demonstrate also significant differences in terms of the
consumption of various primary energy sources. Table 4 below shows both the
changes in the relative shares of fuels, as well as the changes in absolute
consumption compared to Reference. It has to be borne in mind that all the
scenarios achieve decreases in total energy consumption impacting the relative fuel
shares.

· 
As regards solid fuels
(notably coal), already in 2030 their consumption in absolute terms declines substantially
under all scenarios except EE35 scenario (between 16 and 8% in comparison to
the Reference). The EE35 has a high ambition of EE measures and consequently a
rather low ETS prices are necessary to achieve the 40% GHG reduction allowing
maintaining the same consumption of solids as in the Reference scenario (only
0.7% reduction compared to the Reference). In longer term, only  EE30, EE35 and
EE40 achieve a reduction of solids consumption (in comparison to Reference).

The
share of solids in the fuel mix in 2030 remains largely stable (in comparison
to Reference) for EE27, EE28 and EE29 while it grows slightly for all other scenarios.

· 
For oil, the
reduction of consumption in absolute terms is higher the more the energy
savings and becomes more substantial with time (in 2030 between 7 to 14% and in
2050 between 59-63% in comparison to the Reference) – closely linked with CO2 standards for light duty
vehicles becoming more stringent.

The
share of oil in the fuel mix 2030 remains very stable (in comparison to
Reference) in EE27, EE28, EE29 and EE30 scenarios at 32-33%, while it grows
slightly in EE35 and EE40 scenarios.

· 
For natural gas, the
reduction of consumption in absolute terms is the most pronounced among all the
fuels. The reduction is higher the more the energy savings and becomes more
substantial with time (in 2030 between 16 to 42% and in 2050 between 30-50% in
comparison to the Reference) – closely linked to policies improving the thermal
integrity of buildings.

The
shares of natural gas decline slightly as the scenarios get more ambitious. In
2030, they go from 25% for Reference to 23% for EE27 and to 19% for EE40.

· 
The consumption of nuclear
in absolute terms decreases in 2030 in all scenarios in comparison to the
Reference but in 2050 perspective it grows strongly for EE27, EE28 and EE29
scenarios, slightly for EE30 scenario and declines in EE35 and EE40. The strong
EE makes the nuclear less necessary for the achievement of decarbonisation.

The
shares of nuclear in 2030 remain very stable (in comparison to Reference) in
all scenarios at between 11-13%.

· 
Finally, the absolute
consumption of renewables grows in 2030 for EE27, EE28 and EE29
scenarios (in comparison to Reference) but declines in the scenarios with more
energy savings, where by the sheer reduction of energy consumption there is
less need for the development of RES in absolute consumption. The main driver
of renewables is the RES target which is around 27% for all scenarios. In
longer perspective, the consumption of RES grows very strong for all scenarios
driven by the decarbonisation and facilitated by enabling conditions. It should
be noted that increased share of RES strengthens the effects of EE through
increased statistical efficiency in power generation.

The
shares of renewables in 2030 are slightly higher (than in Reference) in all
scenarios at: between 22-23%.

The changes described above will have some effects on the power
generation capacity (growing for RES and declining for other fuels) as well as
the necessary investments.

The share of renewables in final energy consumption as
specified by the RES target present in all scenarios can be translated into
specific shares in electricity, heating & cooling and transport. The
scenarios analysed in this IA show very little variation for the shares in
these specific sectors.

Table 4.
Impacts on gross inland energy consumption in 2030 and 2050

Indicator (figures are presented in a 2030/2050 format) || || Ref || GHG40 || || Decarbonisation Scenarios

|| || EE27 || EE28 || EE29 || EE30 || EE35 || EE40

Gross Inland Energy Consumption (Mtoe) || || 1611 / 1630 || 1534 / 1393 || || 1488 / 1423 || 1470 / 1380 || 1450 / 1338 || 1422 / 1286 || 1337 / 1196 || 1243 / 1129

Primary Energy Consumption (Mtoe)[48] || || 1490 / 1510 || 1413 / 1294 || || 1369 / 1319 || 1352 / 1281 || 1333 / 1239 || 1307 / 1188 || 1227 / 1098 || 1135 / 1031

Energy Savings % in 2030[49] || || 21.0 || 25.1 || || 27.4 || 28.3 || 29.3 || 30.7 || 35.0 || 39.8

Energy Intensity (2010 = 100)   (primary energy to GDP) || || 67 / 52 || 64 / 44 || || 62 / 45 || 61 / 44 || 61 / 42 || 59 / 41 || 56 / 38 || 52 / 36

- Industry[50] || || 81 / 68 || 78 / 55 || || 74 / 50 || 74 / 48 || 73 / 48 || 72 / 48 || 68 / 48 || 68 / 48

- Residential[51] || || 72 / 54 || 67 / 40 || || 65 / 44 || 63 / 41 || 61 / 38 || 58 / 35 || 52 / 29 || 43 / 24

- Tertiary[52] || || 65 / 49 || 59 / 34 || || 58 / 42 || 55 / 40 || 52 / 37 || 50 / 34 || 43 / 29 || 33 / 24

- Transport[53] || || 71 / 56 || 70 / 44 || || 68 / 44 || 68 / 44 || 68 / 44 || 68 / 44 || 68 / 43 || 68 / 43

Gross Inland Energy Consumption  in Reference and % change compared to Reference || || 1611 / 1630 || -4.8 / -14.5 || || -7.7 / -12.7 || -8.8 / -15.3 || -10 / -17.9 || -11.8 / -21.1 || -17 / -26.6 || -22.8 / -30.8

- Solid fuels || || 174 / 124 || -10.8 / 7.2 || || -15.7 / 8.4 || -12.1 / 5 || -9.5 / 1.3 || -7.5 / -3.7 || -0.7 / -13.1 || -11.6 / -16.5

- Oil || || 520 / 498 || -3.3 / -62.1 || || -7.3 / -59.4 || -8 / -59.9 || -8.8 / -60.2 || -9.7 / -60.4 || -12 / -62.5 || -13.6 / -62.8

- Natural gas || || 397 / 397 || -13.2 / -36.9 || || -15.6 / -30.1 || -18.9 / -33.8 || -21.7 / -37.1 || -24.9 / -40.6 || -35.3 / -44.9 || -42.2 / -49.9

- Nuclear || || 201 / 216 || -0.2 / 17.1 || || -6.2 / 13.1 || -6.6 / 11.2 || -8.1 / 7.8 || -11.7 / 2 || -21.7 / -8.4 || -31.5 / -17.2

- Renewables || || 320 / 398 || 3.5 / 43.6 || || 5 / 42.6 || 2.9 / 38.2 || 1.1 / 34.3 || -1.1 / 29.8 || -8.3 / 22.7 || -14.4 / 16.8

Gross Inland Energy Consumption Share of : || || || || || || || || || ||

- Solid fuels || || 10.8 / 7.6 || 10.1 / 9.5 || || 9.9 / 9.5 || 10.4 / 9.4 || 10.8 / 9.4 || 11.3 / 9.3 || 12.9 / 9 || 12.4 / 9.2

- Oil || || 32.3 / 30.5 || 32.8 / 13.5 || || 32.4 / 14.2 || 32.6 / 14.5 || 32.7 / 14.8 || 33 / 15.3 || 34.2 / 15.6 || 36.2 / 16.4

- Natural gas || || 24.6 / 24.3 || 22.5 / 17.9 || || 22.5 / 19.5 || 21.9 / 19 || 21.5 / 18.6 || 21 / 18.3 || 19.2 / 18.3 || 18.5 / 17.6

- Nuclear || || 12.5 / 13.2 || 13.1 / 18.1 || || 12.7 / 17.2 || 12.8 / 17.4 || 12.7 / 17.4 || 12.5 / 17.1 || 11.8 / 16.5 || 11.1 / 15.8

- Renewables || || 19.9 / 24.4 || 21.6 / 41 || || 22.6 / 39.9 || 22.4 / 39.8 || 22.3 / 39.9 || 22.3 / 40.1 || 22 / 40.8 || 22.1 / 41.2

Renewables Share - Overall || || 24.4 / 28.7 || 26.5 / 51.4 || || 27.8 / 49.9 || 27.7 / 50.1 || 27.7 / 50.4 || 27.7 / 50.56 || 27.4 / 51.8 || 27.4 / 52.3

- Share in electricity, heating & cooling || || 31 / 36.8 || 34.2 / 51.4 || || 36.2 / 50.4 || 36.2 / 50.7 || 36.4 / 51.3 || 36.5 / 51.5 || 36.9 / 53 || 37.8 / 53.9

- Share in heating & cooling || || 23.8 / 26.6 || 25.9 / 49 || || 27.4 / 46.4 || 27.4 / 46.6 || 27.5 / 46.9 || 27.5 / 45.9 || 27.4 / 46.1 || 27 / 46.3

- Share in electricity || || 42.7 / 50.1 || 47.3 / 53.2 || || 49.7 / 53.8 || 49.4 / 54.1 || 49.3 / 54.6 || 49.6 / 55.8 || 50.3 / 58.1 || 52.7 / 59.3

- Share in transport || || 12 / 13.9 || 12.8 / 67.9 || || 13.7 / 65 || 13.7 / 65.2 || 13.9 / 65.5 || 14 / 66 || 14.2 / 68.5 || 14.4 / 68.9

Source: PRIMES 2014

The impacts of EE on overall energy consumption
and on the fuel mix have important effects on energy imports. Clearly,
the energy efficiency policy can contribute to reducing the demand for imported
fuels and thus increasing the security of supply, which is currently a high
political priority in the context of events in Ukraine.

In
the Table 5 below it is visible that net energy imports
decrease significantly for all scenarios already in 2030. While the reduction
of net energy imports in 2030 (in comparison the year 2010) is 4% for the Reference,
the scenarios achieve between 14 and 26% reductions - the reductions are
getting higher, the more is the energy savings. All scenarios achieve higher
reduction than the GHG40 scenario presented in the 2030 IA. The trend is even
more pronounced in 2050 (where for all scenarios the imports practically halve
in comparison to the year 2010). In this longer term perspective, the drivers
are both EE policies and higher share of (domestically produced) renewables in
the context of decarbonisation.

Looking at specific
imported fuels in 2030:

· 
the imports of solids
decrease for all scenarios and up to 41% for EE40 scenario (in comparison to
2010) whereas the Reference achieves only 23% reduction;

· 
the imports of oil
decrease for all scenarios and up to 19% for EE40 (in comparison to 2010)
whereas the Reference achieves only 7% reduction;

· 
the imports of gas
decrease for all scenarios and up to 40% for EE 40 scenario (in comparison to
2010) whereas in Reference imports grow by 5%.

Import
dependency – if defined as the
ratio between fuel imports and total energy consumption - is in the short term only
to some extent affected by policy choices and there are little differences
between scenarios in 2030 with respect to the Reference and even present
levels. In 2050, however, the Reference still has 57% import dependency whereas
all other scenarios decrease it to below 40%, due to reduced demand for
imported fossil fuels – brought about by the EE policies. In general, the
import dependency indicator should be interpreted with caution. As shown in the
Table 5, the import dependency values slightly increase from the EE29 to the
EE40 scenario. At first glance, this seems to be contrary to the reduced
absolute imported fuels. But it has to be also borne in mind that EE reduces
global energy consumption in total, which decreases the denominator of the
indicator import dependency (imported fuels divided by energy
consumption). As both values of this indicator - the imported fuels and the
energy consumptions - change with increased EE, it is better to use the
absolute numbers for comparability reasons to assess the increase of security
of supply.

The
key role of EE in increasing security of supply was already acknowledged in the
impact assessment underpinning the 2030 Communication and again in the European
Energy Security Strategy. In the current context, it is more relevant to look
at the impact that EE has on gas imports than overall energy dependency. As
well as a risk of severance of energy provision, insecurity in the natural gas
market can significantly contribute to increasing prices for industries and
households. Approximately 65% of the EU's gas use is for heating buildings, and
energy efficiency measures are well attuned to cutting this. Already with 27%
energy savings, gas imports would already be 17% lower in 2030 than in the Reference.
Every additional 1% in energy savings leads to a further reduction of about 2.6%
in gas imports, reaching, for example, a 36% cut in gas imports in EE35(116
bcm) compared with Reference. Above 35% energy savings, the rate of reduction
of gas imports from additional energy savings falls off sharply.

Decreasing
import dependency under all EE scenarios demonstrates that EE policy reduced
energy consumption of imported fuels to a greater extent than consumption of
those produced domestically.

Another
manner of illustrating the impact of EE on imports is calculation of fossil
fuel net imports in monetary value which already in 2030 decreases for all
scenarios and most markedly for EE30, EE35 and EE40. In2050 perspective, the
value of imports under the Reference would increase taking into account growing
fossil fuel prices but it decreases even further in all scenarios analysed
reflecting their strong impact on curbing the demand, which even outweighs the
effect of growing prices.

Net
energy import decreases translate into savings in the energy fossil fuels
imports bill (calculated here as a cumulative value over a 20 year period).
For the period 2011-2030 cumulative savings range from €285 billion to €549
billion and for the period 2031-2050 from €3349 billion to €4360 billion. These
savings indicate that rather than paying for imports, the EU economy can have
these resources invested either in technology development and/or new assets
and/or education, all of which contribute to job creation and economic growth.

Energy efficiency cannot,
of course, constitute an entire energy security strategy on its own. It needs
to be part of a broader set of measures, including the diversification of
suppliers and supply points, ensuring proper fuel stocks and building
interconnectors. With reduced energy demand but without these additional
elements countries would be still exposed to sudden disruptions and price
shocks. Neither this analysis nor the analysis underpinning the European Energy
Security Strategy attempts to quantify the respective role that these different
measures can play. It can be however concluded on the basis of this analysis
that energy efficiency has the effect of:

- 
Reducing the scale of
impacts that sudden supply disruptions or price hikes can have on the economy
thanks to lower absolute consumption of energy, and of imported fuels in
particular;

- 
Changing the relative weight
of certain fuels in the energy mix, with a reduced share of gas where the
exposure to these risk factors is particularly high and increased share of
other fuels where this risk is relatively smaller, either because they are
primarily domestically –produced (e.g. renewables) or because they are traded
in a much more liquid market than gas (e.g. oil). This is linked to the design
on the policies modelled which target buildings in particular, where the share
of gas for heating is especially high.

While
the potential of energy efficiency in this respect depends on the specific
situation of different Member States, it needs to be stressed, as in the
European Energy Security Strategy, that the EU's energy system is increasingly
integrated, while at the same time Member States are importing from the same
supplier countries and it is therefore important to consider energy security
from an EU perspective. Choices taken on the level of fuel supply,
infrastructure development, energy transformation or consumption lead to
spill-over effects on other Member States.

Table 5.
Impacts on energy security in 2030 and 2050

Indicator (figures are presented in a 2030/2050 format) || || Ref || GHG40 || || Decarbonisation Scenarios

|| || EE27 || EE28 || EE29 || EE30 || EE35 || EE40

Net Energy Imports Volume (2010=100) || || 96 / 101 || 89 / 56 || || 86 / 59 || 85 / 57 || 83 / 56 || 82 / 54 || 78 / 51 || 74 / 49

- Solid || || 77 / 49 || 68 / 42 || || 61 / 40 || 65 / 38 || 61 / 38 || 62 / 34 || 70 / 30 || 59 / 29

- Oil || || 93 / 96 || 90 / 41 || || 86 / 44 || 85 / 43 || 85 / 43 || 84 / 43 || 82 / 41 || 81 / 41

-  Gas || || 105 / 122 || 91 / 74 || || 88 / 82 || 84 / 78 || 81 / 74 || 78 / 69 || 67 / 65 || 60 / 59

- Renewable Energy Forms || || 492 / 601 || 505 / 1043 || || 509 / 1002 || 500 / 972 || 493 / 947 || 482 /  924 || 458 / 875 || 433 / 852

Import Dependency (% net imports to total gross inland energy consumption) || || 55.1 / 56.6 || 53.6 / 36.8 || || 53 / 38.1 || 53 / 38 || 52.6 / 38.2 || 52.8 / 38.3 || 53.5 / 38.6 || 54.4 / 39.1

Value of Fossil Fuel Net Imports (bn €'10) (average annual 2011-30  and  2031-2050) || || 461 / 548 || 452 / 377 || || 447 / 380 || 446 / 373 || 444 / 366 || 441 / 358 || 436 / 340 || 434 / 330

- Oil || || 330 / 390 || 327 / 263 || || 323 / 265 || 323 / 262 || 322 / 259 || 321 / 257 || 319 / 248 || 318 / 245

- Gas || || 115 / 146 || 110 / 104 || || 108 / 107 || 107 / 102 || 106 / 98 || 105 / 93 || 101 / 84 || 100 / 76

- Solid || || 16 / 12 || 15 / 10 || || 15 / 9 || 15 / 9 || 15 / 9 || 15 / 8 || 15 / 8 || 15 / 8

Fossil Fuels Import Bill Savings compared to reference (bn € '10)  (cumulative 2011-30 and 2031-2050) || || n.a || -190 / -3404 || || -285 / -3349 || -311 / -3490 || -346 / -3637 || -395 / -3798 || -503 / -4145 || -549 / -4360

Source: PRIMES 2014

The
final energy demand is projected to decrease differently in the
different sectors. Looking at the specific sectors in detail, the residential
and tertiary sectors experience the strongest reduction (in comparison to the
Reference) as they are affected by a majority of energy efficiency policies
with the biggest changes brought about by improving thermal integrity of
buildings – consequently their share in total final energy demand decreases. The
share of industry in final energy demand almost does not change from the
Reference case demonstrating the countervailing effects of EE policies and ETS
prices. Finally, the share of transport grows slightly in EE25 and EE28 and
more significantly in the scenarios with more energy savings reflecting
relatively smaller potential for GHG abatement in transport.

Gross
electricity generation
decreases by 2030 for all scenarios in comparison to Reference. In a 2050
perspective, however, it grows (except for EE35 and EE40 scenarios) reflecting
increasing demand for electricity from heating, appliances and transport. In
electricity generation, for all scenarios the share of gas declines while the
share of RES increases. Electricity grid losses remain the same for all
scenarios and Reference except for EE35 and EE40 scenarios, in which losses
decline slightly.

Among
impacts on technologies, a key impact to be observed is the increase of
shares of electricity produced from combined heat and power (CHP) up to
17% already in 2030 in EE27, EE28, EE29 and EE30 scenarios (from 16% in the
Reference). The increase in 2030 is due to synergies between the RES target and
co-generation which mainly uses biomass as a feedstock. In 2050 perspective,
however, the CHP indicator declines (in comparison to the Reference) for all
scenarios as there is increasing competition for biofuels/biomass feedstocks in
transport.

Concerning
CCS development, the % of electricity it represents is higher than in
Reference in EE27 and EE28 scenarios but its role is lesser than in the
Reference in scenarios with more energy savings reflecting low ETS prices.

Energy
related CO2 emissions
decrease strongly in all scenarios already in 2030 and then even more in 2050
reflecting the declining demand for energy as well as declining carbon
intensity of power generation, the latter mostly influenced by ETS and
renewables policy.

Table
6. Other energy system impacts

Indicator (figures are presented in a 2030/2050 format) || || Ref || GHG40 || || Decarbonisation Scenarios

|| || EE27 || EE28 || EE29 || EE30 || EE35 || EE40

Final Energy Demand (Mtoe) || || 1126 / 1151 || 1073 / 885 || || 1039 / 904 || 1020 / 876 || 1002 / 848 || 981 / 819 || 920 / 759 || 859 / 712

- Industry share || || 27.3 / 26.8 || 27.5 / 28.3 || || 26.8 / 24.9 || 27.3 / 24.9 || 27.6 / 25.6 || 27.8 / 26.4 || 28.1 / 28.4 || 29.8 / 30.2

-Residential share || || 26.4 / 26.4 || 25.9 / 25.5 || || 26.2 / 27.1 || 25.7 / 26.4 || 25.3 / 25.2 || 24.8 / 23.8 || 23.4 / 21.4 || 21 / 18.8

-Tertiary share || || 14.9 / 15 || 14.2 / 13.4 || || 14.5 / 16.1 || 13.9 / 15.8 || 13.6 / 15.3 || 13.2 / 14.6 || 12 / 13.5 || 10.1 / 11.9

-Transport share || || 31.4 / 31.8 || 32.4 / 32.9 || || 32.5 / 31.9 || 33.1 / 33 || 33.6 / 34 || 34.3 / 35.2 || 36.5 / 36.7 || 39.1 / 39.1

Gross Electricity Generation (TWh) || || 3664 / 4339 || 3532 / 5040 || || 3469 / 5038 || 3461 / 4936 || 3423 / 4796 || 3336 / 4560 || 3080 / 4267 || 2804 / 3969

- Solids Share || || 13 / 8.4 || 11.6 / 10.1 || || 10.9 / 10.8 || 11.9 / 10.7 || 12.5 / 10.5 || 13.4 / 10.1 || 16.6 / 9 || 15.5 / 9

- Oil Share || || 0.6 / 0.5 || 0.5 / 0.1 || || 0.5 / 0.1 || 0.5 / 0.1 || 0.5 / 0.1 || 0.5 / 0.1 || 0.5 / 0.1 || 0.5 / 0.1

- Natural Gas Share || || 19.5 / 17.3 || 15.3 / 12.5 || || 14.8 / 12.5 || 14.2 / 12.3 || 13.8 / 11.9 || 13 / 11.2 || 10.2 / 11 || 9.8 / 10.3

- Nuclear share || || 21.8 / 21.3 || 22.6 / 21.6 || || 21.5 / 20.8 || 21.5 / 20.9 || 21.3 / 20.8 || 21 / 20.7 || 20 / 19.8 || 19.1 / 19.1

- Renewables share || || 44.5 / 51.6 || 49.3 / 54.2 || || 51.7 / 54.4 || 51.3 / 54.6 || 51.2 / 55.2 || 51.5 / 56.4 || 52.1 / 58.5 || 54.6 / 59.8

- of which hydro share || || 10.8 / 9.8 || 11.2 / 8.6 || || 11.5 / 8.7 || 11.5 / 8.8 || 11.6 / 9.1 || 11.9 / 9.5 || 12.8 / 10.1 || 13.9 / 10.8

- of which wind share || || 21 / 24.8 || 23.9 / 26.5 || || 24.8 / 27 || 24.5 / 27.1 || 24.4 / 27.2 || 24.4 / 27.3 || 24.2 / 27.8 || 25.2 / 27.6

- of which Solar, tidal, etc share || || 5.8 / 8.4 || 6.4 / 9.5 || || 6.8 / 9.6 || 6.6 / 9.4 || 6.6 / 9.4 || 6.6 / 9.5 || 6.7 / 9.8 || 6.9 / 9.8

- of which Biomass & waste share || || 6.6 / 7.9 || 7.5 / 8.6 || || 8.3 / 8.2 || 8.4 / 8.4 || 8.4 / 8.7 || 8.4 / 9.2 || 8.1 / 9.9 || 8.3 / 10.7

CCS indicator (% of electricity from CCS) (difference in p.p.) || || 0.45 / 6.9 || 0.77 / 14.72 || || 0.65 / 14.53 || 0.58 / 13.67 || 0.41 / 12.98 || 0.27 / 11.83 || 0.29 / 10.65 || 0.3 / 10.19

CHP indicator (% of electricity from CHP) (difference in p.p.) || || 16.1 / 16.2 || 16.4 / 14 || || 17 / 14.9 || 17 / 14.6 || 16.9 / 14.7 || 17 / 15.1 || 16.2 / 15.2 || 16.3 / 15.3

Carbon intensity of power generation  (per MWhe+MWhth) || || 17.8 / 7.9 || 15.1 / 0.7 || || 14.4 / 1.1 || 15 / 1.2 || 15.5 / 1.2 || 16.1 / 1.2 || 17.7 / 1.3 || 16.9 / 1.1

Electricity Grid Losses[54] || || 6.4 / 6.7 || 6.3 / 6.4 || || 6.4 / 6.6 || 6.4 / 6.6 || 6.3 / 6.6 || 6.1 / 5.8 || 5.6 / 4.9 || 5.5 / 4.9

Source: PRIMES 2014

5.3.2. 
Economic impacts in the
energy system

The
EU Reference scenario 2013 - projecting the consequences of already adopted
policies as well as developments largely unrelated to policy (renewal of ageing
power generation capacity in Europe, growing international fossil fuel prices) -
shows, until 2030, the ratio of total energy system cost to GDP will be
increasing from 12.8 % in 2010 to 14.0% in 2030, before decreasing to 12.3 % in
2050. The policy scenarios evaluated in the 2030 IA all showed higher energy
system costs up to 2030 and beyond, with costs being the lowest for the GHG40
scenario and highest for the scenarios with the most energy savings.

This chapter revisits the costs estimation and shows the level of
cost increase brought by different levels of ambition of EE policies, including
the GHG40 scenario presented in the 2030 IA. Looking at differences in
average annual costs for the period 2011-2030 across all scenarios,
they range between 0.01 and 0.79 percentage points of GDP higher compared to
the Reference. Looking specifically at the year 2030, energy system costs in
policy scenarios are between 0.13 and 3.97 percentage points of GDP higher than
the Reference. The additional increases are higher in 2050, reflecting the
costs necessary to achieve decarbonisation, in addition to the costs of energy
efficiency policy.

Regardless of the method of comparison, these additional increases
of system costs are much smaller than those resulting under the Reference
scenario itself.

Total
energy system costs from an end user perspective (as calculated in the
modelling) comprise mainly three elements: 1) annuities for capital expenditure
on energy using equipment, 2) fuel and electricity costs (energy purchasing
costs[55]), including capital expenditure for the
production and distribution of electricity and 3) the as so-called direct
energy efficiency investment costs[56] (not related to energy equipment itself), such as
expenditure for insulation. The latter being also
expenditures of capital nature are also expressed in annuity payments.

These
components of energy system costs differ substantially across policy scenarios
analysed in this IA:

· 
Energy purchases are significantly reduced in all scenarios,
most significantly in EE30, EE35 and EE40. For the period 2011-2030, average
annual energy purchasing costs are between €33 bn to €89 bn lower than for the
Reference. Across all scenarios, the reductions are mainly achieved in
residential and tertiary sectors.

· 
On the other hand, direct
efficiency investments, representing mainly investment in the thermal
integrity of buildings, increase in all scenarios and sharply in EE35 and EE40
scenarios. For the period 2011-2030, average direct efficiency investment costs
are between €16 bn to €181 bn higher than for Reference.

· 
Capital costs remain relatively stable across scenarios and
mainly concern the residential and transport sectors. For the period 2011-2030,
average annual capital costs are between €15 bn to €19 bn higher than for
Reference.

It
is to be recalled from the previous sections that all scenarios analysed in
this IA are in the enabling settings, which lower the overall costs of
achieving the targets because of necessary market coordination, public
acceptance of policy choices and supportive policies in RDI and infrastructure.
All costs (also linked to enabling settings) are fully accounted for.

The
Table 7 below shows various system cost comparisons as in the 2030 IA (e.g.
total system cost as average annual 2011-30 and 2031-2050 or total system costs
in 2030 as % of GDP increase). In addition, the values are shown for the
different sectors.

It
is worth noting that although
GHG40 is less costly than EE27 over 2011-2030 in terms of average yearly total
energy system costs (by €0.5 bn), EE27 presents lower total energy system costs
in 2030. In the periods afterwards, both EE27 and EE28 appear to be less costly
than GHG40, both in 2050 and in average yearly terms over 2031-2050. This can
be mainly explained by the lower ambition of EE27 and EE28 in terms of GHG
emissions reductions over the projection period, but also the introduction of
some low-cost EE policies for dismantling non-market barriers (barriers that do
exist in GHG40) and which enable to reap the relevant EE potential available in
EU – at a lower cost.

This
IA does not look into costs and benefits to be borne by specific sectors of
final energy demand or specific economic actors (e.g. landlord, tenants, car
manufacturers, specific industries). Such assessment will be done for
policy/legislative proposals that will follow the agreement on the overall
energy efficiency target.

Table
7. Energy
system costs and its components[57], [58]

Indicator (figures are presented in a 2030/2050 format) || || Ref || GHG40 || || Decarbonisation Scenarios

|| || EE27 || EE28 || EE29 || EE30 || EE35 || EE40

Total System Costs in bn €'10    (average annual 2011-30 and 2031-2050) || || 2067  / 2520 || 2069  / 2727 || || 2069  / 2649 || 2074  / 2686 || 2082  / 2747 || 2089  / 2806 || 2124  / 3001 || 2181  / 3355

Total System Costs as % of GDP (average annual 2011-30 and 2031-2050) || || 14.3  / 13.03 || 14.31  / 14.1 || || 14.31  / 13.7 || 14.35  / 13.89 || 14.4  / 14.2 || 14.45  / 14.51 || 14.69  / 15.52 || 15.09  / 17.34

Total System Costs as % of GDP increase (average annual 2011-30 and 2031-2050) compared to Reference in % points || || 0 || 0.01 /  1.07 || || 0.01 /  0.67 || 0.05 /  0.86 || 0.11 /  1.18 || 0.15 /  1.48 || 0.39 /  2.49 || 0.79 /  4.32

Total System Costs as % of GDP in 2030 (2010 value: 12.76 %) || || 14.03  / 12.3 || 14.18  / 13.96 || || 14.16  / 13.39 || 14.33  / 13.62 || 14.53  / 14.01 || 14.73  / 14.39 || 15.79  / 15.54 || 17.99  / 17.42

Total system Costs in 2030 as % of GDP increase compared to Reference in % points || || 0 || 0.15 /  1.65 || || 0.13 /  1.09 || 0.3 /  1.32 || 0.51 /  1.71 || 0.7 /  2.09 || 1.76 /  3.23 || 3.97 /  5.11

Capital Costs in bn €'10 (average annual 2011-30 and 2031-2050) || || 590  / 939 || 598  / 1071 || || 607  / 1076 || 607  / 1071 || 606  / 1068 || 609  / 1072 || 607  / 1070 || 605  / 1044

Industry || || 57  / 84 || 60  / 91 || || 59  / 86 || 59  / 84 || 59  / 83 || 60  / 84 || 59  / 83 || 59  / 82

Residential || || 304  / 450 || 305  / 438 || || 312  / 467 || 312  / 464 || 311  / 459 || 314  / 461 || 313  / 452 || 313  / 437

Tertiary || || 52  / 83 || 51  / 67 || || 51  / 79 || 51  / 76 || 50  / 71 || 50  / 68 || 48  / 59 || 47  / 48

Transport || || 177  / 322 || 182  / 474 || || 185  / 445 || 185  / 448 || 185  / 454 || 186  / 460 || 187  / 476 || 187  / 476

Direct Efficiency Investments in bn €'10 (average annual 2011-30 and 2031-2050) || || 35  / 35 || 47  / 274 || || 52  / 184 || 62  / 257 || 76  / 355 || 89  / 452 || 146  / 731 || 216  / 1182

Industry || || 1  / 5 || 2  / 74 || || 4  / 67 || 5  / 80 || 5  / 86 || 6  / 91 || 13  / 102 || 15  / 104

Residential || || 24  / 22 || 29  / 128 || || 33  / 83 || 39  / 124 || 48  / 186 || 56  / 246 || 87  / 420 || 124  / 699

Tertiary || || 10  / 8 || 16  / 71 || || 14  / 34 || 18  / 53 || 23  / 83 || 27  / 114 || 47  / 210 || 77  / 380

Transport || || 0  / 0 || 0  / 0 || || 0  / 0 || 0  / 0 || 0  / 0 || 0  / 0 || 0  / 0 || 0  / 0

Energy Purchases in bn €'10 (average annual 2011-30 and 2031-2050) || || 1454  / 1586 || 1436  / 1394 || || 1422  / 1402 || 1417  / 1370 || 1411  / 1335 || 1401  / 1290 || 1378  / 1206 || 1365  / 1130

Industry || || 279  / 291 || 273  / 258 || || 271  / 246 || 271  / 240 || 270  / 237 || 269  / 233 || 264  / 225 || 263  / 223

Residential || || 426  / 498 || 421  / 455 || || 416  / 442 || 414  / 427 || 410  / 408 || 405  / 384 || 395  / 342 || 388  / 299

Tertiary || || 238  / 262 || 234  / 218 || || 232  / 236 || 230  / 226 || 228  / 213 || 225  / 198 || 217  / 171 || 212  / 139

Transport || || 510  / 534 || 508  / 463 || || 502  / 478 || 502  / 478 || 502  / 477 || 502  / 475 || 502  / 468 || 502  / 469

Source: PRIMES 2014

Energy related
investment expenditures can be
practically divided in:

1. Investments in the supply side, namely in grids,
power generation plants and boilers.

2. Investments on the demand side, split between
energy equipment (covering appliances, vehicles, equipment, etc) and direct
energy efficiency.

The table below describes
the average annual investment expenditures across scenarios, providing an
alternative view of the projected investment expenditures compared to the total
system costs figures, which reflect the entire financial flows related to
investment.

The
investment expenditures increase in all scenarios - again most significantly in
EE35 and EE40 scenarios and again mostly in residential and tertiary sectors.
The average annual investment expenditure rises in the period 2011-2030 between
€35 bn and €331 bn.

In
the residential and tertiary sectors, increases are the most pronounced: the
average annual investment expenditure rises in the period 2011-2030 between €9
bn and €154 bn for residential sector and between €6 bn and €156 bn for tertiary.
It has to be, however, noted that energy investments in the residential
increase property values because of their improved energy performance (for
which the benefit is captured in the model through lower fuel costs) and amenity value by an amount that one
study estimated to correspond to some 40% of the cost of investments in energy
efficiency in the residential sector[59]. More efficient buildings offer the people who
live and work in them other benefits. In one study, the "ancillary
benefits" of better windows, such as better air quality and protection
from external noise, have been found to be just as valuable to residents as the
reduction in heating bills[60].

As
discussed above, the introduction of some low-cost EE policies for dismantling
non-market barriers, allows the EE scenarios to reap early and at low cost the
relevant  EE potential available in EU. As a result, EE27 presents lower
investment expenditures over 2011-2030 than GHG40, mainly due to the removal of
non-market barriers (that do exist in GHG40), which allow for “easy” EE gains
in the residential and tertiary sectors, while at the same time giving the
possibility to exploit a large part of the EE potential in the non-energy
intensive industry.

In
general, the investment expenditure figures increase more sharply compared to
the total system costs. The reason for this is that in the system costs include
energy purchases which decrease with a higher EE level and therefore
counterbalance the increasing efficiency investments.

The magnitude of
investments in the entire economy should be also interpreted as a huge
potential for driving jobs and growth in the EU, in particular due to the local
nature of much energy efficiency investment and the industrial and
technological leadership the EU companies still have in terms of energy
efficient and low-carbon technology.

Table 8.
Investment Expenditures

Indicator (figures are presented in a 2030/2050 format) || || Ref || GHG40 || || Decarbonisation Scenarios

|| || EE27 || EE28 || EE29 || EE30 || EE35 || EE40

Investment Expenditures in bn €'10 (average annual 2011-30 and 2031-2050) || || 816  /949 || 854  /1189 || || 851  /1110 || 868  /1126 || 886  /1149 || 905  /1170 || 992  /1203 || 1147  /1211

Industry || || 19  /30 || 24  /88 || || 29  /72 || 30  /83 || 31  /82 || 34  /82 || 45  /69 || 49  /65

Residential || || 36  /28 || 49  /77 || || 45  /49 || 54  /57 || 64  /75 || 73  /95 || 115  /130 || 190  /160

Tertiary || || 14  /10 || 25  /41 || || 20  /16 || 28  /16 || 37  /23 || 45  /29 || 87  /33 || 170  /23

Transport || || 660  /782 || 662  /843 || || 663  /834 || 664  /835 || 664  /837 || 665  /839 || 665  /852 || 665  /852

Grid || || 37  /41 || 40  /55 || || 40  /54 || 40  /54 || 39  /52 || 38  /49 || 34  /48 || 29  /44

Generation and boilers || || 50  /59 || 53  /85 || || 53  /86 || 52  /82 || 51  /80 || 50  /75 || 46  /72 || 44  /66

Source: PRIMES 2014

The incremental increases
in investments as well as reductions in energy purchases can be also directly
compared to GHG40 scenario as demonstrated in the figure below.

Figure 4. Comparison of average annual (2011-2030)
investments with energy purchasing costs

Source: PRIMES

Other important
economic impacts directly affecting all energy consumers are impacts on electricity
prices[61] and the ETS prices. In the modelling
underpinning this IA, the choice was made not to use carbon values but to model
concrete EE policies. RES values and EE values representing the shadow values
promoting respectively renewables and some (but by no means all) aspects of
energy efficiency are also summarised in table 9 (see
explanations of these metrics in Annex V). RES values change only slightly in
comparison to the Reference scenario (as needed to achieve the RES target). On
the other hand, the EE values grow very strongly reflecting measures aiming at improving thermal integrity of buildings by accelerated
renovation and stricter building codes. The obligation so represented by EE
values, which are internalized in the optimizing behaviors of the relevant
actors who consider these values as a potential penalty per unit of
non-achieved savings relative to the obligation. The Reference demonstrates that significant increases in electricity
prices (31% increase in real terms until 2030, compared to 2010) should in any
case be expected. Electricity price changes compared to Reference are very
small in 2030 ranging from +0.85% to +3.34% in the year 2030. In a 2050
perspective, electricity prices grow slightly more and across all scenarios.

Contrary
to electricity prices, differences between policy scenarios are very pronounced
with regard to the ETS price although projections in this regard are associated
with significant degrees of uncertainty as many assumptions on the future need
to be made. Under Reference, the ETS price is expected to reach 35 €/tCO2 in
2030 and 100 €/tCO2 in 2050. In the policy scenarios, it is expected to reach
between 39 and 6 €/tCO2 in 2030. In a 2050 perspective, different policy
scenarios would result in 243 to 165 €/tCO2, depending on the scenario. The
more the energy savings, the lower becomes the ETS price as EE policies reduce
the demand for electricity in the ETS sector. Also EE improvements in industry
reduce the demand for ETS allowances. In addition, in the EE40 scenario which
significantly overshoots the GHG target, efficiency policies shift emission
reduction efforts from ETS to non-ETS sectors. In 2030, the ETS prices in the
EE scenarios with the highest energy savings are lower than in Reference. In
2050, the ETS prices are higher than in the Reference in all scenarios as the
decarbonisation target in achieved.

Similarly as in the 2030 IA, the EU ETS is modelled in the energy
efficiency scenarios via carbon prices, but of course emissions are also
impacted by other policies, notably EE policies. Across scenarios, the
cumulative ETS emissions approximate the cumulative ETS emissions of the GHG40
scenario, with particular focus on the time period until 2030. By doing so, the
scenarios are consistent with the 2030 IA.

In
general, the concrete impacts of EE policies on the ETS price will depend
strongly on the sectors in which EE policies will be suggested in the future to
reach a certain amount of energy savings in 2030. If the focus is mainly on the
non-ETS sector, the impacts on the ETS price will be smaller than if the EE
policies would focus on the ETS sectors.

Table 9. Electricity
and carbon prices, energy related costs for energy intensive industries

Indicator (figures are presented in a 2030/2050 format) || || Ref || GHG40 || || Decarbonisation Scenarios

|| || EE27 || EE28 || EE29 || EE30 || EE35 || EE40

Average Price of Electricity[62]  (€/MWh) || || 176 / 175 || 179 / 183 || || 180 / 187 || 179 / 185 || 178 / 184 || 178 / 182 || 177 / 182 || 182 / 182

ETS carbon price               (€/t of CO2-eq) || || 35 / 100 || 40 / 264 || || 39 / 243 || 35 / 220 || 30 / 205 || 25 / 180 || 13 / 160 || 6 / 165

Implicit carbon price non-ETS (€/tCO2) || || 0 / 0 || 40 / 264 || || 0 / 0 || 0 / 0 || 0 / 0 || 0 / 0 || 0 / 0 || 0 / 0

Average Renewables value (€/ MWh) || || 34 / 16 || 34 / 15 || || 40 / 16 || 40 / 15 || 40 / 15 || 42 / 15 || 43 / 15 || 43 / 14

Average energy efficiency value (€/ toe) || || 181 / 95 || 184 / 604 || || 402 / 574 || 619 / 847 || 822 / 1251 || 1011 / 1642 || 1768 / 2595 || 2937 / 3798

Source: PRIMES 2014

In
addition, the impact of energy efficiency policies on international fuel prices
was also modelled, using the POLES model. The results presented below show that
the international gas price in 2030 would be 3-8% less than in Reference, and
the international oil price would be 1-3% less, with energy savings of 25-40%.[63]
These results should be further analysed, including their impact on energy
consumption and GDP in the EU. In any case though, these results are an
indication that the European EE policies would have some impact on
international gas prices. This can be explained because of the significant
reduction of the gas demand in the EE scenarios in the EU. Other elements,
however, have not be taken into consideration, like the missing flexibility of
the gas infrastructure produces a higher price effect on the European gas
markets, since the gas producers cannot easily redirect their fuel exports to
other markets

Figure
5. Projected impacts of EE policies on international fuel prices (in %)

Source: Poles

5.3.3. 
Macro-economic impacts

The models
E3ME and GEM-E3 were applied to assess the impacts on GDP and employment of
policy scenarios, in which there is greater investment in energy efficiency.
The complex interactions between different sectors of economy can thus be
assessed at the macro-economic level and results can be compared to the
respective Reference. (Each modelling exercise builds its own reference this is
why the results are presented not in absolute figures but as a difference from
the Reference. For the same reason, the results of the scenarios presented in
this IA are not comparable with the results of macro-economic modelling in 2030
IA).

The
macro-economic scenarios that have been modelled build upon PRIMES scenarios
with 25, 28, 30, 35 and 40% energy savings. The scenario with 25% energy
savings has ambition similar to GHG40 scenario but is built on the PRIMES scenario
that has concrete EE policies rather than carbon values - for better
comparability with other scenarios. The macro-economic modelling building on
EE27 and EE29 scenarios would likely have very similar outcome to results
presented in the chapter for EE28 and EE30, with little additional insight
brought to the analysis – for practical reasons a smaller number of scenarios
is presented.

The path
and magnitude of investment in energy efficiency in each scenario is taken
from projections made in PRIMES: the E3ME and GEM-E3 models are then
calibrated to represent these changes in the energy system so that their
economy-wide impacts can be modelled. The two macroeconomic models have
many similarities. However, there are also important differences that arise
from their underlying assumptions and respective structures. E3ME is a
macro-econometric model, based on a post-Keynesian framework; GEM-E3 is a
general equilibrium model that draws strongly on neoclassical economic theory
and optimising behaviour of economic agents –see Annex VI for the description
of methodology of each model.

Importantly,
in this exercise the E3ME provides the projections only till the year 2030.
GEM-E3 model provides projection till the year 2050. Both models estimate only
the impact of the EE policies and not of the decarbonisation[64].

Impacts
on GDP

Application
of both models shows that energy efficiency expenditures lead, first of all, to
increased demand in sectors providing goods and services to energy efficiency
projects (construction, market services, metals, cement, chemicals, equipment
goods, etc.). Depending on their linkages with other sectors of the economy the
demand for inputs from these sectors is associated with chain changes in demand
for inputs from other sectors of the economy (multiplier effect) as well as for
imports. Secondly, additional effects are associated with a reduction in energy
demand and subsequent imports for energy inputs resulting from energy
consumption saving. Energy efficiency expenditures lead then to substitution of
imported fuels with domestically produced goods and services.

In
addition, however, in GEM-E3 model, increased expenditures in energy efficiency
limit the funds available for other purposes and drive interest rates up
(crowding-out effects). As there are no unused resources, this results in
higher cost of capital which hampers the competitiveness of the economy further
affecting trade and overall economic activity. The net outcome in the economy
depends on the equilibrium resulting between the latter forces and assumptions
about capital supply. In contrast, in E3ME model, there are some unused
resources and the crowding-out effect does not automatically occur.

Importantly,
both models make different assumption on the use of the ETS revenue. In GEM-E3
model, ETS revenue is used to lower the social security charges, which has a
positive effect on GDP growth (but largely outweighed by the crowding-out
effect). In E3ME modelling, ETS revenue is used to finance the EE
investment. Whenever there is revenue left over from financing the EE
investment, then this is used to reduce income taxes, but in general the EE
investment needs are larger than the amount raised in ETS revenues, and the
difference is therefore covered by an increase in taxation. The increase in
income taxes leads to lower disposable income and, as a result, slightly lower
consumer expenditure.

In
GEM-E3 modelling, for the scenarios simulating the
effects of achieving higher energy efficiency targets, the assessment of
impacts on GDP generally found small but negative impacts especially in 2030
when energy efficiency expenditures peak (see table 10). In fact, the effects
of crowding-out leading to higher cost of capital and competitiveness losses
surpass the effects of improved energy efficiency and the multiplier effect of
increased economic activity in sectors providing inputs to energy efficiency
projects[65].
The magnitude of the effects increases with the amount of expenditures
undertaken for energy efficiency improvements. In 2030, the negative effects of
different levels of ambition of EE policies (25 to 40%) range between -0.7 and
-1.2% in comparison to the Reference.

In
the long term, the negative effects tend to diminish as the sectors benefit
from reduction of costs due to the achieved level of energy efficiency – but
less so for scenarios with a high level of ambition.

Table
10.
GDP impacts in EU28 (2030, 2040, 2050) in GEM-E3 model

% change from the Reference || 2030 || 2040 || 2050

Reference (in bn 2010€) || 16.766 || 19.277 || 22.129

EE25 || -0,07 || -0,03 || 0,00

EE28 || -0,13 || -0,04 || -0,02

EE30 || -0,22 || -0,04 || -0,02

EE35 || -0,52 || -0,15 || -0,03

EE40 || -1,20 || -0,19 || -0,04

Source:
GEM-E3

In E3
ME modelling, the impacts on GDP are positive, owing to
the approach which does not assume that optimisation in markets has previously
occurred. Consequently, investment in one particular sector does not
automatically lead to a crowding out effect on investment in other sectors. If
there is spare capacity in the baseline case, then it is possible for there to
be an increase in investment in the scenarios without necessarily having a
reduction in investment elsewhere. As described above, investments
are funded
through higher taxes which will result in a reduction in consumption.
Therefore, also the E3ME model assumes a certain amount of crowding out effects
regarding consumption.

There
is an increase in GDP in all scenarios compared to Reference, mainly driven by
the investment in energy efficiency that occurs after 2025. The model results
suggest that these positive changes could be in the range of 0.5 – 4.5%
increase (for
the range of scenarios achieving between 25 and 40% energy savings) in
comparison to the Reference case. The EE40 scenario is subject to more
uncertainty and possible resource constraints.

The
table below confirms that the main driving force behind the increase in GDP is
investment. The table also outlines the large scale of the energy-efficiency
investment required to achieve the reductions in final energy demand. Despite
higher GDP, household expenditure in all scenarios is lower than in the
reference case. The reason for this is that higher taxation rates are required
to fund the investment undertaken by industry sectors – and that energy
efficiency measures reduce operational energy costs.

Although
there is no measure of welfare in E3ME, in these types of model a reduction in
household expenditure is typically interpreted as being consistent with a loss
of welfare. However, there are cases where the two do not necessarily move
together: in this case, the investment in energy efficiency means that
households can achieve the same level of comfort while spending less on energy.

Table 11. GDP
impacts in EU28 (2030) in E3ME model

% change from the Reference || 2020 || 2025 || 2030

Reference (in bn 2010 €) ||          14.479 ||          15.699 ||          16.960

EE25 || 0,05 || 0,20 || 0,49

EE28 || 0,06 || 0,27 || 0,75

EE30 || 0,08 || 0,53 || 1,06

EE35 || 0,07 || 0,90 || 2,02

EE40 || 0,05 || 0,82 || 4,45

Source:
E3ME

It
is important to emphasise the assumption made in this modelling that revenues
from auctioned ETS allowances are supposed to be recycled into financing the
energy-efficiency investment. However, in all policy scenarios the revenues are
not enough to cover the scale of the investment, leading to an increase in
direct taxation to cover the investment spending and preserve budget
neutrality. Although modest in the medium to high ambition cases, in the EE40
scenario there would be noticeable increases in European tax rates.

Regarding
the projected GDP impacts the two used macroeconomic models differ. This is
mainly due to different assumptions regarding crowding-out effects. Both models
are used to analyse possible effects.

In
general the analysis and the different results shows, that EE policies beyond
2020 should be designed in such a way that crowding-out is limited to
avoid negative GDP effects. To make it possible, accompanying  policies should
tackle the factors that could prevent unemployed people to fill the vacancies
created by energy efficiency, which are mainly related to labour skills
shortages and barriers to mobility. The factors that could provide stimulus to
higher investments, leading to a "virtous cycle" with higher growth
and more savings to fund more investments, are more complex to identify. This
is also related to the confidence of the banking system and investors which can
in general be favoured by a credible policy scenario providing stable
incentives in the medium and long term.

Sectoral
impacts

Looking
at impacts by sector, it is clear that higher energy efficiency ambition drives
consumption expenditures towards sectors producing energy efficient equipment
(i.e. more efficient electrical appliances for households, retrofits, materials
improving thermal integrity of buildings, etc.) and savings towards the
financing of energy efficiency projects (i.e. insulation to improve thermal
integrity, etc.). Demand shifts from energy producing sectors towards sectors
which provide inputs to energy efficiency projects. The direct positive effect
of increased energy efficiency expenditures on domestic activity, especially
for sectors producing and installing the energy efficient equipment, is further
strengthened by multiplier effect, which is the increased intermediate demand
for goods and services due to sectorial interconnections and long supply
chains. In the GEM-E3 model (and not the E3ME model, however,), expenditures in
energy efficiency projects exert crowding-out effects on other investment
projects that would have otherwise been undertaken.

Table
12 summarizes the effects on sectoral production in the policy scenarios as
simulated in GEM-E3 modelling. Sectors delivering to energy efficiency products
and services record increases in their production (particularly the
construction sector).

Sectors
with low exposure to foreign competition record relatively higher increases in
their activity (i.e. construction and market services) while for sectors
characterized by higher trade exposure (i.e. electric goods and chemicals) part
of the increased demand is satisfied by imports, depending on the degree of
exposure to foreign competition, thus the positive effect of increased
expenditures on their activity is weakened. Demand for energy products falls in
all scenarios causing both domestic production and imports to decrease.

Table 12. Impacts on production
by sector in EU28 (2030) in GEM-E3 model

EU 28 Domestic production in 2030 (bn €'2010) % change from Reference for policy scenarios || Reference || EE 25 || EE28 || EE30 || EE35 || EE40

Agriculture || 547,4 || -0,44 || -0,27 || -2,33 || -4,21 || -4,11

Coal || 8,2 || 0,69 || -1,15 || -11,21 || -18,58 || -24,60

Crude Oil || 2,8 || -0,81 || -3,26 || -6,82 || -13,24 || -17,72

Oil || 261,9 || -0,95 || -1,58 || -4,78 || -7,79 || -10,84

Gas Extraction || 4,6 || -1,46 || -4,10 || -11,57 || -18,03 || -23,19

Gas || 25,1 || -1,33 || -6,28 || -24,63 || -35,80 || -44,17

Electricity supply || 320,6 || -1,17 || -6,72 || -20,11 || -32,01 || -41,32

Ferrous metals || 242,8 || 2,52 || 8,83 || 11,54 || 24,22 || 27,81

Non ferrous  metals || 730,7 || 0,82 || 2,52 || 3,63 || 7,80 || 9,28

Chemical Products || 1334,8 || -0,33 || 3,12 || 6,05 || 9,07 || 12,75

Paper Products || 623,7 || -0,09 || 0,27 || 0,65 || 1,02 || 0,79

Non metallic minerals || 437,9 || 2,13 || 6,18 || 10,06 || 17,72 || 24,35

Electric Goods || 481,1 || -0,09 || -0,27 || 0,33 || 0,71 || 0,14

Transport equipment || 1490,7 || 0,35 || 0,66 || 1,09 || 1,40 || 1,81

Other Equipment Goods || 1852,7 || 0,17 || 0,78 || 1,32 || 2,82 || 0,43

Consumer Goods Industries || 2066,1 || 0,05 || 0,34 || 0,22 || 0,16 || -0,13

Construction || 2524,9 || 0,99 || 3,42 || 6,07 || 11,14 || 16,28

Transport (Air) || 295,4 || 1,68 || 1,62 || 2,69 || 2,28 || 2,19

Public Transport (Land) || 1545,4 || 0,51 || 0,66 || 1,11 || 1,44 || 1,57

Transport (Water) || 271,9 || 0,19 || 0,12 || 0,28 || 0,30 || 0,06

Market Services || 11108,0 || -0,02 || 0,01 || 0,44 || 0,63 || 0,65

Non Market Services || 4623,2 || -0,02 || -0,05 || 0,06 || -0,06 || -0,09

Source:
GEM-E3 model

The
results in E3ME modelling are different because of the underlying assumptions
about investment financing, which is not affected by the crowding-out. Table 13
shows
the main impacts at broad sectoral level. Similarly as in GEM-E3 modelling, the
sectors that benefit the most in all the scenarios are the ones that produce
investment goods related to energy efficiency products and services, such as
construction and engineering. The non-energy extraction sector is also expected
to benefit, as it supplies the construction sector with raw materials.

The
effects on other sectors are more nuanced. Consumer goods producing sectors are
the most affected by the tax increase needed to finance the energy-efficiency
investment. On the other hand, distribution activity also benefits from the
increased activity in the investment sectors. Consequently, output in these
sectors is expected to be higher, but by a smaller amount than in other sectors
not so closely linked to consumer expenditure patterns.

The
energy-efficiency savings are expected to lead to reduced use of electricity
and gas, resulting in a fall in output in the sectors supplying them, and so
output in the utilities sector is substantially lower than in the reference
case.

Table 13.
Impacts on output in key sectors in EU28 (2030) in E3ME model

EU28 Output in 2030 ( in bn €2010) % change from Reference for policy scenarios || Reference || EE25 || EE28 || EE30 || EE35 || EE40

Agriculture ||  483 || 0,30 || 0,33 || 0,33 || 0,13 || -0,14

Extraction Industries ||  116 || -0,29 || -0,23 || 0,23 || 2,39 || 7,02

Basic manufacturing ||  3.762 || 0,61 || 0,96 || 1,43 || 3,08 || 7,56

Engineering and transport equipment ||  3.752 || 1,06 || 1,86 || 2,80 || 6,18 || 14,67

Utilities ||  910 || -3,04 || -6,12 || -8,01 || -12,24 || -17,92

Construction ||  2.175 || 1,61 || 4,46 || 7,64 || 18,13 || 41,88

Distribution and retail ||  3.401 || 0,53 || 0,56 || 0,58 || 0,65 || 1,40

Transport ||  1.609 || 0,35 || 0,53 || 0,77 || 1,51 || 3,03

Communications, publishing and television ||  2.971 || 0,56 || 0,86 || 1,21 || 2,22 || 4,74

Business services ||  7.331 || 0,51 || 0,72 || 0,98 || 1,73 || 3,74

Public services ||  4.958 || 0,13 || 0,13 || 0,12 || 0,01 || -0,23

Sources:
E3ME

Whereas
in both models the negative and positive impact on certain sectors appears
intuitive (e.g. construction and gas) other impacts necessitate further
interpretation against the assumptions used in the model.

Employment
effects

As an
important assumption, the baseline modelling based on GEM-E3 projects
persisting unemployment (frictional unemployment under equilibrium conditions)
in the EU in 2030 which implies that unused labour resources exist and can be
used in more labour-intensive scenarios with only small effects on the
equilibrium wage rates. This modelling assumption is more realistic than
standard general equilibrium projections that would assume no labour resources
availability in the future.

In
general, in GEM-E3, the energy efficiency expenditures inherent to each policy
scenarios induce increased employment for all scenario mostly in 2030 and less
afterwards without strong effects on wage rates (because of the assumption
mentioned in the paragraph above). The positive labour impacts combined with
negative impacts on GDP imply that the EU economy becomes more labour intensive
under energy efficiency assumptions. The employment multiplier effect depends
on the labour intensity of the sectors delivering inputs to energy efficiency
projects (relatively high for sectors like market services, high-tech
manufacturing) and the energy sectors (relatively low labour intensity) as well
as on the share of domestically produced inputs to total inputs used in the
production process (high shares of domestically produced inputs in the
production process imply that an increase in the sectorial activity is
associated with an increase in employment of sectors of domestic origin rather
than that of sectors located outside the EU).

From
the GEM-E3 modelling results, it is clear that total labour demand and
employment are affected to a greater extend by positive changes in the activity
of the more labour intensive sectors of energy efficiency products and services
as well as building renovation. The decreased labour demand in energy sectors
is thus more than compensated. In 2030, the positive effects of different
levels of ambition of EE polices range between 0.5 and 3% in comparison to the
Reference.

Table 14. Employment
impacts in EU28 (2030, 2040, 2050) in GEM-E3 model

% change from Reference for policy scenarios || 2030 || 2040 || 2050

Reference EU 28 employment (in million people) || 218,76 || 211,24 || 204,08

EE25 || 0,50 || 0,48 || 0,57

EE28 || 1,47 || 0,67 || 0,71

EE30 || 1,90 || 0,81 || 1,07

EE35 || 2,53 || 0,97 || 1,24

EE40 || 2,96 || 1,21 || 1,59

Source:
GEM-E3 model

The
time pattern of employment changes indicate strong positive effects at times of
implementation of energy efficiency expenditures and smaller effects at times
subsequent to implementation.

Changes in employment follow the changes in sectoral demand and
production as a result of energy efficiency expenditures (see table 15),
particularly the increase in production of relatively labour intensive sectors
(services sectors which provide inputs to energy efficiency projects) or
sectors with significant forward and backward linkages with other sectors of
the economy (construction sector).

Table 15.
EU28 sectoral employment impacts (2030) in GEM-E3 model

Sectoral Employment EU28 (% change from Reference) || Reference in millions of persons || EE25 || EE28 || EE30 || EE35 || EE40

Agriculture || 7,75 || 1,09 || 2,92 || 1,07 || -0,83 || -1,17

Coal || 0,11 || 1,89 || 2,16 || -8,05 || -14,69 || -20,42

Crude Oil || 0,01 || 4,65 || 9,31 || 9,52 || 2,74 || 2,76

Oil || 0,16 || 0,43 || 1,65 || -0,78 || -4,18 || -6,57

Gas Extraction || 0,01 || 4,09 || 7,09 || 3,38 || -2,51 || -4,99

Gas || 0,31 || 2,13 || 1,86 || -10,95 || -23,15 || -29,62

Electricity supply || 3,64 || 1,52 || -0,89 || -11,01 || -21,39 || -29,56

Ferrous metals || 1,07 || 4,62 || 13,14 || 16,72 || 27,43 || 31,73

Non ferrous  metals || 4,63 || 1,46 || 4,08 || 5,41 || 9,16 || 10,78

Chemical Products || 5,32 || 0,16 || 4,74 || 6,83 || 10,49 || 14,40

Paper Products || 4,28 || 0,16 || 0,85 || 1,22 || 1,37 || 1,02

Non metallic minerals || 2,90 || 2,60 || 7,76 || 11,41 || 18,88 || 25,79

Electric Goods || 1,66 || 0,45 || 1,26 || 2,00 || 2,74 || 2,32

Transport equipment || 5,83 || 0,89 || 1,93 || 2,30 || 2,61 || 3,15

Other Equipment Goods || 11,82 || 0,77 || 2,28 || 2,89 || 4,26 || 2,08

Consumer Goods Industries || 11,42 || 0,75 || 2,03 || 1,83 || 1,56 || 1,32

Construction || 18,07 || 1,42 || 4,88 || 7,97 || 13,64 || 19,12

Transport (Air) || 1,01 || 1,64 || 1,74 || 2,87 || 2,53 || 2,34

Public Transport (Land) || 7,79 || 0,65 || 1,47 || 2,27 || 2,47 || 2,93

Transport (Water) || 0,75 || 0,12 || 0,12 || 0,35 || 0,27 || 0,16

Market Services || 53,65 || 0,23 || 0,66 || 1,25 || 1,47 || 1,59

Non Market Services || 76,56 || 0,09 || 0,24 || 0,42 || 0,31 || 0,26

Source:
GEM-E3

In E3ME,
employment is determined primarily by the level/growth of economic output
analysed above as well as relative labour costs and consequently shows less pronounced
effects than in GEM-E3 modelling. As presented in the table below, up until
2020 there is very little change in overall EU28 employment levels in the
scenarios and even up to 2025 the changes are quite small. However, once the
energy-efficiency investment starts to grow quickly after 2025, employment is
expected to increase substantially. In 2030, the positive effects of different
levels of ambition of EE polices range between 0.3 and 1.5% in comparison to
the Reference. In the EE40 scenario, the
increase in employment levels could be up to 3.5% by 2030. These results of the
EE40
scenario are of course subject to more uncertainty and possible labour market
constraints.

Table 16. Employment
impacts in EU28 (2030) in E3ME model

% change from Reference for policy scenarios || 2020 || 2025 || 2030

Reference EU 28 employment (in million people) || 233,503 || 232,971 || 231,726

EE25 || 0,02 || 0,07 || 0,23

EE28 || 0,02 || 0,08 || 0,29

EE30 || 0,02 || 0,19 || 0,35

EE35 || 0,02 || 0,31 || 0,62

EU28 || 0,01 || 0,27 || 1,50

Source:
E3ME

The
outcomes for sectoral employment as presented in Table 15 broadly
follow those for sectoral output described above, with construction,
engineering and their supply chains benefiting the most. The largest increase
in employment is expected in the construction sector, on the assumption that a
large share of the investment will require construction or installation
activities. Relatively more modest increases are also projected in the
engineering and transport equipment sector as well as basic manufacturing.

Employment
in distribution and retail and business services is expected to fall, despite
the increase in output in these sectors. The reason for this is that higher
employment levels overall (mainly due to the relatively labour-intensive
construction sector) and lower unemployment lead to increases in wage demands,
a form of labour market crowding out. Employment in utilities is also predicted
to fall, in line with the projected fall in output in the sector.

Table
17.
EU28 sectoral employment impacts (2030) in E3ME model

Change from Reference for policy scenarios || Reference (in millions of persons) || EE25 || EE28 || EE30 || EE35 || EE40

Agriculture || 9,726 || 0,21 || 0,04 || -0,10 || -0,95 || -3,06

Extraction Industries || 0,479 || -1,25 || -1,67 || -1,46 || -0,84 || -2,51

Basic manufacturing || 14,868 || 0,28 || 0,32 || 0,46 || 0,94 || 2,11

Engineering and transport equipment || 15,268 || 0,58 || 0,69 || 0,90 || 1,72 || 3,81

Utilities || 2,274 || 0,09 || -1,36 || -3,47 || -6,29 || -8,00

Construction || 16,524 || 0,71 || 2,11 || 3,59 || 8,57 || 19,77

Distribution and retail || 35,266 || 0,13 || -0,03 || -0,18 || -0,73 || -1,75

Transport || 9,388 || 0,17 || 0,14 || 0,18 || 0,22 || 0,12

Communications, publishing and television || 20,278 || 0,23 || 0,27 || 0,36 || 0,62 || 1,45

Business services || 40,985 || 0,33 || 0,24 || 0,12 || -0,12 || -0,28

Public services || 66,671 || 0,05 || 0,07 || 0,03 || 0,02 || 0,36

Source:
E3ME

5.3.4. 
Environmental impacts

As explained in Annex V, all scenarios feature assumptions on
policies which reduce non-CO2 GHG emissions. The volume of reduction
of these emissions as achieved by the GHG40 scenario from the 2030 IA has been
used as a starting point. The policies to reduce non-CO2 GHG
emissions do not belong to the domain of the energy efficiency (mainly
agriculture and waste treatment are concerned). In the GHG40 a certain amount
of non-CO2 GHG emissions reduction was necessary in order to reach
40% GHG reduction in 2030. Because of the higher level of energy savings in the
EE policy scenario modelled in this IA the contribution of non-CO2
GHG emissions to achieve the 40% GHG target decreases.

Total
GHG reductions in 2030 for the
modelling scenarios are in line with 40% GHG reduction target proposed in 2030
framework for EE27 to  EE30 scenarios. While and EE35 overshoots this target
slightly, reaching 41%, for EE40 the overshooting is significant (44%) taking
into account the strong EE policies. All scenarios reach in 2030 between 42-46%
reductions in the ETS sector (in comparison to 2005) and in non-ETS
sectors between 28-35% reductions (in comparison to 2005) – broadly in line
with the respective reductions referred to in the 2030 Communication.

With
regard to emission reductions in 2050, the scenarios are all consistent
with deep decarbonisation in 2050 and show rather similar additional emission
reductions to Reference ranging from 76 to 80%, with scenarios EE27 to EE30 achieving
less.

Table18. ETS
and non-ETS emissions

Indicator (figures are presented in a 2030/2050 format) || || Ref || GHG40 || || Decarbonisation Scenarios

|| || EE27 || EE28 || EE29 || EE30 || EE35 || EE40

Total GHG emissions (% to 1990) || || -32.4 / -43.9 || -40.6 / -79.6 || || -40.1 / -77.6 || -40.2 / -78 || -40.1 / -78.3 || -40.1 / -78.5 || -41.1 / -79.5 || -43.9 / -80.2

ETS (% to 2005) || || -36.1 / -59.3 || -43.3 / -87.1 || || -45.3 / -85.6 || -44.4 / -85.7 || -43.3 / -85.7 || -42.2 / -85.7 || -41.8 / -85.8 || -45.6 / -86.5

Non-ETS (% to 2005) || || -20.3 / -22.9 || -30.5 / -70.3 || || -27.6 / -67.6 || -28.7 / -68.3 || -29.5 / -68.9 || -30.5 / -69.4 || -32.9 / -71.2 || -35.3 / -72

Source: PRIMES 2014

Some differences between the scenarios are visible in sectoral
GHG emission reductions in comparison to 2005. Looking at scenarios that
achieve close to 40% GHG reductions[66], in a 2030 perspective, the power
generation and tertiary sectors are projected to experience the
biggest reduction across all policy scenarios. For power generation, reductions
remain relatively constant across scenarios from -54 to -60% (wrt 2005), with
the effectiveness of the EE policies in reducing energy consumption taking over
ETS prices as the driving force for emission reductions in the sector as EE
ambition increases. In the residential sector, reductions range from -34 to 63%
(wrt 2005) and for the tertiary sector, reductions range from -51 to -73% (wrt
2005). In both sectors reductions increase together with the ambition of EE
policies, reducing the effort required for industry and power generation, and
are significantly higher than those achieved by Reference. In transport,
the reductions are smaller (between -16.7 and -17.5%) and only slightly deeper
than in Reference.

In a 2050 perspective, again only looking at scenarios that
achieve close to 40% GHG reductions, emission reductions increase significantly
across all sectors as they are all compatible with the 2050 GHG objective. The
power sector is almost fully decarbonised as with -95 to -97% reductions
compared to 2005 it remains the sector with the highest reductions. The transport
sector sees the lowest: -61% to -64% reductions.

If changes in sectoral GHG emissions are compared to Reference,
the key insight in a 2030 perspective is that in all final energy demand
sectors the reductions are increasing their magnitude in line with the level of
ambition of the scenarios, except for the power generation sector where strong EE
policies result in slightly smaller reductions because of lower ETS prices and
the fact that majority of GHG reductions happen in non-ETS sector.

Table 19. Sectoral CO2
emission impacts compared to 2005

Indicator (figures are presented in a 2030/2050 format) || || Ref || GHG40 || || Decarbonisation Scenarios

|| || EE27 || EE28 || EE29 || EE30 || EE35 || EE40

Power generation. CHP and district heating || || -46.7 / -72.9 || -56.5 / -97.7 || || -57.9 / -95.6 || -56.6 / -95.3 || -55.5 / -95.5 || -54.6 / -95.7 || -54 / -96.1 || -60 / -97.2

Industry (energy + processes) [67] || || -22.5 / -43.8 || -27.4 / -77.8 || || -31.5 / -76.7 || -30.8 / -77.1 || -29.8 / -76.8 || -28.6 / -76.2 || -29.1 / -75.7 || -29.7 / -76

Residential || || -26.7 / -34.1 || -34.1 / -80.3 || || -33.8 / -75.7 || -37.5 / -78.2 || -40.3 / -80.8 || -44 / -82.9 || -53.1 / -86.8 || -62.9 / -90.3

Tertiary [68] || || -40.1 / -48.3 || -48.2 / -85.6 || || -50.5 / -77 || -55.6 / -79.4 || -58.5 / -81.4 || -60.8 / -82.9 || -66.6 / -85.4 || -73 / -87.7

Transport || || -11.6 / -10.3 || -13.6 / -63.5 || || -16.7 / -61.3 || -16.8 / -61.4 || -17.1 / -61.5 || -17.3 / -61.7 || -17.5 / -64.2 || -17.4 / -64.2

Source:
PRIMES 2014

Table
20.  Sectoral CO2 emission impacts compared to Reference

Indicator All indicators are presented as % increase/decrease in comparison to the Reference for 2030/2050 || || GHG40 || || Decarbonisation Scenarios

|| || EE27 || EE28 || EE2 || EE30 || EE35 || EE40

Power generation, CHP and district heating || || -9.8 / -51 || || -11.2 / -48.9 || -9.9 / -48.6 || -8.8 / -48.8 || -7.9 / -49 || -7.2 / -49.4 || -13.2 / -50.5

Industry (energy + processes) [69] || || -4.9 / -55.3 || || -9.1 / -54.2 || -8.3 / -54.7 || -7.3 / -54.3 || -6.1 / -53.7 || -6.6 / -53.2 || -7.2 / -53.5

Residential || || -7.5 / -53.6 || || -7.1 / -49 || -10.8 / -51.5 || -13.7 / -54.2 || -17.3 / -56.2 || -26.4 / -60.1 || -36.2 / -63.7

Tertiary [70] || || -8.1 / -45.5 || || -10.4 / -36.9 || -15.5 / -39.4 || -18.4 / -41.3 || -20.7 / -42.9 || -26.6 / -45.3 || -32.9 / -47.6

Transport || || -1.9 / -51.9 || || -5.1 / -49.7 || -5.2 / -49.7 || -5.4 / -49.9 || -5.6 / -50 || -5.8 / -52.5 || -5.8 / -52.5

Source: PRIMES 2014

5.3.5. 
Additional environmental and health impacts

As indicated in the 2030 IA environmental and health benefits associated
with higher energy efficiency should also be taken into account when
considering costs and benefits. Although these effects were not modelled as
part of this specific impact assessment the 2030 IA indicates that “reduced
fossil fuel consumption improves health conditions through lower emissions of
pollutants and lowers costs for air pollution control with benefits being
disproportionately larger in lower income Member States expressed as a % of GPD
and much larger in scenarios with ambitious energy efficiency policies and a
renewables target.” These findings based on modelling find confirmation in
ex-post evaluations of existing energy efficiency programmes. For example  research
undertaken in Northern Ireland on the impact of the Warm Homes Scheme 2000-2008
(a free, government-funded retrofit scheme for households in energy poverty)
has demonstrated that 42% of the cost of the programme could be offset against
reduced healthcare costs.  This implies that every euro spent on house
retrofits yields a saving of 42 cents in terms of healthcare no longer needed.

In addition to health impact and lower GHG emissions other
environmental impacts associated with higher energy efficiency include the
following:

- 
Reduction of pollution resulting from energy extraction,
transformation, transportation and use. This applies primarily to air pollution
resulting from energy combustion but it also applies to e.g. soil and water
pollution. Co-benefits in terms of human health and ecosystems state can
subsequently be expected;

- 
Reduction in resources used for energy extraction, transformation,
transportation and use: For instance, water used for energy purposes
(hydropower, cooling of power stations, irrigation) is significant. Therefore,
increasing energy efficiency also leads to water savings. And this also applies
to land and materials use, hence leading to several co-benefits in terms of
resource efficiency.

The higher the energy efficiency target, the higher these
environmental co-benefits would be.

5.3.6. 
Competitiveness and
Affordability of energy

From the perspective of affordability of energy, the key
items are both operational and capital expenditure related to energy use. Operational
expenditure (cost) is clearly dependent on both energy prices (which are
projected to rise in the longer term) and consumption volumes, the latter
impacted by the efficiency of energy use. These expenditures need to be compared
to available household income. Energy costs as such are of particular relevance
for those consumers which have very low incomes or that, for other reasons,
cannot take advantage of cost saving energy efficiency investments.

While fossil fuel prices are treated as exogenous in the PRIMES
modelling work, the price of electricity is not. The analysis in the
chapter above indicates that most significant price increases happen already in
the Reference scenario, mainly until 2020. After 2020, prices are rather stable
in the Reference scenario. Average electricity price changes in
different scenarios (compared to the year 2010) are very small. For example, while average electricity price
increase (compared to 2010 price) in Reference is 31%, it ranges between 32 and
35% in policy scenarios in 2030 and the changes are only slightly higher in
2050 perspective. Electricity price changes compared to the Reference
are also very small in 2030 ranging from 1 to 3% in the year 2030, with smallest
increase in the EE35 scenario.

The share of energy costs in value added
created by energy intensive industries remains stable among the Reference and
policy scenarios in 2030. It grows slightly in longer-term perspective. For
households, the share of energy-related costs (both including and excluding
transport) grows slightly already in 2030 as the scenarios achieve more energy
savings and continues to grow in 2050 perspective.

Table
21. Share of energy costs in household expenditure and energy intensive industries value added

Indicator (figures are presented in a 2030/2050 format) || || Ref || GHG40 || || Decarbonisation Scenarios

|| || EE27 || EE28 || EE29 || EE30 || EE35 || EE40

Share of energy costs in energy intensive industries value added[71] || || 41.8 / 41.0 || 42.1 / 54.2 || || 43.9 / 50 || 43.7 / 51.5 || 43.6 / 51.5 || 43.5 / 51.2 || 43.8 / 50.1 || 44.1 / 49.8

Share of energy related cost (including transport) in household expenditure (In 2010: 12,4) || || 14.6 / 12.6 || 14.8 / 14.1 || || 14.8 / 13.6 || 15 / 13.8 || 15.2 / 14.3 || 15.5 / 14.8 || 16.5 / 16.3 || 18.6 / 18.5

Share of energy related cost (excluding transport) in household expenditure (In 2010: 7.5) || || 9.3 / 8.0 || 9.4 / 8.7 || || 9.5 / 8.3 || 9.7 / 8.6 || 9.9 / 9 || 10.1 / 9.5 || 11.1 / 11 || 13.2 / 13.2

Avg. electricity price incr. compared to 2010 price || || 30.8 / 30.1 || 33.3 / 36.2 || || 34.1 / 38.9 || 33.2 / 37.7 || 32.6 / 36.7 || 32.4 / 35.12 || 31.9 / 35.3 || 35.2 / 35.6

Average electricity price change compared to Ref. (percentage points) || || n.a. || 1.9 / 4.7 || || 2.5 / 6.8 || 1.8 / 5.8 || 1.4 / 5.1 || 1.2 / 3.9 || 0.8 / 4 || 3.3 / 4.2

Source: PRIMES 2014

5.4. 
Architecture of the 2030 energy efficiency policy
framework

5.4.1    Overall architecture

Chapter
4 identified the following options:

I           No action

II         Indicative EU target coupled
with specific EU policies and indicative MS targets

III        Binding EU target coupled
with specific EU policies and indicative MS targets

IV        Binding MS targets

These options will be compared against
the following criteria:

- 
Effectiveness
(achievement of the objectives identified in Chapter 3)

- 
Economic
efficiency (cost-effectiveness)

- 
Coherence
(with the overall EU energy and climate policy framework and its objectives)

Under Option I the policy framework post
2020 would not include a target for energy efficiency. This implies that the
framework would not benefit from: (i) a benchmark for tracking progress and
making policy adjustments; (ii) a signal to relevant actors, such as investors
and consumers, about the policy direction; (iii) a basis for additional policy
elements, such as prioritisation for funding through the European Structural
and Investment Funds. Without an overall target trade-offs between energy
efficiency solutions in different sectors of the economy could be harder to
assess, potentially increasing the marginal cost of energy efficiency
improvements. Certain policy tools, such as Ecodesign and the EPBD, would
continue to apply. Nevertheless, the contribution of energy efficiency would
certainly be lower and its cost for a given ambition level would be likely to
be higher. Given the low carbon abatement cost of many energy efficiency
options and their contribution to GDP and job creation, this would be neither
coherent with the current energy and climate goals nor economically efficient.
The effectiveness of Option I in achieving the EU’s energy and climate goals
would also be limited compared to the current setting.

Option II would be a continuation of the
current approach, retaining the benefits described above and the added value of
ensuring a continuity of a framework to which relevant stakeholders, including
Member States, have become accustomed. An indicative energy efficiency 2030
target would accommodate the differences in the national/domestic markets and
their energy efficiency potentials. It would also limit the risk of imposing
too much rigidity on the overall energy and climate framework which includes
also the GHG and RES targets, and thus potentially limit costs of GHG
abatements. On the other hand, the indicative nature of the current target has
sometimes made it difficult to mobilise the necessary policy effort. For example,
experience with the setting of indicative national targets under Article 3 of
the EED in 2013 has shown that there is only limited scope for adjusting them
when their sum remains below the overall EU target. While being coherent with
the current energy and climate policy framework and providing for economic
efficiency, the effectiveness of this approach is in some respects limited.

Option III would replicate the approach
proposed by the Commission in the 2030 Communication for a future RES target. National
plans would include an explicit aim of contributing to the overall EU target
for energy efficiency[72].
If a review by the Commission showed an insufficient level of ambition, an
iterative process would take place with the aim of reinforcing the content of
the plan(s). This approach implies that an additional lever is put in place to
ensure that the collective national policy ambitions correspond to the EU
target. This would increase effectiveness. This approach also has the merit of
ensuring coherence with the governance of put forward in the 2030 Communication
into which energy efficiency would be integrated, helping increase the economic
efficiency of its implementation. In terms of economic efficiency the need to
consult neighbouring Member States as part of the establishment of national
plans would mean that decisions about managing energy demand and deciding on
supply options would be better coordinated among Member States across the
internal energy market. On the other hand it can be argued that, in theory, the
setting of a binding energy efficiency target in addition to GHG and RES target
could add rigidity to the system, bringing, under certain conditions, higher
costs of GHG abatement than the marginal cost of abatement required to reach
the cap in the ETS sector. This can be avoided by establishing the target at a
level that is coherent with the other targets and allowing for periodical
adjustments on the basis of developments in the economy or other. The analysis
included in section 5.3 indicates that savings up to 35% are coherent with the
40% GHG and 27% RES targets, as they do not lead to overshooting the 40% target
or to altering the size of emission reductions between the ETS and non-ETS
sectors.

Under Option IV there would be a
restructuring of the current policy setting. Much would be devolved to Member
States, with EU-wide rules maintained only in areas fully relevant to the
internal market, such as product efficiency requirements. This is because fully
allocating policy responsibility to the national level implies that policy
tools be allocated accordingly[73]. Experience
with the renewable energy Directive shows that this approach can be a strong
driver for national action: a target at Member State level can
ensure political accountability and commitment to deliver results while
providing flexibility to choose and apply the most suitable tools to achieve
the target.
On the other hand important synergies in policy making (e.g. common
methodologies for establishing cost-optimal levels for building renovations)
would be lost. The effectiveness of this approach remains uncertain, therefore.
Regarding coherence this approach would run counter to recent proposals on
governance. In addition, possible increases in administrative cost linked to
fragmented EU action and potential harm to businesses operating across the
internal market would limit the economic efficiency of this approach. Moreover,
a basis for the shared efforts between Member States would have to be devised,
taking into account for example such factors as the energy efficiency
potential, early action, the structure of the economy. Such considerations are
beyond the scope of this impact assessment.

5.4.2    Formulation of a 2030 target

Chapter
4 identified the following options:

A.        Consumption
target

B.        Intensity
target

C.        Hybrid
approach

These approaches will be compared with
regard to their effectiveness, efficiency and coherence, as well as their
transparency and ease of monitoring (identified as key criteria for targets by
the EU 2020 strategy[74]).

Energy consumption is the most straightforward
option. It is most directly related to long term decarbonisation objectives.
This indicator is, however, directly influenced by the development of the
economy. If growth turns out to be higher than anticipated, realising the
target will require additional energy efficiency measures, potentially making
them no longer cost-effective. If on the other hand growth is lower than
anticipated, the target can be met without the energy efficiency improvements
that were originally envisaged and therefore some of the cost-effective
potential will not be realised.

Energy intensity is defined as a
ratio between energy consumption and an indicator of economic activity (GDP,
added value). Its use can eliminate the dependency of the target on the rate of
economic development. On the other hand, changes in energy intensity can sometimes
result from structural changes that do not reflect real improvements (e.g. a shift
from energy-intensive industries to higher value-added ones). And energy
consumption in some sectors is not closely linked to the development of the
economy.

Thus, consumption and intensity
indicators each have pros and cons. Factoring in a target the dynamics of the
economy can be done through the following options:

Formulating
  a target based on two components with an absolute energy consumption
  component corresponding to the share of energy consumption in those
  sectors where the correlations between energy consumption and economic
  growth is low (residential, services, and generation), and intensity
  component corresponding to the energy consumption of those sectors where
  this correlation is high (industry, transport). An analysis of these
  correlations is included in Annex IV.
 Establishing
  a single target formulated in absolute terms as it is today, with a review
  clause allowing for adjusting the target in case changes in the economy
  significantly differ from the assumptions made when the target was
  established.

Option i) has the downside of being
expressed in a relatively complex way which potentially weakens the role of the
target in benchmarking progress. The establishment of the target would also be
fairly complex, including the decision on the split between the ‘absolute’ and
‘intensity’ shares and taking into account primary energy conversion factors in
the different sectors. At the same time it provides for an automatic adjustment
of the efforts required to the changes in economic cycles. The opposite can be
said of option ii): while it is expressed in a clear way it would be up for
revision providing less certainty for policy and market actors, and it would be
devoid of an automatic adjustment mechanism. This could be however overcome if
the circumstances under which a revision happens and the margin by which the
target is corrected are clearly defined.

5.5. 
The role of financing

There
is evidence of increasing momentum for energy efficiency financing. The draft
Operational Programmes beginning to be submitted under the European Structural
and Investment Funds indicate an increase in sums allocated for the low–carbon
economy, in some cases significantly above the minimum requirements for this
objective. Also there is a general shift from grants towards a greater use of
financial instruments (leveraging private capital), such as soft loans or
guarantees.

Reaching
the level of energy-savings considered in this impact assessment will require significant
additional investments which will have to be primarily private. Public money,
including the European Structural and Investment funds will have to be used to
leverage these private investments and the right regulatory framework will have
to underpin them. About €38 billion that has been set aside for low carbon
economy investments under the Structural and Investment Funds (ESIF) 2014-2020
– and this sum can be multiplied by attracting private capital  through
Financial Instruments to deliver the necessary investments.

The
additional investments in energy efficiency will range from €48 bn to €216 bn
annually over the period 2011 to 2030 depending on the chosen level of
ambition. These sums are significant, especially at the upper end of the range,
but it is useful to put them in perspective: For illustration, institutional
investors in the EU (adherents of the Principles of Responsible Investments
initiative) currently manage over €12 trillion of funds, and the amount
invested in private real estate is estimated at over €1.5 trillion in 2012.

To unlock
the desired level of investment[75],
it will be necessary to address the main identified drivers of energy
efficiency investment. According to the Energy Efficiency Financial
Institutions Group[76],
these are the following:

- 
The
benefits of energy efficient refurbishments of buildings and energy efficiency
investments in SMEs and industry need to be captured and well-articulated, with
evidence, to key financial decision makers (public authorities, buildings
owners,  managers, householders, CEOs and CFOs of companies).  To achieve this,
three requirements need to be met: (a) the full benefits of energy efficiency
investments must be identified, measured and presented for each investment in
ways in which key financial decision makers can understand and respond to; (b)
the evidence and data must be easy to access and cost effective to compile and
assess in investment decision making processes; (c) internal procedures,
reporting and accounting systems should be adapted so as not to additionally
handicap viable energy efficiency investments.

- 
Processes
and standards for energy performance certificates, building codes and their
enforcement need to be strengthened and improved. A step change in how energy
efficiency potential is identified, measured, reported and verified is needed
and achieving this is fundamental to unlocking the market at scale.

- 
Making
it easy to get the right data to the right decision makers:  There are too many
hurdles between the relevant and credible data and the decision makers who need
it; and the processes and resources required to extract that data and qualify
it appear specialist and costly.  For energy efficiency investments in
buildings to enter the mainstream, it must be as easy for a key property
decision maker to understand and value the benefits of those investments as it
is for other comparable decisions.  The data structures must clearly enable the
connection and validation of value increases (in the broadest sense) with
energy efficiency investments[77].

- 
Standards
should be developed for each element in the energy efficiency investment
process, including legal contracts, underwriting processes, procurement
procedures, adjudication, measurement, verification, reporting, energy
performance (contracts and certificates) and insurance. The use of standardised
MRV and legal documentation is particularly important to facilitate the
bundling of investments for recycling to the bond market – creating a route to
significant volumes of capital market finance.

- 
Priority
and appropriate use of EU Funds (in particular ESIF) and ETS revenues through
public-private financial instruments from 2014-2020 will boost investment
volumes and help accelerate the engagement of private sector finance through
scaled risk-sharing:  Scalable models and successful case studies of dedicated
credit lines, risk sharing facilities and on-bill repayment schemes abound. 
Member States should be encouraged to move away from traditional grant funding
and look more to identifying the working models which best address the energy
efficiency refurbishment investment needs in their buildings (as articulated in
their National Buildings Refurbishment Strategies).  ESIF 2014-2020 funding
(and other sources such as ETS revenues) will be required to kick-start and
complement national energy efficiency funds (EED Art 20) and energy supplier
obligations (Art 7) to deliver Europe’s 2020 targets and National Buildings
Renovation Strategies (Art 4).

6. 
Conclusions
6.1. 
Policy options for 2020

The
analysis suggests that the best approach for achieving the 2020 target
is to focus on the implementation of existing legislation. This is based on the
following premises:

- 
The
gap to the 2020 target is not expected to exceed 2 percentage points;

- 
Proposing
new legislation now would not have a significant effect by 2020 and could be
disruptive;

- 
A
better implementation of current legislation and policies can close the gap.

Efforts
need to be focused on the proper implementation of the EED, improved
implementation of the EPBD and strengthened enforcement of product regulations
– exploiting opportunities for improved financing, including from the European Structural
and Investment Funds, to the full.

6.2. 
Ambition level 2030

6.2.1        Energy system impacts including security of supply

The analysis shows that,
in all scenarios, energy efficiency policies reduce effectively energy
consumption (both primary and final) and decrease the energy intensity as
compared to the Reference scenario.

The
different policy scenarios demonstrate some differences in terms of the
consumption of various primary energy sources. Notably for solids, their share in
fuel mix in 2030 does not change in EE27, EE28 and EE29 in comparison to the
Reference whereas for EE30, EE35 and E40 their share grows slightly. The
absolute consumption of solids in 2030 declines substantially in all except
EE35 scenario. The shares of natural gas in 2030 decline slightly in all
scenarios (in comparison to the Reference) with the declines more pronounced as
the scenarios achieve more energy savinggs. The reductions in absolute
consumption are, however, more pronounced – with more energy savings. The absolute
consumption of RES grows but with high levels of energy consumption sheer
reduction of energy consumption lessens the need for RES development in
absolute consumption. The shares of renewables grow, however, in all scenarios
– driven by the RES target as proposed in the 2030 framework and
decarbonisation in longer term perspective.

Energy efficiency has a
significant impact on security of supply and the level of gas imports in
particular. Energy efficiency policies achieving 40% savings, would result in
2030 in lowering gas imports by as much as 40% in comparison to 2010, whereas
in the Reference the imports would grow by 5% in that year. Already energy savings of 30% achieve a 22% decrease. Net
energy import decreases translate into savings in the energy fossil fuels
imports bill. For the period 2011-2030 cumulative savings range from €285 bn to
€549 bn and for the period 2031-2050 from € 3349 bn to € 4360 bn.

6.2.2        Economic impacts

Energy
system costs increase in all scenarios compared to the Reference. Increased energy efficiency ambition leads
to average annual energy system
costs (2011-2030) in policy scenarios that are between 0.01 and 0.79
percentage points of GDP higher than the Reference.

The
additional increases are higher in 2050 and reflect the costs necessary to
achieve the overarching decarbonisation objective, including also the costs of
energy efficiency policy. Regardless of the method of comparison, the
additional increases are smaller than those resulting under the Reference
itself.

There
is a general shift in the structure of costs with diminishing energy purchases
and increasing capital costs and direct efficiency investments. The decreasing
energy purchases with higher EE levels counterbalance to a certain extent the
other two components. For the period 2011-2030, the average direct efficiency
investments are between €16 bn to €181 bn higher than for the Reference.

Investments
increases sharply in all scenarios - more significantly in more ambitious
scenarios and again mostly in residential and tertiary sectors.

Electricity
price changes compared to the Reference are also very small in 2030 ranging from
1% to 3% in the year 2030, with smallest increase in the EE35 scenario.

The ETS price differs
substantially across the various scenarios, reflecting the important
contribution of energy efficiency to emission reductions in the ETS sectors. Under EE35 and EE40, EE policies
reduce significantly both costs and incentives from the ETS itself for other
types of abatement. Regarding the ETS price, it is expected that the influence
of EE policies on the ETS price will be mitigated by the structural ETS measures
(back loading) and the market stability reserve which was proposed by the
Commission.

GDP impacts for
scenarios reducing emissions by 40% GHG can be either negative or positive
depending on theoretical approach in modelling with the main driver being the
magnitude of investments. In general-equilibrium modelling, the crowding out
effect leads to negative results. If it is not assumed that all resources are
fully employed, the effects on GDP are positive.

6.2.3 Social impacts

The
overall net employment impacts, as for GDP, depend on the theoretical approach
to modelling which determines the impact of investment on economic growth as
well as the assumptions on the use of revenue from carbon pricing and the
employment level assumed in the baseline. In general, employment is positively
impacted by using carbon pricing revenue to lower labour costs. The analysis
also suggests that the employment effect will overall be more positive in
scenarios with stronger energy efficiency policies reflecting the significant
job-creation potential in these areas – with magnitude
of effect depending on theoretical approach.

Affordability of energy
for households is already negatively affected under the Reference, but is not
significantly affected compared to the Reference in policy scenarios. The
scenarios with most energy savings slightly increase the share of
energy-related costs in household budgets as energy efficiency improvements
typically need investment resulting in capital cost increases. The extent to
which households are able to proceed with such investment depends on the means
of financing it.

6.2.4        Environmental impacts

In order
to ensure consistency with the other objectives of the 2030 energy and climate
framework, all scenarios (except for EE40) demonstrate reduced GHG emissions
compared to the Reference in line with the GHG target proposed in 2030
framework as well as decarbonisation objective. All scenarios are consistent
with the (at least) 27% share of renewables target.

Scenarios are broadly
in line with regard to respective reductions in ETS and non-ETS sectors as
proposed in 2030 framework. In all scenarios, the reductions in ETS sectors are
close to 43% (wrt 2005) and the reductions in non-ETS sectors are close to 30% (wrt 2005). Only the EE40
scenario diverges from this pattern.

The balance of GHG
reductions in the various sectors of the economy does not change between the
scenarios as the mix of energy efficiency policies is not altered among the
scenarios (it always follows the logic of current legislation and only the
overall level of ambition intensifies). The highest reductions occur in the
power generation sector (driven by ETS as proposed in 2030 framework) and in
residential and tertiary sector (as the key EE policies address specifically
these two sectors).

6.3. 
Architecture of the 2030 policy framework

The
2020 target proved to be a useful element of the policy framework providing a
benchmark for tracking progress and making policy adjustments; a signal to
relevant actors, about the policy direction; and a basis for additional policy
elements. A post-2020 policy framework without a target would not benefit from
these elements.

A
purely indicative target would be economically efficient and coherent with the
2030 energy and climate policy framework.  National binding targets would be
incoherent with the proposed energy and climate policy framework. Their
effectiveness and economic efficiency is uncertain.

The
target formulation should take into account unexpected developments in the
economy. This can be done either automatically (by formulating a hybrid target,
with a component fluctuating according to changes in the economy) or through
periodical revisions. Both approaches have advantages and drawbacks.

6.4. 
Financing

Significant
energy efficiency improvements will require significant investments. These will
have to be primarily privately financed although public investments, notably
under the European Structural and Investment Funds will continue to play a
role, notably in leveraging private capital. The business case for investing in
energy efficiency need therefore to become more apparent to the financial
sector and this will entail a number of actions, such as establishing reliable
procedures for measuring  and verifying energy savings, developing standards 
for energy efficiency investment processes and providing technical assistance
in order to make energy efficiency projects bankable.

The table below gives an overview of the
main impacts of the different scenarios assessed in Chapter 5. All impacts are
with respect to 2030 if not otherwise stated, while keeping in mind that
impacts and differences between scenarios may be quite different in a post 2030
perspective.

Table 22. Overview table with the key results for the IA for the different
scenario projections

|| Reference || GHG40 || EE27 || EE28 || EE29 || EE30 || EE35 || EE40

ENERGY SYSTEM IMPACTS

Energy Savings in 2030 (evaluated in % against the 2007 Baseline projections for Primary Energy Consumption) || 21.00% || 25.10% || 27.40% || 28.30% || 29.30% || 30.70% || 35.00% || 39.80%

Gross Inland Energy Consumption (Mtoe) || 1611 / 1630 || 1534 / 1393 || 1488 / 1423 || 1470 / 1380 || 1450 / 1338 || 1422 / 1286 || 1337 / 1196 || 1243 / 1129

- Solids share || 10.8 / 7.6 || 10.1 / 9.5 || 9.9 / 9.5 || 10.4 / 9.4 || 10.8 / 9.4 || 11.3 / 9.3 || 12.9 / 9 || 12.4 / 9.2

- Oil share || 32.3 / 30.5 || 32.8 / 13.5 || 32.4 / 14.2 || 32.6 / 14.5 || 32.7 / 14.8 || 33 / 15.3 || 34.2 / 15.6 || 36.2 / 16.4

- Natural gas share || 24.6 / 24.3 || 22.5 / 17.9 || 22.5 / 19.5 || 21.9 / 19 || 21.5 / 18.6 || 21 / 18.3 || 19.2 / 18.3 || 18.5 / 17.6

- Nuclear share || 12.5 / 13.2 || 13.1 / 18.1 || 12.7 / 17.2 || 12.8 / 17.4 || 12.7 / 17.4 || 12.5 / 17.1 || 11.8 / 16.5 || 11.1 / 15.8

- Renewables share || 19.9 / 24.4 || 21.6 / 41 || 22.6 / 39.9 || 22.4 / 39.8 || 22.3 / 39.9 || 22.3 / 40.1 || 22 / 40.8 || 22.1 / 41.2

Energy Intensity  (2010=100) || 67 / 52 || 64 / 44 || 62 / 45 || 61 / 44 || 61 / 42 || 59 / 41 || 56 / 38 || 52 / 36

Renewables share in final consumption || 24.4 / 28.7 || 26.5 / 51.4 || 27.8 / 49.9 || 27.7 / 50.1 || 27.7 / 50.4 || 27.7 / 50.6 || 27.4 / 51.8 || 27.4 / 52.3

Gross Electricity Generation (TWh) || 3664 / 4339 || 3532 / 5040 || 3469 / 5038 || 3461 / 4936 || 3423 / 4796 || 3336 / 4560 || 3080 / 4267 || 2804 / 3969

- Gas share || 19.5 / 17.3 || 15.3 / 12.5 || 14.8 / 12.5 || 14.2 / 12.3 || 13.8 / 11.9 || 13 / 11.2 || 10.2 / 11 || 9.8 / 10.3

- Nuclear share || 21.8 / 21.3 || 22.6 / 21.6 || 21.5 / 20.8 || 21.5 / 20.9 || 21.3 / 20.8 || 21 / 20.7 || 20 / 19.8 || 19.1 / 19.1

- CCS share || 0.45 / 6.9 || 0.77 / 14.72 || 0.65 / 14.53 || 0.58 / 13.67 || 0.41 / 12.98 || 0.27 / 11.83 || 0.29 / 10.65 || 0.3 / 10.19

ENVIRONMENTAL IMPACTS

GHG reductions vs 1990 || -32.4 / -43.9 || -40.6 / -79.6 || -40.1 / -77.6 || -40.2 / -78 || -40.1 / -78.3 || -40.1 / -78.5 || -41.1 / -79.5 || -43.9 / -80.2

GHG emissions reduction in ETS Sectors vs 2005 || -36.1 / -59.3 || -43.3 / -87.1 || -45.3 / -85.6 || -44.4 / -85.7 || -43.3 / -85.7 || -42.2 / -85.7 || -41.8 / -85.8 || -45.6 / -86.5

GHG emissions reduction in non-ETS Sectors vs 2005 || -20.3 / -22.9 || -30.5 / -70.3 || -27.6 / -67.6 || -28.7 / -68.3 || -29.5 / -68.9 || -30.5 / -69.4 || -32.9 / -71.2 || -35.3 / -72

CO2 emission reductions vs 2005 || || || || || || || ||

Power generation +District Heating || -46.7 / -72.9 || -56.5 / -97.7 || -57.9 / -95.6 || -56.6 / -95.3 || -55.5 / -95.5 || -54.6 / -95.7 || -54 / -96.1 || -60 / -97.2

Industry || -22.5 / -43.8 || -27.4 / -77.8 || -31.5 / -76.7 || -30.8 / -77.1 || -29.8 / -76.8 || -28.6 / -76.2 || -29.1 / -75.7 || -29.7 / -76

Residential, Services & Agriculture || -26.7 / -34.1 || -34.1 / -80.3 || -33.8 / -75.7 || -37.5 / -78.2 || -40.3 / -80.8 || -44 / -82.9 || -53.1 / -86.8 || -62.9 / -90.3

Transport || -11.6 / -10.3 || -13.6 / -63.5 || -16.7 / -61.3 || -16.8 / -61.4 || -17.1 / -61.5 || -17.3 / -61.7 || -17.5 / -64.2 || -17.4 / -64.2

|| Reference || GHG40 || EE27 || EE28 || EE29 || EE30 || EE35 || EE40

SECURITY OF SUPPLY

Import dependency || 55.1 / 56.6 || 53.6 / 36.8 || 53 / 38.1 || 53 / 38 || 52.6 / 38.2 || 52.8 / 38.3 || 53.5 / 38.6 || 54.4 / 39.1

Net Energy Imports (2010=100) || 96 / 101 || 89 / 56 || 86 / 59 || 85 / 57 || 83 / 56 || 82 / 54 || 78 / 51 || 74 / 49

Net Imports of Gas (2010=100) || 105 / 122 || 91 / 74 || 88 / 82 || 84 / 78 || 81 / 74 || 78 / 69 || 67 / 65 || 60 / 59

Fossil Fuels Import Bill Savings compared to reference (bn € '10)  (cumulative 2011-30 and 2031-2050) || n.a || -190 / -3404 || -285 / -3349 || -311 / -3490 || -346 / -3637 || -395 / -3798 || -503 / -4145 || -549 / -4360

SYSTEM COSTS  (2011-30/2011-2050)

Total System Costs, avg annual (bn €) || 2067  /2520 || 2069  /2727 || 2069  /2649 || 2074  /2686 || 2082  /2747 || 2089  /2806 || 2124  /3001 || 2181  /3355

compared to reference (bn €) || n.a. || 2 / 207 || 2 / 129 || 7 / 166 || 15 / 227 || 22 / 286 || 57 / 481 || 114 / 835

Total System Costs as % of GDP    (average annual) || 14.3  /13.03 || 14.31  /14.1 || 14.31  /13.7 || 14.35  /13.89 || 14.4  /14.2 || 14.45  /14.51 || 14.69  /15.52 || 15.09  /17.34

compared to reference (bn €) || n.a. || 0.01 / 1.07 || 0.01 / 0.67 || 0.05 / 0.86 || 0.11 / 1.18 || 0.15 / 1.48 || 0.39 / 2.49 || 0.79 / 4.32

INVESTMENTS AND ENERGY PURCHASES

Investment Expenditures , avg annual  (bn €) || 816  /949 || 854  /1189 || 851  /1110 || 868  /1126 || 886  /1149 || 905  /1170 || 992  /1203 || 1147  /1211

compared to reference (bn €) || n.a. || 38 / 240 || 35 / 161 || 52 / 177 || 70 / 200 || 89 / 221 || 176 / 254 || 331 / 262

Energy Purchases, avg annual (bn € ) || 1454  /1586 || 1436  /1394 || 1422  /1402 || 1417  /1370 || 1411  /1335 || 1401  /1290 || 1378  /1206 || 1365  /1130

compared to reference (bn €) || n.a. || -18 / -192 || -32 / -184 || -37 / -216 || -43 / -251 || -53 / -296 || -76 / -380 || -89 / -456

Fossil Fuel Net Imports, avg annual 2011-30 (bn €) || 461 / 548 || 452 / 377 || 447 / 380 || 446 / 373 || 444 / 366 || 441 / 358 || 436 / 340 || 434 / 330

compared to reference (bn €) || n.a. || -9 / -171 || -14 / -168 || -15 / -175 || -17 / -182 || -20 / -190 || -25 / -208 || -27 / -218

OTHER ECONOMIC IMPACTS

Average Price of Electricity  (€/MWh) || 176 / 175 || 179 / 183 || 180 / 187 || 179 / 185 || 178 / 184 || 178 / 182 || 177 / 182 || 182 / 182

compared to reference (€/MWh) || n.a. || 3 / 8 || 4 / 12 || 3 / 10 || 2 / 9 || 2 / 7 || 1 / 7 || 6 / 7

ETS price (€/t of CO2-eq.) || 35 / 100 || 40 / 264 || 39 / 243 || 35 / 220 || 30 / 205 || 25 / 180 || 13 / 160 || 6 / 165

[1] http://ec.europa.eu/energy/2030_en.htm

[2] 720 replies were submitted through the IPM tool, which were taken
into account statistically. Out of 720 - 37% respondents were citizens, 34%
organisations, 25% companies, 3% public authorities – including 8 Member States
- and 2% others.

[3] COM(2014)
21 /2 and SWD(2014) 20 final/2.

[4] Energy Economic Developments in Europe, European Economy, 1/2014.

[5] Art. 7 of the EED requires Member States to establish an energy
efficiency obligation scheme or alternative to achieve new savings every year
from 2014–2020 of up to 1.5% of the annual final energy consumption averaged
over the years 2010-2012.

[6] EED
Arts. 3(2), 3(3), 24(7).

[7] COM(2014) 330

[8] The underlying model is the “GHG40” model analysed in the 2030
Impact Assessment. This model has total system costs (average annual 2011-2030)
of 2069 bn €'10, the investment expenditures (average annual 2011-2030) are 854
bn €'10 and 1188 bn €'10 (average annual 2031-2050).

[9] Based on « Study
evaluating the current energy efficiency policy framework in the EU and
providing orientation on policy options for realising the cost-effective energy
efficiency/saving potential until 2020 and beyond, Fraunhofer ISI, draft study
commissioned by the Commission services

[10] Energy efficiency trends in the EU, Odyssee-Mure, 2013

[11] European Commission, « Energy Economic Developments in
Europe », European Economy(1) 2014

[12] COM(2006)545.

[13] This includes support from the European Structural and Investment Funds
2014-2020, Horizon 2020, energy efficiency obligation schemes and funds coming
from ETS revenues.

[14] http://ec.europa.eu/energy/observatory/trends_2030/doc/trends_to_2050_update_2013.pdf

[15] National Energy Efficiency Action
Plans submitted in accordance with Article 24(2) of the EED (deadline 30 April
2014): http://ec.europa.eu/energy/efficiency/eed/neep_en.htm.

[16] European Economic Forecast spring 2014 DG ECFIN, European
Commission.

[17] Decision No 406/2009/EC of the European Parliament and of the Council
of 23 April 2009 on the effort of Member States to reduce their greenhouse gas
emission to meet the Community’s greenhouse gas emission reduction commitments
up to 2030.

[18] For energy consumption in the residential sector elasticities of
-0.2 are typically reported (e.g. Lavin, F., L. Dale, et al. (2011)) which
means that for every 10% increase in price consumers typically reduce their
consumption by 2%.

[19] Draft study commissioned by DG ENER for supporting the Energy
Efficiency Review.

[20] World Energy Outlook 2012.

[21] These were modelled in the Scenario GHG40 through ‘carbon values’.

[22] Source :
Eurostat

[23] Energy efficiency policy and carbon pricing, International Energy
Agency, August 2011 after O’Malley et al., 2003.

[24] Ibid after Jaffe and Stavins, 1994.

[25] Evaluation of the Energy Labelling Directive and specific aspects
of the Ecodesign Directive, Ecofys, 2014.

[26] 2013 financial support for energy efficiency in buildings report
(http://ec.europa.eu/energy/efficiency/buildings/doc/report_financing_ee_buildings_com_2013_225_en.pdf).

[27] Here and subsequently, energy savings in 2030 are calculated
relative to the energy consumption projected, in PRIMES in 2007, for that year
(1874 Mtoe).

[28] See Annex V.

[29] See Impact Assessment in energy and climate policy up to 2030,
SWD(2014) 16, p. 43 and 160.

[30] See Annex V for further details on assumptions.

[31] Other
transport policy measures, in addition to CO2 standards for light duty
vehicles, are included in all scenarios  in line with the 2011 White Paper on
Transport but their intensity does not change among scenarios.

[32] In modelling it is difficult to achieve precisely a set constraint
of GHG emissions and RES because of various complex constraints and
interactions For example the GHG40 scenario used for the 2030 communication
itself achieves GHG savings of 40.6%. The modelling exercise underpinning this
IA clearly illustrated that greenhouse gas emissions fall as energy efficiency
policy are intensified. This is why the EE40 scenario overshoots in 2030 the 40%
GHG reduction target proposed by the Commission. As an EE target of 40% in 2030
was proposed by the European Parliament, this scenario is nonetheless presented
in this IA even if the GHG constraint is not fulfilled to analyse the full
range of EE levels proposed in the current political discussion.

[33] F-Gas regulation; new transport measures (alternative fuels
infrastructure, better quality and more choice in railway services,
improvements in fuel efficiency of lorries, speeding up the reform of Europe's
air traffic control system); new ecodesign and energy labelling regulations;
updated depiction of 2012 Energy Efficiency Directive, reflecting reporting by
Member States.

[34] In PRIMES efficiency and technology improvements are driven not
only from specific policies but also from economic drivers and market forces.
Ecodesign and energy labelling policies were already modelled in the Reference
2013 scenario. This means that in the technology menu more advanced
technologies which can be selected in a scenario were included. In this case,
the uptake of efficient technologies - if economically justified - is occurring
de facto, even in absence of a specific policy and even if not prescribed by
specific policy such as eco-design. In this respect, the Reference 2013
scenario projected already significant changes in regard to energy efficiency,
technology progress (in the menu of available technologies for choice) and in
effective choice of technologies. Therefore, the inclusion of recently adopted
ecodesign and labelling policies in the policy scenarios did not show any
significant changes in energy consumption.

[35] Mirroring ETS prices in the non-ETS sector – representing still
undefined policies that will drive GHG reduction.

[36] Assumption of perfect market coordination and consumer confidence
driven by firm commitment to decarbonisation, leading to lower system costs and
faster uptake of EE, RES and emission reduction technologies.

[37] Savings obligations for utilities; energy management systems;
ESCOs; energy labelling; CHP and district heating/cooling; efficiency in grids;
ecodesign; take-up in industry of best available techniques; internalisation of
local externalities in transport; CO2-related element in vehicle
registration and circulation taxes; revised Energy Taxation Directive; ITS for
road and waterborne transport; ecodriving; tighter CO2 standards for
cars and vans; efficiency improvements for heavy duty vehicles.

[38] As described in the
footnote above.

[39] In the 2030 impact assessment, the scenarios with ambitious energy
efficiency policies made the assumption of a wide deployment of energy
performance contracting and strong penetration of ESCOs, which is mirrored by a
further reduction of discount rates for households from Reference scenario
conditions – see assumptions on discount rates in Annex V.

[40] Households, private cars 17.5%; industry, tertiary, trucks, inland
navigation 12%; power generation 9%; public transport 8%.

[41] Proposal by Commission: January 2015. Adoption by co-legislators:
July 2016. Transposition: January 2018.

[42] SEC/2008/2865.

[43] Draft study commissioned by DG ENER for supporting the Energy
Efficiency Review.

[44] Monitoring, Verification and Enforcement Capabilities and Practices
for the Implementation of the Ecodesign and Labelling Directives in EU Member
States, CLASP, 2011.

[45] Draft
study commissioned by DG ENER for supporting the Energy Efficiency Review,
section 2.

[46] Gross Inland Consumption minus non-energy uses.

[47] The GDP growth projections are established by DG ECFIN and they are
on avg. 1.6% p.a. over the period 2015-2030 and avg. 1.4% p.a. over the period
2030-2050).

[48] Refers to Gross Inland Energy Consumption excluding non energy uses.

[49] Evaluated
against the 2007 Baseline projections for Primary Energy Consumption

[50] Energy on Value added.

[51] Energy on Private Income.

[52] Energy on Value added.

[53] Energy on GDP.

[54] Ratio
of electricity transmission and distribution losses to electricity supply
excluding self consumption

[55] Energy
purchase costs include the capital costs corresponding to power & gas
infrastructure (plants & grids), refineries and fossil fuel extraction, recovered
in the model through end-user prices of energy products.

[56] Direct efficiency investment expenditures include the costs
relating to (a) thermal integrity of buildings, i.e. for building insulation,
triple glazing and other devices for energy savings including building
management systems, and (b) for the industry sector they also include the
investments that relate to the horizontal (not related to specific processes)
energy saving investments, such as for energy control systems and heat recovery
systems.

[57] Total system costs do not include any disutility costs associated
with changed behaviour, nor the cost related to auctioning – but do include an
attribution of monetary costs to non-financial barriers such as the effort
needed to find out energy performance of appliances, and the deterrent to
tenants' adoption of energy-saving behaviours when their landlord is
responsible for paying energy bills.

[58] The small difference between the total system costs and the
summation of capital costs, energy purchase costs and direct efficiency
investment costs is due to the inclusion of the supply side auction payments
under energy purchases, embedded in the energy prices (but not included under
the reported total system costs which exclude auction payments).

[59] BIO Intelligence Service. 2013. Energy performance certificates in
buildings in their impact on transaction prices and rents in selected EU
countries. Cited at:

http://ec.europa.eu/energy/efficiency/buildings/doc/20130619energy_performance_certificates_in_buildings.pdf

[60] M. Jakob, Marginal costs and co-benefits of
energy efficiency investments – The case of the Swiss residential sector,
Energy Policy 34 (2006) 172-187. See also [BIO Intelligence Services report for
Commission]; [IPCC report on mitigation options, 2014]; Phillips, Y., Energy
Policy 45 (2012) 112-121, “Landlords versus tenants: Information asymmetry and
mismatched preferences for home energy efficiency”; Scott, F.L., C.R. Jones and
T.L. Webb, Energy Policy (2013), “What do people living in deprived communities
in the UK think about household energy efficiency interventions?”.

[61] Fossil fuel prices are exogenous in the modelling.

[62] Average
Price of Electricity in Final demand sectors (€/MWh) constant 2010 Euros. For
reference scenario, corresponding value was 134 €/MWh in 2010.

[63] See more details in Annex VI.

[64] The energy scenarios quantified using
PRIMES have assumed that the energy efficiency policies for 2030 take place in
the context of decarbonisation targets until 2050. The macroeconomic models, however,
were required to assess the macroeconomic effects and particularly the
employment effects of specific energy efficiency policies until 2030 not to
assess in general decarbonisation pathways until 2050. Quantifying the
macroeconomic impacts of decarbonisation until 2050 is out of the scope of the
assessment of impacts of energy efficiency policy until 2030 because the
restructuring and investment effort towards decarbonisation which has to be
undertaken mainly after 2030 requires by far ampler resources of the economy
than the energy efficiency policies until 2030.

[65] As explained in Annex VI, the policy scenarios analysed in this IA
have assumed significant increase of expenditures for energy efficiency
purposes especially in the period until 2030. These expenditures are assumed to
be partly financed by economic agents (households and firms) and partly by
economies’ aggregate savings.

Consequently, a fairly realistic approach
has been adopted assuming that the financing of the energy efficiency
expenditures from saving resources in the economy is effectively leveraged
throughout the projection period (till 2050); this implies less pressure until
2030 and a smaller crowding out effect. Should a full funding of the energy
efficiency expenditures was made through the closure with savings till 2030,
the macroeconomic impacts would be found increasingly negative after 2030 and
higher in magnitude.

[66] For EE40 scenario the trend described below does not show because
of higher GHG reduction.

[67] Including energy
industries, such as refineries and coke production.

[68] The tertiary sector
includes the small energy-related emissions from agriculture.

[69] Including energy industries, such as refineries and coke
production.

[70] The tertiary sector includes the small energy-related emissions
from agriculture.

[71] Percentage
of energy costs excl. auction payments to value added in energy intensive
industries in PRIMES. For Reference Scenario corresponding value was 38.2% in
2010.

[72] In particular, the national plans should set out a clear approach
to achieve domestic objectives regarding greenhouse gas emissions in the
non-ETS sector, renewable energy, energy savings, energy security, research and
innovation and other important choices such as nuclear energy, shale gas,
carbon capture and storage.

[73] The opposite has
been also argued, namely that a binding target would be a driver for Member
States to make full use of existing provisions, notably under the EPBD and the
EED (How to shape a binding energy savings target for Europe that allows for
effective evaluation?, R. Harmsen, B. Wesselink, W. Eichhammer).

[74] European Commission 2010.

[75] For illustration, the institutional investors (signatories of the
charter of Principles of Responsible Investment) manage over €12 trillion of
funds (amount invested in private real estate is estimated as over €1,5
trillion in 2012).

[76] Energy Efficiency Financial Institutions Group Report (2014); http://ec.europa.eu/energy/efficiency/studies/doc/2014_fig_how_drive_finance_for_economy.pdf

[77] Bullier, A., Sanchez, T., Le Teno, J. F., Carassus,
J., Ernest, D., & Pancrazio, L. (2011). Assessing green
value: A key to investment in sustainable buildings. Retrieved from:
http://www.buildup.eu/sites/default/files/content/Assessing%20Green%20Value%20-%20Bullier,%20Sanchez,%20Le%20Teno,%20Carassus,%20Ernest%20and%20Pacrazio%20-%20ECEEE%202011.pdf

Contents

Annex I. Report of the public consultation of the Review
of progress on energy efficiency. 3

1.      Process. 5

2.      Stakeholder coverage. 5

3.      Stakeholder's recommendations. 6

4.      Energy efficiency at sectoral level 11

5.      Further comments: 28

Annex II - EU and national energy efficiency policies and
their implementation. 29

1.      Targets and framework instruments. 29

2.      Efficiency requirements for buildings and products. 30

3.      Energy generation, transmission and distribution. 31

4.      Transport. 32

5.      Financing, technical support and capacity building. 33

Annex III - Decomposition analysis of energy consumption
trends at EU and Member State level. 38

1.      Methodology. 38

2.      Results EU level 40

2.1.     Decomposition analysis of final energy consumption. 43

2.2.     Sectoral results of the decomposition analysis of final energy
consumption. 45

3.      Country-specific analysis. 53

Annex IV. Analysis of
sectoral correlations between changes in GDP and final energy consumption   72

1.      Correlation analysis. 72

Annex V: PRIMES
Methodology and modelling assumptions. 74

Annex VI. E3ME and
GEM-E3 Methodology. 91

Annex VII: Additional
modelling results. 99

Annex VIII. Overview
of national energy efficiency measures investigated by Fraunhofer and their
expected impact  106

Annex IX. Impact of the currently implemented EU energy
efficiency legislation. 117

Annex
I. Report of the public consultation of the Review of progress on energy
efficiency

Summary

This report
presents the results of the public consultation on the Review of progress
towards the 2020 energy efficiency objective and a 2030 energy efficiency
policy framework. In total 721 responses were submitted to the on-line public
consultation, with 242 organisations, 179 companies and 21 public authorities
having taken part. 264 individuals also submitted their contributions to this
consultation.

It was pointed
out by several stakeholders that energy efficiency is a sound response to the
prevailing energy security issue in Europe and also an effective tool for
climate mitigation. It triggers innovation and creates new jobs for the EU
economy.

Overall, a
majority of stakeholders favoured energy efficiency targets or new measures as
the right approach to addressing the shortfall (in achieving the 2020
objective), although a number of stakeholders also stated that the reinforced
implementation of existing legislation including active policy on infringements
is needed. A number of replies indicated other views in this regard. In
general, stakeholders representing industry were in favour of targets expressed
in terms of energy intensity improvements whilst non-governmental organisations
advocated targets expressed as absolute energy savings.

Stakeholders
also provided their views on whether further measures are needed at EU level to
foster energy efficiency in different sectors such as buildings, industry,
transport, electrical equipment and energy generation and distribution.

Many
stakeholders indicated that there is still an untapped energy savings potential
in manufacturing industry, where energy audits and energy management
systems could help realise it.

Many respondents
stressed that energy production and supply should be addressed by
adopting mandatory energy efficiency requirements for new power plants and
heating distribution systems, also promoting high-efficiency cogeneration. It
was stated that a level playing field across the Single Market should be
ensured, and that market transparency and better integration including
modernisation of the national grids should be ensured.

As regards buildings,
a majority of respondents acknowledged the need for strengthening the existing
policy framework, by revising the Energy Performance of Buildings Directive
(2010/31/EU) and establishing a target for 2030 with an intermediate milestone,
to better address the renovation of existing buildings. On the other hand, a
majority of stakeholders representing the electrical equipment sector
did not see the need for additional measures by stressing that the existing
framework is sufficient to cover energy efficiency of products.

In order to
achieve targets and implement policy measures, it was stated by many
stakeholders that additional financing instruments and mechanisms should be put
in place at EU level in order to stimulate needed investments in energy
efficiency. A number of stakeholders stressed that the European Structural and
Investments Funds 2014-2020 and Horizon 2020 are key instruments for
implementing energy efficiency policies. Overall, it was emphasised that energy
efficiency investments should go hand in hand with reducing the existing market
and non-economic barriers and also raising awareness amongst market players
about the underlying benefits of energy efficiency.

Finally, the
public consultation sought views on what could be the most promising technology
solutions in future that could help deliver energy savings in the 2020 and 2030
time horizon, and how their development and uptake could be supported at EU
level. Several stakeholders stressed that new energy efficiency technologies
and solutions are a crucial element of the 2030 framework and that the right
demand side policies should be put in place at EU level. On the other hand, a
number of respondents argued that the right technological solutions and
technologies are already available in Europe and focus should be placed on
promotion of best practice, awareness-raising and information.

A broad range of
ideas for possible actions were put forward by respondents. This report
explores the feedback in more detail. The policy conclusions drawn by the
Commission will be set out separately and are not addressed in the present
report.

1. 
process

The consultation
consisted of a questionnaire in English with both closed and open questions.
The on-line questionnaire can be found at the end of this report.

The public
consultation complied with the Commission's minimum consultation standards,
including the 12 week minimum duration (from 3 February to 28 April 2014). The
standard Commission internet tool for Interactive Policy Making (IPM) was used.
As participation was voluntary and based on self-selection, the views expressed
by respondents are not necessarily representative of the views held by all
stakeholders or citizens.

2. 
stakeholder coverage

Overall 720
responses from individuals and organisations from 27 Member States were
received through the IPM tool (the on-line questionnaire).

Type of stakeholder || Number || Proportion

Organisations || 241 || 34%

Companies || 179 || 25%

Individual citizens || 264 || 36%

Public authorities || 21 || 3%

Other || 15 || 2%

Total number || 720 || 100%

In total 241 organisations and 179
companies took part in the public consultation. In addition, 21 public
authorities and 15 other entities submitted their replies. Furthermore, 264
individual citizens contributed their views to this consultation.

A few additional
responses, 13 submissions, were submitted by organisations which did not make
use of the web-based interface to reply to the questionnaire. Some of those who
replied to the online questionnaire also submitted their position papers. The
statistical data in this report refer only to responses made by the 720
responses submitted through the IPM tool. However, the views in all the
submitted responses, including those submitted without using the IPM tool, have
been considered by the Commission services.

3. 
Stakeholders' recommendations

Public
consultation was structured in 2 groups of questions. The first part was of a
general nature which focussed on energy efficiency policy options and potential
means of setting the binding or indicative targets and measures and the second
part focused on energy efficiency in the specific sectors. In addition, the
questionnaire contained horizontal questions on financing instruments to
mobilise investments for energy efficiency, and also on building the capacity
of actors in the energy efficiency sector and on ensuring the necessary
technology solutions and their uptake at EU level.

Energy efficiency target(s) and
  measures

This part of the
public consultation sought views on possible policy scenarios that could be
undertaken to narrow the shortfall of reaching the 20% energy efficiency target
by 2020 and also looking into the 2030 perspective. The questions covered the
following options:

Proposing energy efficiency
  targets;
 Reinforcing the implementation of
  existing legislation including active policy on infringements;
 Proposing new legislation;
 Other suggestions.

1) Energy
efficiency targets

Several
stakeholders emphasised that in general energy efficiency efforts should aim at
reducing the EU's dependency on imported gas and serve as a political response
to ensuring the security of energy supply. Energy efficiency also aims at
mitigating climate change and creating new job opportunities for the European
economy.

To the
multiple-choice question on what could be the right approach to addressing the
shortfall (of achieving the 2020 objective), most replies (312 or 43%)
indicated a preference for energy efficiency targets, while 294 (41%) stated
that the reinforced implementation of existing legislation including active
policy of infringements is needed and 136 (19%) replies were in favour of new
measures. 321 (48%) replies indicated other views in this regard which have
been summarized below in the report.

To the question
on how energy efficiency targets should be expressed, 134 (43%) respondents out
of those favouring targets replied that these targets should be expressed as
absolute energy savings, whilst 60 respondents (20%) indicated that they should
be expressed in terms of energy intensity improvements of the economy and
economic sectors. Moreover, 91 (29%) respondents believed that the targets
should be expressed as a combination of absolute energy savings and energy
intensity levels in order to represent a better benchmark upon which to frame a
2030 objective.

To the question
at what level these targets should apply, many stakeholders argued that such
targets should be set at EU level (218) or national level (207), while 110
favoured targets at sectoral level. Moreover, 221 respondents favoured legally
binding targets whereas 70 would prefer indicative targets.

Those
respondents that favoured legally binding targets stressed that addressing the
shortfall should be closely linked to and consistent with the 2030 targets for
energy efficiency. In addition, it was suggested that targets should be set
beyond 2030 (until 2050) in order ensure a more stable and predictable
environment for investors. Several stakeholders argued that targets should be
realistic and achievable, with strictly defined monitoring and verification
procedures in place demonstrating effective and credible progress towards
achieving these targets, including appropriate sanctions for addressing
non-compliance. Moreover, it was suggested that regular review of progress
should be carried out on the basis of the intermediate milestones. In general,
it was emphasised that binding targets would increase awareness amongst the
general public and stakeholders, and that a high ambition level would trigger
innovative solutions and create more jobs. Moreover, legally binding targets
both at EU and national level would help in reinforcing the Energy Efficiency
Directive (2012/27/EU).

Some
stakeholders argued that legally binding targets should be set in proportionate
terms for each Member State to avoid the situation where some Member States
would dramatically under-perform and rely on other Member States to 'carry'
them. However, such national targets would need to be accompanied by stricter
legal requirements (of the Energy Efficiency Directive) and necessary
commitments taken by all relevant actors in order to reach them.

It was also
emphasised that an absolute energy savings target  must be derived from a
bottom-up approach based on the cost-effective energy savings potential for the
various sectors, prioritising the sectors with the highest savings potential
(e.g. buildings), and using a simplified harmonised calculation methodology and
eligibility criteria similar to the requirements laid down in Article 7 and
Annex V of the Energy Efficiency Directive. however, other stakeholders
stressed that sufficient flexibility should be left to the Member States to
take forward the necessary measures.

Some
stakeholders stated that sectoral targets should also be considered for 2030 by
arguing that binding targets work well in the renewable energy sector, and have
provided confidence to investors allowing achieving a major increase of
renewable energy sources. In these stakeholders' view lack of binding EU and/or
national targets for energy efficiency was a reason for why the technologies
have not yet been deployed at a larger scale.

In addition, it
was pointed out by a number of respondents that a combination of targets at
national and sectoral level should apply, since national targets would better
take into account the priority sectors. National objectives should be combined
with a sectoral plan to boost, for example, energy efficiency in buildings,
taking into account supply-side and demand-side measures and involving the
relevant stakeholders.

It was highlighted
by many respondents that a large untapped energy savings potential lies within
manufacturing industry and it should be addressed properly. This would also
increase the competitiveness of EU businesses globally. It was suggested that
the differentiation of energy efficiency targets for industry branches is
needed by setting separate targets for SMEs and large companies within the same
industry branch. Member States could also identify the sector potential in
their National Energy Efficiency Action Plans. For instance, one of the
quickest paybacks for industry would be investing in thermal insulation.

Moreover,
several stakeholders suggested that targets for the buildings sector should
reflect the 2050 climate objectives, especially for building renovations, to
facilitate investment plans. A target for 2030 also is needed as an
intermediate milestone for assessing the achievement of the renovations rate
needed for the 2050 objective.

A suggestion was
put forward that a legally binding savings target should be put in place for
the transport sector. Energy savings targets should also be applied to the
defence sector – as already in countries such as the U.S. and Denmark. Several
respondents argued that a specific target should also be formulated for heating
and cooling sector.

Those
respondents who favoured targets expressed in absolute energy savings rather
than in terms of energy intensity argued that targets expressed in energy
intensity would not ensure a decrease of energy consumption in absolute terms. By
contrast, stakeholders preferring targets expressed as intensity argued that
absolute energy saving targets would limit economic growth and would lead to
deindustrialisation and even carbon leakage. Moreover, it was stressed that the
overall EU target should be expressed as an energy intensity target for the
industry and service sectors in order to take into account structural effects
and economic growth.

2) Reinforcing
the implementation of existing legislation

294 respondents
(41%) called for further reinforcement of the implementation of the existing
legislation, many of them insisting on the more ambitious implementation of the
Energy Efficiency of Buildings Directive and Energy Efficiency Directive. In
their view these legislative instruments serve as the main driver of energy
efficiency across the different sectors.

It was pointed
out by several stakeholders that at this stage it is too early to assess the
impact of the implementation of the Energy Efficiency Directive as the
transposition deadline is still due (on 5 June 2014) and measures need some
time to deliver results. This Directive defines a set of key innovative energy
efficiency instruments. A better coordination and dialogue between the EU and
Member States should be ensured to make the most effective use of the available
tools in order to allow better achievement of the savings targets. In addition,
it was stressed that a common implementation strategy could be developed
engaging all the relevant stakeholders. This could increase the quality,
support and ownership of results, help identify best practices, encourage
coordination of financing instruments.

A number of
respondents emphasised that EU financing is crucial for implementing existing
measures, and that financial incentives should be linked to dissemination of
best practice in achieving energy savings. Some stakeholders argued that more
stringent infringement procedures and sanctions should be put in place to allow
better enforcement of the existing legislation. Suggestions were put forward on
putting more emphasis on public awareness activities pursued at EU level in
order to inform market actors, including industry, about the benefits of saving
energy and reducing costs. Energy efficiency in general should be promoted as
an instrument for improving industrial competitiveness and serving to combat
the energy poverty.

A number of
stakeholders believed that energy audit schemes established under Article 8 of
the Energy Efficiency Directive should be linked to concrete savings targets.
It was also stressed that more stringent actions could help achieving the
untapped energy savings potential in manufacturing industry. Moreover, several
stakeholders pointed out that the reform of the ETS along with the recently
proposed market stability reserve mechanism would better contribute to energy
efficiency in the future.

Some
stakeholders also pointed to the need for ensuring consistency between the
provisions under the Energy Efficiency Directive on the use of energy
performance contracting by public authorities and EU rules on public accounting
to facilitate the use of energy performance contracting.

3) Proposing
new legislation

135 (19%)
respondents called for new legislation to foster energy efficiency, which in
their view would create stronger demand, reduce remaining economic and
non-economic barriers and provide long-term predictability to investors. It was
argued that the main issue is the lack of action and ambition level to drive
the uptake of energy efficiency. Therefore, new legislation and requirements,
for example, aiming at extending the scope of building renovation or
implementation of energy audits along with recommendations on cost-effective
improvements for enterprises should be further developed.

Several
stakeholders put forward concrete ideas for revising the existing EU
legislation. Notably, it was pointed out that in order to meet ambitious energy
savings objectives for 2030, the 1.5% energy efficiency savings target laid
down by Article 7 of the Energy Efficiency Directive should be retained and
increased during the 2020-2030 period. It should also be considered whether
1.5% is sufficiently ambitious for the current 2014-2020 obligation period.
Moreover, it was suggested that exemptions allowed under the Energy Efficiency
Directive could be removed, for example, concerning the transport sector which
currently can be excluded from the baseline for calculating the energy
efficiency savings targets under Article 7. In addition, it was stressed that
exemptions under Article 5 to achieve the 3% annual renovation rate for public
buildings should also be removed. The 3% rate should apply to all public
buildings (owned or rented) irrespective of floor area and location (without
the limitation to central government buildings).

Some stakeholders
emphasised that technical standards and definitions should be harmonised in the
Energy Performance of Buildings Directive, and that the Energy Performance
Certificate should be strengthened by incorporating additional information.
Furthermore, a longer term outlook beyond 2020 is needed for the Ecodesign
Directive and Energy Labelling Directive. Finally, it was stressed that
emission performance standards for the transport sector need to be expanded to
other modes of transport.

It was pointed
out that new legislation should consider institutional and governance reforms
to strengthen accountability at national level for delivering commitments in
current and future National Energy Efficiency Plans and to reporting on
progress. Economic reforms are also needed to create the enabling environment
for energy efficiency. This should be done with the support of appropriate
financing and investment measures including State Aid.

4) Other
suggestions

322 respondents
(45%) used the open option to provide their views on the question on what could
be possible policy scenarios to address energy efficiency. Several respondents
stated that they favour a single, realistic energy and climate target
addressing the reduction of GHG emissions on a global level playing field,
complemented by an equal-ranking target for industrial growth. It was also
stressed that energy efficiency and renewable energy would in in any case be
drawn on in delivering this objective, and the retention of only a single
objective would allow avoiding counterproductive effects, such as double
regulation.  Flexible energy efficiency improvements on a voluntary basis by
taking into account specific sectors and national context could be the most
effective means to reduce CO2 emissions and foster economic growth.

Moreover some
stakeholders argued that energy efficiency measures should not bring additional
costs to sectors already covered by the ETS. Additional energy efficiency
targets affecting these sectors would only increase the overall costs.

Several stakeholders
stated that improved modelling of energy efficiency and energy savings, and
identification of the cost-effective potential for energy savings would provide
greater understanding of how energy savings can be achieved and where to
concentrate efforts in terms of additional policies and measures and financial
support mechanisms. Better understanding of the benefits of the energy savings
potential in terms of jobs created, drivers of growth and competitiveness,
reduction factors of energy costs, increased energy security and resulting
reductions of greenhouse gas emissions would demonstrate that energy efficiency
is a correct solution to many of the issues Europe is currently facing.
Moreover, discount rates assumed for energy efficiency measures in existing
modelling must be reduced in order to be more realistic and prevent unfairly
high depicted costs of these measures.

It was argued
that industry has a track record in reducing energy intensity as well as
emissions. Further reductions must thus be economically justified. In this
regard, binding targets and new legislation will only make Europe a less
attractive place to invest and result in higher unemployment. Best practice
sharing and development and deployment of new technologies could be the most
constructive manner to further improve the energy efficiency.

Respondents
stressed that in general it is hard to predict the development of the economic
activities over the next decade and that energy consumption is correlated with
many parameters, including the two most important ones, the level of economic
activity in Europe and the cost of energy. Several stakeholders emphasised that
energy production should follow economic development and not constrain it.
Given the fact that Europe itself cannot produce more energy without
endangering its environment, it requires more efficient coordination and
cooperation across borders, and an integrated approach including energy storage
and distribution that would allow flexible response mechanisms.

4. 
Energy efficiency at sectoral level

The public
consultation asked whether further measures are needed at EU level to foster
energy efficiency in different sectors such as buildings, industry, transport,
electrical equipment and energy generation and distribution.

1) 
Buildings

As regards the
buildings sector, 359 respondents (50%) believed that further measures are
needed whilst 301 (42%) thought that there is no need for further action, and
60 (8%) respondents had no opinion on this matter.

Many respondents
underlined that buildings is one of the economic sectors where massive energy
savings could be achieved. However, limited progress so far is often due to the
lack of financing and other market barriers. In general, the policy framework
for improving the energy performance of existing and new buildings needs to be
strengthened and cooperation and coherence should be ensured between different
policy and legislation measures, also covering all phases of a building's
lifecycle. It was stressed that the implementation of the Energy Performance of
Buildings Directive is key and should be supported with the significant EU
investment, and that demonstration projects are key to enable increasing the
uptake of these technologies from an economic point of view.

A number of
respondents stressed that in order to exploit the untapped energy savings
potential in buildings, the EU should define a long term objective with
intermediate milestones, supported by the right policies and financial schemes
to remove market barriers and incentivise renovation. A clear framework should
entail wide-scale renovation programmes, the need for a skilled workforce in
deep renovation combining building envelope insulation and other measures.

Moreover, it was
emphasised that a binding target for 2030 would provide certainty and
convergence for long-term financing decisions. Such a target should be set at
national level due to different national circumstances, including the climate
variations amongst the Member States. Moreover, a target for 2050 could serve
as a driver for an increased rate of renovation of existing buildings. In
general, cost effective reduction of energy consumption should be given a
priority and it should be well reflected in the definition of the nearly
zero-energy buildings, including reflecting it in national building renovation
strategies under the EED on the basis of agreed mandatory templates for such
strategies.

A number of
stakeholders stressed the need for long-term EU funding such as the European Structural
and Investment Funds to support major renovations, whereby, for example, the
level of financing would depend on the achieved savings as a result of the
renovation.

Some respondents
suggested that minimum performance requirements for rental of existing
buildings should be also established at EU level. It was suggested that the
Energy Efficiency Directive must put forward measures with the long-term vision
that would require extending the 3% renovation rate to all public buildings and
publicly supported buildings, set stricter standards than cost-optimal levels
for these buildings, require the use of new business models that remove
barriers for increased energy efficiency, mandatory requirements for the
implementation of cost-effective solutions in buildings. This must also be
reflected in the national long- term strategies for building renovations.

It was seen by
some stakeholders as important that any additional requirements are set in
terms of energy performance rather that pressing for specific technical
requirements that might not be cost efficient. In addition, it was suggested
that the extension of the scope of requirements for the energy performance of
buildings is needed, for example covering also lifts, escalators and moving
walkways. Fiscal incentives should also be strengthened, including applying a
"polluter pays principle". Stakeholders argued that financing
incentives would encourage final consumers and enterprises to better meet the
energy savings targets embedded in the EU and national buildings legislation.

A number of stakeholders
shared the view that Energy Performance Certificates (EPC) should be
strengthened, by making them harmonised at EU level. It is also necessary to
improve their overall quality and functions which could foresee mandatory
on-site visits and setting up a database at national level. The EPC should be
better explained to ensure transparency. Moreover, EPCs should become
comprehensive "building passports" to follow each building throughout
its lifetime and which could be made publically available in national
registries.

Some
stakeholders called for revision of the Energy Performance of Buildings
Directive and relevant parts of the Energy Efficiency Directive to include a
measurable definition of deep renovations and a quantifiable objective to
accelerate deep renovations of residential and tertiary buildings. Furthermore,
it was emphasised that long term renovation roadmaps need to become a key
planning tool setting comprehensive strategies, including financial incentives,
in order to refurbish national building stocks. It was also underlined that
Member States should introduce legal minimum energy efficiency requirements for
rented buildings which are very often the least efficient.

In addition, it
was underlined by several respondents that initiatives promoting energy
efficiency in buildings should in general follow a holistic approach and focus
on the whole value chain covering efficient technologies, district heating and
smart metering and billing information. It was stressed that remaining
obstacles in national property laws should be removed and that the issue of
“split incentives” between landlords and tenants should be properly addressed.
In addition, obstacles for effective energy performance contracting should also
be tackled.

It was also
emphasised by some respondents that participation of SMEs should be
facilitated, e.g. SMEs in the construction sector should have access to
training as well as access to self-assessment instruments enabling them to
check the quality of energy efficiency improvements.

Several
respondents called for new measures to trigger mass-scale deep renovation of
existing buildings. As regards new buildings, it was stressed that a revised
Energy Performance of Buildings Directive should propose a harmonised technical
definition of Nearly Zero Efficient Buildings (NZEB) to converge on common
nomenclature, objectives and calculation methods, and that buildings-related
provisions of the Energy Efficiency Directive (Articles 4 and 5) should be
incorporated in the revised Energy Performance of Buildings Directive to have a
single and powerful policy instrument.

Moreover, it was
also emphasised that Energy Efficiency Obligations should become a useful tool
for providing renovation investments and should continue also after 2020.

2) Industry

A majority of
stakeholders (424 or 59%) believed that further policy measures are needed at
EU level to foster energy efficiency in industry with (192 or 27%) against and
(83 or 12%) having no opinion in this regard.

A number of
respondents stressed that the market and its technological breakthroughs should
play a role in achieving the necessary cost savings. It was also stressed that
strong political commitment and legislation are needed to ensure that the
cost-effective savings potential in industry is realised. For example, adapting
business models to energy efficient production processes would allow producing
high quality products at lower cost, thus increasing competitiveness. It was
argued by several stakeholders that a strong potential for additional savings
and reduced GHG emissions lies in recycling.

A majority of
respondents who favoured additional measures addressing energy efficiency in
industry suggested that in order to achieve the unrealised energy-saving
potential in industry, energy efficiency should become part of strategic
decision-making within energy management systems involving a wide range of
areas for improvement such as circular economy, resource efficiency,
insulation, use of efficient electric motors and variable speed drivers, use of
automation and control equipment, monitoring systems and maintenance, including
behavioural change.

Moreover, it was
emphasised by many stakeholders that there is a great potential associated with
energy audits required by the Energy Efficiency Directive; however, this
instrument should be strengthened by ensuring that resulting recommendations
become mandatory, at least for those recommendations that address actions with
a short pay-back period. In addition, energy audits could be extended to cover
also SMEs to help smaller companies to find the best solutions to adapt to
increasing energy prices. Some stakeholders were more cautious by pleading that
existing energy audit requirements should be continued.  It was underlined by a
number of respondents that energy audit provisions should be used to encourage
companies to trigger investment decisions in order to improve energy efficiency
in processing and peripheral energy use. In general, additional financial
mechanisms and instruments are needed in order to pursue these necessary
measures.

Several
respondents argued that best practices and benchmarks should be developed to
increase the use of energy audits, and that benchmarking should be developed
for the relevant industry sectors. An assessment of the cost-effective
potential of each particular sector of industry is needed to identify gaps,
design tailor-made energy efficiency objectives and measures to target relevant
sectors.

Several
stakeholders suggested that appropriate energy efficiency benchmarks should be
defined in the Best Available Techniques (BAT) reference documents (BREFs).
These benchmarks should be used for setting ambition levels and be more
frequently reviewed. Moreover, ambitious requirements on energy efficiency in
the relevant sector BREF reviews should be adopted.

Some respondents
called for voluntary initiatives, to be encouraged through practical and
cost-effective support measures, rather than additional mandatory requirements.
Such voluntary initiatives, for example, would ensure implementation of
practical energy management solutions while avoiding the additional
administrative burden stemming from the additional regulations.

To this end, it
was argued that greater information for all market actors, especially on the
benefits associated with energy efficiency in industry should be promoted,
alongside information on concrete solutions, especially for those that have
relatively short payback periods. In addition, it was highlighted that specific
requirements for facility manager training, workforce development and alignment
of training needs and workforce development are needed to achieve the necessary
results. It was suggested that “Learning energy efficiency networks” could be
an effective instrument to learn about energy saving potentials, particularly
for SMEs, and that financial support for the establishment of such networks
could be provided at EU level.

Those
respondents who were against additional measures expressed views that there is
no need for additional targets or other mandatory requirements imposed on the
energy intensive industries that are part of the ETS. They argued that new
industrial installations are already energy-efficient and that ambitious
top-down EU policies would cut investments resulting in higher cost burden for
industry. In general, they argued that long term climate and energy policies
will only be achieved by working in accordance with economic and growth needs.

It was noted
that at industry level, the ETS is the right instrument for energy efficiency
improvements. In order to provide incentives for energy efficiency measures the
ETS should be strengthened to contribute its role as the central market-based
instrument. It was also argued that the ETS should be strengthened as the
single steering method in the sector, and that heating and cooling sector
should also be included.

Many respondents
underlined the need for reforming the ETS in order to contribute in a
cost-efficient manner to the reduction of greenhouse gas emissions during the
period 2020-2030. Furthermore, it was stressed that it should be ensured that
funds generated by ETS are earmarked for further energy efficiency measures in
energy intensive industries. However, when reforming the ETS, competitiveness
aspects and risks of carbon leakage should be taken into account.

A number of
respondents stressed that caution should be employed as regards the
implementation of Energy Efficiency Obligation schemes, and that
company-specific targets should be avoided, arguing that such targets would
diminish early action and add disproportionate administrative burden. Increased
costs for industry would hamper the investments needed for expanding the
business and would risk delocalisation to third countries. However, it was
pointed out that energy intensive industries are contributing with their
manufactured products and technologies to energy efficiency in buildings,
transport and other economic sectors.

Several
respondents perceived high energy prices as a helpful driver to take the
necessary action to boost energy efficiency in industry. Nevertheless, others
perceived energy efficiency policies as an additional burden to the
competitiveness.

Several
respondents believed that the completion of the internal energy market would
ensure more energy savings in the energy supply and distribution markets.
National policies could deliver more as regards the promotion of efficient
co-generation and industrial heat recovery in line with the requirements of the
Energy Efficiency Directive, as could the linking of regulated remuneration
levels for network operators to the achievement of specific energy efficiency
targets or connection of co-generation.

Some views were
expressed that market failures mean regulatory action is required to motivate
businesses to pursue the necessary energy saving actions since raising
awareness of energy efficiency alone will not trigger the necessary actions.
The EU should learn lessons from national schemes that have used financial
instruments to drive energy efficiency as in the UK and Denmark, for example.

Finally, it was
stressed by a number of respondents that it is of utmost importance that the
existing legislation is implemented and that it is too early to judge whether
additional measures are needed before the Energy Efficiency Directive is fully
in place.

3) Transport

As regards
transport, a majority (473 or 66%)  of respondents had the opinion that further
policy measures are needed with 102 (14%) respondents being against, and 121
(17%) having no opinion in this regard. Stakeholders in favour of additional
energy efficiency measures in transport suggested that existing non-binding
measures in transport should be made compulsory and that better integration
with other sectoral policies is needed - such as urban development, innovation,
financing, public health and regional development and access to resources.

In general, it
was stressed by many stakeholders that transport should be one of the priority
sectors to address energy efficiency. To this end, a transformation of the entire
transport system is needed since it is the largest consumer of final energy. A
combination of different measures should be used, e.g. increase in the use of
non-road alternatives or taxation policies to achieve a level playing field
across the transport modes.

It was argued by
some respondents that transport should be covered by the Energy Efficiency
Obligations schemes or alternative approaches in order to achieve further
energy savings. EU transport policy should aim at reducing energy demand,
achieving modal shifts to more efficient transport modes and vehicle efficiency
improvements.

In order to
improve energy efficiency in transport, the Trans-European Transport Networks
(TEN-T) should be strengthened. This could be accomplished by the international,
cross-border application of existing logistic concepts and aerodynamic
modifications to vehicles. Moreover, new mobility solutions including vehicle
and bike pooling and sharing must be further developed, and better integrated
into public transport systems. In order to pursue these measures the EU should
develop a comprehensive strategy, including investment, incentives and market
design.

Moreover, it was
stressed by a number of respondents that the provisions of the Fuel Quality
Directive on greenhouse gas emissions from fuels should be continued beyond
2020.

Those
respondents who favoured additional measures in the transport sector suggested
that electrification of transport presents a great opportunity for reducing
fuel imports and also GHG emissions. However, the electrification of transport
is linked to many questions that need to be addressed in order to make this
transition effective. These would include transition guidelines from hybrid to
plug-in hybrid and fully electric vehicles, and implications of regional
climate for vehicle battery performance. Research should be carried out for the
development of alternative and promising battery technology, hydrogen fuel
cells, structures for distributor networks and service, public charging
infrastructure and grid implications.

To this end,
Horizon 2020 could be instrumental in creating a research and/or collaboration
platform for responding to these issues. Furthermore, it was stressed that
deployment of pilot projects in this area would be essential. Moreover,
continued innovation for efficient and clean transport through, for example,
superior light-weight and tailored materials such as plastic based composites
should be fostered. To make all these innovations happen, a multifaceted
approach is needed. Technologies should be developed and different industry
sectors, and the research community, should collaborate across the whole value
chain.

It was stressed
that in order to promote sustainable transport solutions an interoperable,
alternative fuels infrastructure in Europe should be put in place, also
diffusion of innovative and interoperable technologies that could help save
energy and reduce CO2 emissions. Efficient road lighting and traffic
control systems should be fostered on one hand, and obstacles impeding
cross-border transport or infrastructures should be removed on the other. To
this end, the recently adopted Directive on the Deployment of Alternative Fuels
Infrastructure will enable improving the energy efficiency of road transport.

It was pointed
out that regulators should ensure that recharging points are compatible with
smart grids and that an ambitious minimum number of recharging points is set
for 2020 to send the right signal to investors and industry that will produce
the necessary technological solutions. In addition, national policy frameworks
should be given flexibility to define national targets and objectives for the
deployment of an alternative fuels infrastructure. Policy to support standards
in electrification of transport can drive optimization of the design of the
electricity grid and infrastructure, where features such as load balancing,
metering and the charging infrastructure are important.

Overall,
demand-side systems together with smart grid solutions will provide an intelligent
platform for the smooth integration of electric and plug-in vehicles into the
electric grid. It was also stressed that in addition to measures fostering the
electrification of transport, other alternative fuels like biofuels from waste
and residues or fuels based on power-to-liquid/power-to-gas conversion should
be developed for those transport modes that cannot be electrified.

Some
stakeholders stated that the Clean Transport Package provides a framework to
guide investments and technological developments in alternative fuels and that
it also provides a positive signal to national authorities and investors for
encouraging the market uptake of alternative fuel vehicles and vessels.
However, such measures should be flexible and cost efficient to preserve the
competitiveness of the different transport sectors, especially for shipping. As
regards maritime transport, international binding measures on reducing CO2
emissions should be implemented via the International Maritime Organisation.

It was suggested
that fostering energy efficiency in transport should be further supported by
measures based on detailed EU-wide monitoring of the use of alternative
vehicles and impact of their infrastructure on local energy grids to assess the
impact of policy measures and their contribution to achieving the EU ambition
of reducing the number of conventionally fuelled vehicles in urban areas by
2030. It was argued that although urban sustainable mobility plans are a good
way forward, a EU wide roadmap is also needed, which should be developed in
close cooperation with the most polluted regions in Europe, setting out the
parameters that would determine progress and identify the most energy efficient
alternative fuel solutions. Measures such as training schemes to reduce fuel consumption,
financial support for mobility management, investment in energy efficient
vehicles (CNG, LNG, hybrid and electric vehicles) and telematics services for
public transport to ensure a change towards energy efficient mobility should be
urgently addressed. Member States could financially support investments for
uptake of vehicles propelled by alternative fuels and co-finance the expansion
of a supply network for alternative fuels. It was argued that better integrated
management of transport infrastructure is needed to increase uptake of more
efficient transport modes. Some stakeholders argued that fiscal incentives and
tax measures should play a role in this regard, also introducing the
"polluter pays principle". It was pointed out that high energy prices
have led to the increasing efforts in fostering energy efficiency in transport.

Some respondents
called for modal shifts to more efficient transport modes, for example to rail
transport or shipping, including also freight. It was argued that rail technologies
are already 3 to 4 times cleaner than road or air transport. EU support could
be provided via regulations or infrastructure projects. A suggestion was put
forward that a carbon tax on petroleum products should be applied to road
transport to align its level since rail transport is impacted by the ETS as its
main power source, electricity, is covered by the cap-and-trade scheme. This
would ensure a level playing field across the transport modes.

On the other
hand, some stakeholders argued that forced modal shift should be avoided.
Measures should aim at greening individual modes at source and they should not
favour one mode over the other and should be technologically neutral. A
reflection should be made at EU level on whether a sustainable freight
transport network can be best achieved from an economic, social as well as
environmental perspective by further electrifying rail infrastructure or by
using these funds to electrify main road corridors. The use of taxes and levies
in order to change behaviour should be redirected to avoid the situation that
these tools are used only for fiscal purposes and are not encouraging greening
at source through the earmarking of fiscal revenues. It was stressed that the
use of alternative fuels in commercial road transport operations should be
further encouraged and their refuelling infrastructure further deployed and
harmonised.

It was stated by
several stakeholders that public transport plays a key role to improve energy
efficiency of transport including shifting from road transport to other
transport modes such as railways and ships. Intermodality must become the core
principle underlying all mobility policies, especially in public transport
where the interplay between services must be enhanced (e.g. with joint planning
of networks, coordination of timetables, better information provision, common
reservation and ticketing systems, common baggage handling, enhancing passenger
rights). Information and communication technologies and services can play a
role in fostering this.

As regards
emission performance standards, it was stressed by many respondents that
existing standards need to be continued and improved further, and that work
should continue on standards for heavy-duty vehicles. The next revision of CO2
emission performance standards for light-duty vehicles shall explore
possible options (e.g. energy efficiency parameters, super-credits, tailpipe CO2
standards or GHG emissions). In addition, CO2 label should be
further discussed by considering possible options such as e.g. absolute or
relative CO2 emission performance levels.

Some views were
expressed that ambitious targets for 2025 and 2030 should be set. Targets for
2030 should reflect continued progress and advances in technology. To avoid
rebound effects, economic measures such as ETS (at refinery level) and taxation
should be applied. It was also pointed out that additional measures are needed
to address energy efficiency in aviation and that the EU should push harder to
implement the Single European Sky.

4) Electrical
equipment

To the question
whether additional measures for electrical equipment sector are needed, 259 (36
%) stakeholders replied affirmatively, whilst 279 (39 %) respondents believed
that there is no need for further measures, with 159 (22 %) not having any
opinion on this matter.

A majority of
those who replied affirmatively stressed that even though the Ecodesign
Directive (2009/125/EC) and Energy Labelling Directive (2010/30/EU) have
contributed to a significant reduction of energy consumption, in the light of
the upcoming Review of this legislation several aspects should still be
addressed. Concerning the Ecodesign Directive these should be: speeding-up the
process that leads to the adoption of implementing regulations, setting minimum
requirements that are not quickly outpaced by market developments and
strengthening market surveillance by cutting red tape.

As regards the
Energy Labelling Directive, there is an urgent need to improve the design of
labels. The 2010 decision to add additional classes with plusses instead of
ensuring a rescaling of the label has reduced the ability of the label to guide
consumers’ choices. It was also argued that energy labels should include
broader information on other environmental aspects and absolute energy consumption,
especially for larger products which have higher overall energy consumption.

It was suggested
by several stakeholders that both directives should be reviewed in light of the
2030 framework to foster development of innovative technologies due to a
greater predictability for the investors. Several stakeholders also called for
increasing synergies and aligning the decision-making process between the
ecodesign and energy labelling measures to allow reduced inconsistencies in the
drafting phase and speed up the implementation of the measures. Moreover,
synergies with other legislation such as the Ecolabel, Green Public
Procurement, and recycling, waste and chemical legislation should be ensured.

Several
respondents indicated that demand side policies should be designed to stimulate
demand for higher efficiency products in the market. It was emphasised that
even though the existing ecodesign legislation is sufficient the extension of
its scope could be considered. In addition, the ecodesign directive should be
coupled with measures speeding up the replacement rate of old equipment such as
vouchers or eco-cheques. Furthermore, the directive should seek to optimise not
only the end-use equipment, but the entire system in which it operates.

It was pointed out
that financial incentives such as reduced VAT rates for the most efficient
appliances could also be promoted.

Some
stakeholders argued that legislative processes should be accelerated and become
more dynamic in order to reflect current market transformation processes. The
level of ambition of ecodesign standards needs to be increased. The criterion
of least-life-cycle-costs should be reviewed and the criterion of the best
available technology (BAT) should be considered as the benchmark. Moreover, the
future regulatory framework needs to support innovation as the current
framework fails to provide incentives for frontrunners.

A number of
stakeholders viewed the importance of electrical equipment sector in the
broader energy efficiency policy context, notably seeing it as an integral part
of other sectors such as buildings or energy supply, where electric
installations and systems play an increasing role to optimise overall energy
performance. This is in particular important in the development of smart grids,
where the efficient management of infrastructure in combination with efficient
appliances interoperating with the future energy system including smart
metering would ensure significant energy savings. Furthermore, demand response
should provide consumers with real-time control signals motivating them to
adjust their consumption. Moreover, peak load management, according to the
respondents, was regarded as a significant element that allows optimising the
functioning of power plants and the power system as a whole, and also
contributes to the security of supply.

It was also
suggested that in order to increase the energy efficiency of electrical
appliances, manufacturers should be required to conduct a design assessment of
their products at an early development stage. Such an assessment, based on
generic data, would aim to optimise resource use in the product design together
with durability and quality requirements of the specific product. Ultimately,
this would drive production towards a best-cost producer model. It was argued
that the approach of ecological profiling would not remove the need for
specific energy efficiency parameters that could be verified on the product
itself.

Some
stakeholders argued that the ecodesign directive should omit the use of primary
energy conversion factors as these mislead consumers that cannot choose their
energy system. The electricity conversion factor should be treated as a CO2
neutral one in order to meet the 2050 vision of a low carbon future.

It was suggested
to set-up a publicly available, producer-supplied product-database for both
directives that would improve monitoring and transparency of market development
and would facilitate the revision of existing and the drafting of new
legislation.

Those
respondents who were against additional measures for the electrical equipment
sector stated that the Ecodesign Directive and the Energy Labelling Directive
already cover most significant aspects of energy efficiency concerning
electrical equipment. Instead of adopting new measures, these two pivotal
directives should be enforced and implemented, and a comprehensive assessment
should be carried out and discussed with stakeholders before launching new
initiatives.

Moreover, it was
underlined by several stakeholders that the current review of the energy
labelling regulation and certain aspects of ecodesign set a favourable
framework for increasing energy efficiency in electrical equipment. It was
stated that demand-side policies are key for triggering innovative solutions;
however, market-based mechanisms should be also considered.

A number of
stakeholders argued that any further extension of the scope of the ecodesign
directive targeting product groups or industrial systems and processes, in
their view would generate complex trade-offs and create more regulatory burden
for businesses, especially for SMEs. Thus it is crucial to ensure proper
functioning of the decision-making process under the existing directive,
especially with regard to the participation and interests of SMEs, and conduct
a cost-benefit-analysis of its implementing measures before proposing further
ecodesign measures.

On the other
hand, some stakeholders acknowledged that the implementation of both directives
could be improved. For instance, in order to better address the efficiency
potential of business-to-business products within the ecodesign framework, the
option of setting generic requirements and developing product-specific
standards should be reverted to, since it was argued that many complex products
of the capital goods sector have differing applications and as a result no
constant operating point so that specific energy efficiency requirements can
often not be determined.

5) 
Energy
generation and distribution sectors

418 (58%)
stakeholders believed that additional measures are needed to address the energy
generation and distribution sectors, while 148 (21%) were opposed to it and 119
(17%) did not have an opinion in this regard.

Those
respondents who favoured additional measures for energy generation and distribution
suggested that mandatory energy efficiency requirements for new power plants
and heating distribution systems are needed. It was stated by several
respondents that a level playing field across the Single Market should be
ensured, and that market transparency and better integration including
modernisation of the national grids should be ensured. The priority should be
the completion of the internal market for energy to ensure the energy supply
and access to customers in all Member States. To this end, it was emphasised by
a number of respondents that the expansion of cross-border infrastructure, in
particularly cross-border interconnectors, which also foresees decentralised
energy distribution, is required. It was pointed out that the current restrictions
regarding the development and improvement of European networks of
interconnections should be overcome to foster market integration,
diversification of energy supply and energy efficiency. In addition, some
respondents underlined that energy trade with third countries should be based
on a level playing field.

Moreover, the
development of smart grids and high-efficiency district heating systems,
including the successful rollout of smart meters should be secured by 2020.
Several respondents argued that smart grids including energy buffering and
storage are indispensable for an improved interconnectivity and managing the
flow of electricity according to demand and supply. It is also important for
the integration of renewable energy and the successful liberalisation of energy
markets. To this end, the development of standards should be properly addressed
due to the involvement of many different sectors along the value chain.

Several
stakeholders argued that the rules on market design for electricity and heating
should allow more active and informed consumer participation than today, and
allow new actors such as aggregators to enter the market. Stakeholders argued
that aggregators could also facilitate a more decentralised generation of
electricity.

Many respondents
emphasised that a regulatory framework developing a sustainable and smart
energy system in the EU shall be further harmonised. Moreover, it was stated
that a flexible and intelligent energy system would deliver a high level of
security of supply and efficiently integrate various sustainable technologies.
To this end, emphasis should be put on establishing a 2030 target at EU level
for smart infrastructure by taking into account potential of demand-side
management and proper measures aiming to improve the efficiency and flexibility
of energy networks, on the basis of a holistic approach - in addition to the
deployment of efficient equipment such as transformers.

A number of
stakeholders emphasised that solutions aiming at increasing flexibility in energy
systems are important, as they facilitate the efficient deployment of renewable
sources. Demand side management and response measures can contribute to this
significantly, helping to reduce the need to build generation capacity,
particularly to cover peak loads. Stakeholders regretted that these measures
have not been considered on an equal footing to supply side options and their
penetration in the system has been limited. Many of these measures are
implemented in the distribution grid, which has been overlooked by the
Commission in recent legislative initiatives such as the Energy Infrastructure
Regulation and the Connecting Europe Facility. Building on the provisions of
the Energy Efficiency Directive, the rules for the participation of these
solutions in the system should be made clearer by removing remaining barriers.
It was suggested that the Large Combustion Plant BREF should be improved to
refer to firm provisions for improving energy efficiency in existing plants.

Furthermore,
respondents stated that greater emphasis should be put on increasing the
overall efficiency of the energy system rather than the efficiency of its
single components, and that legislation should promote the implementation of
energy efficiency measures by distribution system operators rather than by
energy producers. Thus, renewed effort should be placed on promoting
infrastructure projects aimed at increasing the efficiency of how the different
components of energy, and especially electric, systems interact.

Several stakeholders
stressed that regulators should encourage the use of smart meters to provide
easy and quick access to consumption information in real-time, allow
energy-efficient behaviour and a more active participation by consumers through
advanced services such as demand response. It was underlined that demand
response will enable consumers to become active players rather than passive
users.

Moreover, new
measures should enable transmission system operators (TSOs) and distribution
system operators (DSOs) to take into account the benefits of demand response
and energy efficiency programmes prior to investing in regional network
capacity. Regulation should ensure that they are rewarded and not penalised for
increasing their efficiency. Taking into account their key position in managing
the local grid and the consumer’s data, DSOs could play a more active role in
the implementation of energy efficiency measures at consumer level.

Respondents
suggested that an integrated approach to the energy system should be built on
the process established under Article 14 of the Energy Efficiency Directive
through lowering the thresholds for data collection and conducting the
comprehensive assessment, including a more focused approach to waste heat. In
order to have a fair burden sharing of the costs incurred by investors and
customers, respondents expressed views that the list and the values of the
externalities to be used in the cost-benefit analyses should be better
explained.

In the context
of the implementation of the requirements laid down in Article 15 of the EED, a
number of stakeholders stated that EU and national regulators should establish
tariff structures that reward an energy efficient operation of the electricity,
gas and heating markets. Furthermore, a specific focus should be placed on the
power sector, containing tangible CHP elements; possibly building on the
existing guarantees of origin for high-efficiency CHP (the establishment at
national level of “efficiently generated” electricity could be assessed). It
was suggested that the Commission should aim at encouraging national and local
authorities to use a system-wide approach via an extension of the scope focused
on the power sector which is stipulated in annex VIII of the Energy Efficiency
Directive.

As regards decentralised
energy production, it was emphasised by a number of stakeholders that it
increases energy efficiency thanks to cogeneration plants and thanks to reduced
energy losses in transportation as well as infrastructure costs. Thus, local
energy production including from renewable energy sources to reach energy
efficiency targets should be considered. It was also stressed that ICT should
play a role in decentralised energy production and distribution, which helps to
optimise energy efficiency and to manage variations in the supply and demand of
energy in real time.

Furthermore, it
was stated that an inventory of barriers and opportunities for the development
of efficient heating and cooling should be carried out based on reliable market
data, using modelling that fully reflects the reality of energy use in Europe
and the potential of local resources and flows as well as of relevant
technologies.

Combined heat
and power (CHP) is an important technology. Many industrial stakeholders
consider the ETS as the main driver of energy efficiency in the power sector.
On the other hand, it was recognised by a number of stakeholders that the
implementation of the Energy Efficiency Directive (Article 14) creates
potential for high efficiency cogeneration which could increase its development
and also ensure its implementation throughout Europe, whilst preserving the
competitiveness of EU industry.

It was pointed
out by stakeholders representing industry that process industries use most of
the heat from cogeneration internally and that the opportunities for economic
links between industrial CHP plants and possible users such as district heating
would not apply equally around Europe. Therefore, it was argued that promotion
of CHP by market-based mechanisms could more appropriate than mandatory rules
adopted at EU level. According to the respondents, some national schemes, for
example in Italy, have already applied a market-based approach. It was stressed
that criteria for determining the economic benefits of projects or installations
cannot be the same across the entire EU. To this end, it was emphasised that
barriers to the promotion of economic cogeneration should be removed and the
need for companies to achieve economically sustainable rates of return on new
projects should be recognised.

The significant
energy efficiency potential in power generation could be partly tapped by
removing derogations on energy efficiency under the Industrial Emissions
Directive. The Large Combustion Plant BREF should include clear requirements to
deliver energy efficiency improvements, particularly an incremental energy
efficiency improvement for all existing combustion plants, and a CHP obligation
for new plants. BAT conclusions should be drawn from the existing Energy
Efficiency BREF, which should be reviewed without delay according to regular
procedures but not become a simple guidance document. Increasing the
flexibility of the energy system will improve efficiency and facilitate the
deployment of renewable energy.

A number of
stakeholders stressed that the EU should ensure that BAT energy efficiency
levels are binding for thermal power generation and that a timeline for large
combustion plants (LCP) to comply with it should be established. On contrary,
it was argued that Member States are implementing or have implemented strategic
reserves or other forms of capacity mechanisms that often extend the lifetime
of older power plants without incentivising their improvement.

Some
stakeholders suggested that a single capacity mechanism design is needed at EU
level, to prevent further fragmentation of the internal energy market.
Optimally, this design should incentivise newer, more efficient, flexible, and
part-load efficient thermal power generation.

Moreover, care
is needed to ensure that European Network Codes are strongly linked to European
standards to avoid the possibility of divergent national specifications, which
could pose problems for efficient cross-border energy trades and functioning of
retail energy markets.

It was also
suggested that an Emissions Performance Standard for fossil fuel power plants
to improve efficiency is introduced. This would also provide a clear investment
signal for the decarbonisation of the sector by complementing the Emission
Trading System (ETS). It was stressed that the Emissions Performance Standard
is already becoming part of the EU climate and energy policy, following the
European Investment Bank’s decision to no longer fund power projects that emit
more than 550gCO2/kWh.

6) Financing
mechanisms and instruments

A majority of
respondents (534 or 74%) replied affirmatively that additional financial
mechanisms and instruments are needed at EU level to mobilise investments
targeting energy efficiency with 94 (13%) being against and 72 (10%) not having
an opinion in this regard.

It was
acknowledged by many respondents that access to finance remains the major
obstacle to achieve the full energy savings potential across the different
sectors. Therefore, more needs to be done to address the gap and the EU has a
major role to play by providing a stable policy framework and facilitating
long-term, low-rate financing structures as referred to in the recently
published report by the Energy Efficiency Financial Institutions Group (EEFIG).
Several stakeholders suggested pooling of public funding in appropriate funds
and leverage private funding via public money, and that earmarked ETS auction
revenue could be used for targeted energy efficiency programmes. Stakeholders
argued that financing should apply to a holistic set of measures rather than
single measures and that financial and fiscal incentives should be linked to
concrete policy measures and targets. It was emphasised that EU funding shall
allow reducing the cost of capital for companies (e.g. risk-sharing). 
Furthermore, it was argued that support is needed for small and medium sized
enterprises to facilitate investment in uptake of more efficient technologies.

Several
respondents noted that financing dedicated to energy efficiency has been
increasing  and that the European Structural and Investment Funds 2014-2020 and
Horizon 2020 provide good opportunities for financing and should remain key
instruments to support the implementation of energy efficiency policies. It was
suggested that the individual starting point and progress of each Member State
should be taken into account, whilst rewarding achievements and best practice.
Some respondents regretted that national governments do not always consider
energy efficiency as a priority. It was suggested that a specific EU funded
energy efficiency programme would motivate governments who do not have energy
efficiency as a priority to make such investments.

It was
acknowledged by a number of stakeholders that lessons should be learned from
the existing schemes that proved to be successful and that further financial
mechanisms and instruments should be set up at EU level to step up the efforts
of existing successful instruments such as ELENA, JESSICA, Mobilising Local
Energy Investments - Project Development Assistance and the European Energy
Efficiency Fund. Respondents stated that these experimental instruments
triggered innovation and implementation of feasible, cost-effective and
sustainable solutions at decentralised level. Amongst the views on new
financing instruments, crowd-funding or cooperative societies were suggested
which could provide new investment potential. In addition, an Energy Efficiency
National Fund (referred to in Article 20 of the EED) could serve as an
effective instrument that could aggregate multiple sources of public finance to
leverage additional private investment. A number of respondents argued that
such funds should become mandatory in Member States. Some respondents saw the
potential in the Energy Performance Contracting mechanism, which could be encouraged
through third party financing and loan guarantees in order to ease financing,
especially for SMEs.

Many respondents
shared views that access to finance for energy efficiency investments should go
hand in hand with reducing the barriers by simplifying procedures and raising
awareness amongst the market players about the underlying benefits of energy
efficiency. Moreover, financing for energy efficiency measures should be
provided under affordable and attractive conditions. This could be done via voluntary
agreements by banks or subsidising loans for energy efficiency measures through
credit lines, guarantees, etc. Such levers should be provided in a
non-discriminatory manner to all market actors, which, according to
respondents, is currently not the case in all Member States. In general, it was
emphasised that effective coordination between public funding sources would
allow getting the best leverage from financing instruments.

Furthermore,
respondents suggested that Member States should establish "one-stop-shops"
to help energy efficiency projects obtain funding. These structures should
facilitate aggregation of projects and be accessible at the local level. It was
also noted that further efforts should be dedicated to raising awareness of
existing and future financial incentives and grants to foster energy efficiency
investments. Several respondents stressed that financing should not place a
burden on consumers who are already facing the highest level of billing to
their homes, especially concerning more vulnerable consumer groups.

In the context
of the Energy Tax Directive and the State Aid guidelines on environmental and
energy, it was mentioned that Member States could be allowed to apply tax
reductions and payback time reductions facilitated by state intervention to
counteract negative impacts on competitiveness for globally competing
companies. Differentiation of value added tax targeting energy efficiency shall
be re-considered at EU level. Moreover, many stakeholders stressed that State
Aid rules should not prevent the use of public funds to support public and
commercial energy efficiency projects and that guidelines must take a
progressive approach on national energy efficiency funding. Therefore, clear
guidance on the state aid exemptions would be needed. On the other hand, some
respondents called for tightening the rules on state aid in the fields of
environment and energy.

Many
stakeholders underlined the need for streamlining of financing to address
energy efficiency in certain sectors of the economy such as buildings and
industry.

As regards
industry, views were expressed that pan-European funding is needed to stimulate
investments in energy efficiency and that R&D should be promoted to support
innovative technologies and solutions. For instance, investment in research and
pilot projects for funding more efficient manufacturing processing of energy
intensive industries could greatly contribute to the achievement of energy
savings. Support for bringing new innovative technologies along the entire
value chain to the market is essential, especially in the deployment phase, but
should be technology neutral to ensure a level playing field.  Some
stakeholders from industry regretted that prevailing barriers perceived by
industry are payback periods that are longer than businesses often are willing
to contemplate. As an option it was suggested that measures identified during
energy audits (in line with Article 8 of the Energy Efficiency Directive) which
would have a payback time of less than 4 or 5 years should be mandatory. To
this end, the increased use of life cycle cost analysis in energy audits
(required by Article 8 of the Directive) by industry shall be secured. It was
also argued that “green” public procurement and public-private partnerships should
be considered. The EU could become more active in the development of risk
financing for industrial large scale demonstration projects of new energy
efficient technologies. Finally, direct access for energy-intensive
manufacturing industry to EU Framework Programmes via e.g. the SPIRE public
private partnership should be maintained and intensified.

Concerning the
buildings sector, several stakeholders stated that there is an urgent
need to ensure stable and long term financing for renovation programmes that
goes hand in hand with political will and sufficient public funding for
guarantees and incentives to ensure sufficient action in the Member States. It
was stated by several respondents that the Renovation Loan in the new round of
the European Structural and Investment Funds may provide a good basis for
addressing part of the financing challenge is taken up by the Managing
Authorities. The building sector was mentioned as a specific case in which
bottom-up legislation also for financing would be necessary to correct market
failures. Some respondents stressed that incentives are also needed for
homeowners and landlords. A suggestion was put forward that a special fund to
address renovations of buildings could be established at EU level.

7)  Measures
to build the capacity of actors in the energy efficiency sector

322 (45%)
stakeholders replied affirmatively that additional measures are needed to build
the capacity of actors in the energy efficiency sector, whilst 230 (32 %)
stated that there is no need and 131 (18%) did not have an opinion in this
regard.

A number of
respondents stated that there is a need for active stakeholder involvement and
interaction of the different market actors within the wider energy system in
order to build needed capacity.

Public
authorities, including at local and regional level, need EU support to develop
long-term visions, update knowledge of the EU acquis, best practices and
best available technologies, and trigger technical, financial and social
innovation in order to ensure the roll-out of large-scale energy efficiency
measures and investments. In order to establish a strong energy services
market, there is a need to put in place education and training programmes,
certification and accreditation schemes. Moreover, several stakeholders
stressed that mutual recognition across the EU of professional qualifications
in the field of energy efficiency should be considered.

Moreover,
respondents emphasised that further awareness raising measures targeting
consumers and public authorities should be implemented. Awareness raising
campaigns were mentioned as an effective tool to motivate final consumers to
implement energy efficiency improvement measures. It was argued that only
strong customer demand will ensure the creation of adequate supply of products
and services.

As regards
public authorities, it was stressed that they should also play an important
role by ensuring the necessary framework to facilitate the implementation of
energy efficiency measures and functioning of the energy services market.

Concerning
municipal authorities, it was suggested that the Covenant of Mayors should
receive additional support in order to build the required capacities and
disseminate good practices since it allows reaching a large number of municipalities
and enables cross-sectoral policies to be implemented at local level.

8) Energy
Efficient Technology solutions and their development and uptake at EU level

The public
consultation also sought views on what would be the most promising technology
solutions that could help deliver energy savings in the 2020 and 2030 time
horizon and how their development and uptake can be supported at EU level.

Many
stakeholders stressed that the required technologies to deliver the
cost-effective energy savings potential to 2030 are already available. However,
a strong policy framework, underpinned by a robust 2020 and 2030 energy savings
target and measures to achieve it, will give industry the necessary confidence
and will send the right signal to investors. It was stressed that a level
playing field as regards the uptake of new technologies should be ensured and
that technological solutions must also be complemented by non-technological
innovation.

In the 2030 time
horizon, new forms of decentralized low-carbon heating technologies such as
micro-cogeneration, solar thermal, heat pumps, biomass boilers and various
hybrid systems have a major role in delivering energy savings. The key
advantage of the aforementioned decentralized heating technologies is their
adaptability to a broad range of climatic environments and structural
conditions. However, it was stressed that the uptake of these technologies
requires a clear and stable regulatory framework that incentivises investments
for low-carbon heating technologies. Moreover, promotion of energy management
and energy auditing standards could play a role (e.g. ISO 5001/ISO 50002,
EN16427).

A number of
stakeholders emphasised that existing energy performance requirements should be
reviewed on a more regular basis, for example, setting more stringent CO2 emission
standards for passenger cars. Also other transport modes could play a role. For
instance, shipping has a vast potential for energy savings including more
energy efficient engines, hull and propeller cleaning for reducing energy
consumption. Some stakeholders also saw the potential for introducing
automation and control systems especially in buildings to achieve energy
savings.

Respondents
stressed that it is equally important to support the development of new market
structures and business models in order to accelerate the functioning internal
market for energy services, which has been perceived by stakeholders as a
driver for energy savings.

Moreover, smart
cities and communities could serve as living laboratories to showcase potential
solutions. In this context, R&D should play a key role in delivering
further energy efficiency improvements. It was suggested that first priority
could be the promotion of innovative low-carbon technologies in the context of
the Strategic Energy Technologies Plan (SET-Plan), operating under the Smart
Cities concept.

5. 
Further comments:

As a last open
question, the public consultation invited the stakeholders to provide further
comments on energy efficiency strategy.

Here it was
suggested that the EU should ensure awareness amongst the general public of
efficient use of energy, including behavioural change. Moreover, it was
stressed by respondents that more rapid and successful approaches are needed to
phase-out inefficient products and processes from the EU market, and to ensure
that sufficient numbers of experts receive the needed training for different
sectors (e.g. residential and commercial buildings, industrial processes) in
order to realise the energy efficiency potential in the EU.

It was stressed
by several stakeholders that before adopting new measures, the impact of
current policies should be analysed and evaluated. This would allow securing
the needed investment and ensure better planning of industry, fostering its
willingness to invest in new technologies. Stakeholders stated that the
diversity of European energy efficiency markets must be taken into account and
that the development of the future framework should leave  the flexibility to
Member States to achieve their efficiency targets.

Annex II - EU and national energy
efficiency policies and their implementation

1. 
Targets and framework instruments

Since 2007 the overall target (20%
energy saving by 2020) proved to be an essential part of the regulatory
framework providing political momentum, guidance for investors and a clear
mandate for the Commission to act. Until 2012 there was some ambiguity as to
what the 2020 target actually was. The EED solved this by clearly indicating
that it is understood as primary energy consumption in 2020 not exceeding 1483
Mtoe and/or final consumption not exceeding 1086 Mtoe. The target is
non-binding but allows the monitoring of Member State progress.

Defined as absolute energy consumption
in 2020, the target provides a clear benchmark to measure progress. The
economic crisis displayed however the limits of this approach: if the economy
had developed at the rate projected in 2007 when the target was set, the
projected gap would be significantly higher. Therefore even if the target is
achieved some of the identified cost-effective saving potential for 2020 will
remain untapped.

In its Article 7, The EED provides a
powerful overarching policy instrument which obliges Member States to achieve
average annual energy savings - nominally of 1.5% and, including exceptions, of
at least 1.125% - on energy sales by obliging utilities to implement energy
efficiency measures among final users, or through alternative measures with the
same effect. Such schemes are already implemented in a number of Member States
with some success. This will potentially act as a strong driver of energy
efficiency as such schemes overcome several market failures, provide a stable
source of financing and stimulate the development of the ESCO (energy services
company) market. They should improve finance supply and incentives for building
renovation.

At present, sixteen Member States have
chosen an energy efficiency obligation scheme, twelve in combination with other
measures. Four Member States have opted solely for an energy efficiency
obligation scheme and twelve intend to achieve their energy efficiency savings
targets only with the alternative measures.[1]
It is considered that this policy instrument will serve as a strong driver of
energy efficiency in the EU over the coming years, although it remains to be
seen how well Member States will fare in terms of implementation. The 2016
review of Article 7 will assess the impact and effectiveness of this
instrument.

Some cross-sectoral policies and
measures lead to energy efficiency benefits. These include the Emissions
Trading Directive, energy taxes and the greenhouse gas Effort Sharing Decision
(ESD). Policies promoting renewable energy also lead to primary energy
efficiency gains because many renewable energy sources, such as hydro, wind and
solar PV, have attributed to them an efficiency factor of 1; thus, the
penetration of renewable energy, in particular in power generation, reduces
primary energy consumption.

2. 
Efficiency requirements for buildings and
products

With the EED, the recast of the Energy
Performance of Buildings Directive (EPBD) and the implementing measures under
the Ecodesign and Energy Labelling Directives (e.g. for boilers and lighting),
a comprehensive regulatory framework for energy efficiency in buildings is now
in place at the EU level.

This includes minimum energy performance
requirements for new buildings and for existing buildings undergoing major
renovation; energy performance certificates (EPCs) for buildings that are
constructed, sold or rented out; and inspections of heating and
air-conditioning systems; long-term building renovation roadmaps; and a
requirement to renovate central government buildings.

The scale of potential improvements is
vast: a recent analysis[2]
shows that in the majority of Member States current efficiency requirements for
new buildings, existing buildings undergoing major renovations and retrofitted
or replaced elements of the envelope are significantly less stringent than
cost-optimal levels, in some cases by a factor of two. Nevertheless, the effect
of energy performance standards for buildings is hampered by the often limited
volume of new construction and the low renovation rate (below 1% of the
building stock per year in many Member States).

Compliance checking and quality control
of EPCs and of inspection of heating and cooling systems is critical to tap the
saving potential of buildings. Enforcement of EPCs remains an issue; for
example in 2011 only 7 Member States checked the presence of EPCs at the moment
of sale/renting transactions[3].
The reliability of EPCs also requires improvement and fraud needs to be
avoided. Limited compliance checking of energy performance requirements in new
and renovated buildings may also reduce the impact of the regulatory
requirements. For instance, there is evidence of only 12 Member States having
carried out quality checks of the calculation for new and existing building
certificates.

Ecodesign and energy labelling
requirements for energy-related products have shown their effect in improving the
design of products, guiding consumers towards efficient appliances and driving
a cost-effective market transformation towards more efficient products. With
the recently adopted requirements for space and water heaters, requirements
will cover almost the entirety of energy consumption in the household sector
and a significant share in the tertiary and industrial sectors. An engineering
calculation estimates that the combined savings from these measures will total
760 TWh in 2020[4].
Seven further priority product groups have been identified under a new Working
Plan (including windows, servers and data centres, steam boilers and
water-related products) with projected savings of around 500 TWh in 2030.

The Directives are currently being
reviewed. The review has identified two key issues that hamper the full energy
savings potential of this policy to be captured. First, a lack of sufficient
market surveillance means that non-compliant products remain on the market and
consumers may be misled when buying energy labelled products. This undermines
the internal market, a level playing field for industry and the trust that
consumers have in the energy label. Second, the A+, A++ and A+++ energy
labelling scales that were introduced during the last revision of the energy
labelling Directive have been shown to negatively affect consumers' willingness
to choose more energy efficient products.

3. 
Energy generation, transmission and distribution

Energy efficiency in supply was first
covered by EU legislation in the Cogeneration Directive (2004/8/EC), which
focused on the promotion of high-efficiency cogeneration, i.e. cogeneration
achieving at least a 10% primary energy saving (PES) compared to separate heat
and electricity production. The Directive set common calculation methodologies
for the efficiency of cogeneration, established grid system rules on a par with
electricity from renewable sources and required the creation of guarantees of
origin systems for electricity from high-efficiency cogeneration.

The Directive did not prove to be
effective in promoting cogeneration. The share of electricity from cogeneration
in Europe remained unchanged at around 10-11% despite an identified economic
potential of 21% share in EU.

The Energy Efficiency Directive
incorporates all the mandatory parts of the Cogeneration Directive and enlarges
its scope. It covers heating and cooling in general. It strengthens grid system
and authorisation rules for cogeneration. It requires Member States to prepare
a comprehensive assessment of the potential for high-efficiency cogeneration
and efficient district heating and cooling based on cost-benefit analysis
covering the national territory. Member States must take adequate measures to
realise the economic potential for high-efficiency cogeneration and efficient
district heating and cooling. New or substantially refurbished power generation
and industrial installations above 20 MW must be subject to a cost-benefit
analysis on the possibility of using cogeneration and/or district
heating/cooling. The outcome of the country-level and installation level
cost-benefit analyses must be reflected in authorizations or permits.

The EED also includes provisions linked
to the management of the grid. Electricity regulators must provide incentives
for TSOs and DSOs to make available to energy retailers and customers system
services permitting them to take advantage of the energy efficiency potential
of smart grids. They must also not prevent DSOs, , TSOs and energy retailers
from offering, as system services, in "organised electricity markets"
measures to: shift customers' demand from peak to off-peak (taking into account
the availability of renewable energy, energy from cogeneration and distributed
generation); induce them to reduce demand; store energy; or connect or dispatch
electricity from distributed generators. Optimisation of demand will be also
driven by provisions on appropriate metering and billing of end-users' energy
consumption.

4. 
Transport

Energy efficiency in the transport
sector is addressed through energy efficiency improvements in the transport
modes themselves (e.g. minimum requirements, labelling), integration of
transport modes and the internalisation of externalities in the cost of
transport.

Following the recent revision of EU
regulations on CO2 emission standards for passenger cars  and light
commercial vehicles, the fleet average to be achieved for new passenger cars is
130 grams of CO2 per kilometre (g/km) by 2015 and 95g/km by 2021.
This compares to an average of 160g/km in 2007. The Vans Regulation limits CO2
emissions from new vans to a fleet average of 175 95g/km by 2017 and 147 g/km
by 2020. This compares to an average of 203g/km in 2007. A strategy for
reducing Heavy Duty Vehicles' fuel consumption and CO2 emissions has
been recently adopted[5].

Fuel efficiency standards are
complemented by CO2 labelling of vehicles and tyre labelling. The
tyre labelling regulation has already led to 80% of tyres sold on the European
market showing their performance levels to consumers in a transparent manner.

Specifications on the provision of
EU-wide multimodal travel information services and of real-time traffic
information services are in preparation and are expected to be adopted by the
Commission by the end of 2014. Work is ongoing on the standardisation of ICT to
support the interoperability of cooperative systems for intelligent transport.

The Commission proposal of April 2011
for a revised Energy Taxation Directive aims at encouraging an energy efficient
and environmentally-friendly use of fuels by making a link between tax rates
and the fuels' energy and CO2 characteristics. The proposal is under
discussion in the Council.

Since the beginning of 2012, emissions
from aviation have been included in the ETS. The amendments to MARPOL Annex VI
Regulations for the prevention of air pollution from ships entered into force
on 1 January 2013, adding a new chapter on energy efficiency for ships to make
mandatory the Energy Efficiency Design Index (EEDI), for new ships, and the
Ship Energy Efficiency Management Plan (SEEMP) for all ships. Recent international
agreements targeting reduced GHG emissions in the maritime and aviation sectors
will also improve these modes' efficiency. In October 2013 the ICAO Assembly
agreed to develop by 2016 a global MBM to apply it by 2020. On maritime
emissions, the Commission presented a strategy to integrate the sector in the
EU’s greenhouse gas reduction policies and will work with International
Maritime Organisation on a global approach to achieve the necessary emissions
reductions through the most appropriate measures[6].

5. 
Financing, technical support and capacity
building

Energy efficiency investment worldwide
has been growing, reaching $300 bn in 2011[7]. This has
been driven by more favourable regulatory environments[8] and by
evidence of the business case for such investments[9].

Under the previous Multiannual Financial
Framework (2007-2013), the European Union has provided increasing financial
support for energy efficiency measures and investments through a wide range of
programmes and funding instruments, including the EU Cohesion Policy fundings,
the European Energy Efficiency Fund (EEE F) and the Intelligent Energy Europe
Programme II as indicated in Table below.

Table
23: Funding for energy efficiency under the previous Multiannual Financial
Framework (2007-2013)

Funding Source || Instruments/mechanisms || Total funding available || Funding for EE

Cohesion Policy funding || Operational Programmes incl. financial instruments || € 10.6 billion for sustainable energy (RES & EE) || € 6.1 billion for EE, co-generation and energy management

Research Funding || FP 7 (e.g. Concerto, E2B PPP, Smart Cities) || € 2.35 billion for Energy research || € 290 million for energy efficiency

Enlargement Policy Funding || IFI facilities (SMEFF, MFF, EEFF) || € 552,3 million (381,5 +117,8 +53 respectively) || About one third of total funding for projects in industry and buildings

Programme for European Energy Recovery (EEPR) || European Energy Efficiency Fund (EEE F) || € 265 million || 70% of funding to be dedicated to energy efficiency

Competitiveness and Innovation Funding (CIP) || Intelligent Energy Europe Programme (including ELENA) Information and Communication Technologies Policy Support Programme (ICT PSP) || Approximately € 730 million for each programme || About 50% of the funding was dedicated to energy efficiency in all sectors

Under the EU Cohesion Policy funding 2007-2013,
EUR 12.5 billion of programme funding was channelled through 870 specific
Financial Instruments, out of which EUR 444 million through 16 Financial
Instruments in eight Member States for energy efficiency and renewable energy.
So far (2012 data), of the latter amount, EUR 90 million was disbursed to final
recipients through 13 392 loans.

Under the Intelligent Energy Europe
Programme, EUR 148 million has been earmarked for project development
assistance under the ELENA Facility (implemented through the EIB, KfW, EBRD and
CEB) and the "Mobilising Local Energy Investments" strand of the IEE
Programme (implemented via EACI/EASME). The grant support is provided to public
authorities to develop and launch sustainable energy investments, with a
minimum leverage (EU grant to total investment launched) of 1:20 and 1:15,
respectively. So far, EUR 81.2 million has been provided to 56 projects,
expected to lead to investment worth EUR 4.032 billion.

Under the European Programme for
Economic Recovery, the Commission together with participating Financial
Institutions has piloted the set-up and operation of the dedicated European
Energy Efficiency Fund (EEE F), where EU contribution of EUR 125 million has
been matched by additional EUR 140 million provided by the European Investment
Bank, Cassa Depositi e Prestiti and Deutsche Bank, under the Fund management by
the latter. As of end March 2014, EUR 217 million has been allocated to 13
investment projects.

An initial assessment of these
instruments suggests that (a) there has been some success in addressing the
market failures that hamper the uptake of energy-efficient solutions; (b) EU
level instruments like EEE F help providing long term innovative financing
models and replication but have more difficulty to overcome market
fragmentation; (c) differences in national circumstances, cultures and
financial systems mean that a single European solution, such as an EU-wide
equivalent to Germany's KfW, is not the answer, and what might be needed
instead is a robust framework enabling better understanding, knowledge,
transparency, performance measurement and de-risking at the EU level,
accompanied by tailored Financial Instruments at the appropriate level, closer
to final beneficiaries.

EU funding has been complemented at the
Member state level, where prevailing public finance support has been provided
through grants and subsidies, followed by soft loans. Only few Member States
experimented with tax incentives and market based instruments (such as white
certificates) so far.

Table 24: Energy efficiency
support provided in the EU Member States[10]

|| AT || BE || BG || CY || CZ || DE || DK || EE || ES || FI || FR || GR || HU || HR

Grants/subsidies || || || || || || || || || || || || || ||

Loans || || || || || || || || || || || || || ||

Tax incentives || || || || || || || || || || || || || ||

EEO/WC || || || || || || || || || || || || || ||

|| IE || IT || LT || LU || LV || MT || NL || PL || PT || RO || SE || SI || SK || UK

Grants/subsidies || || || || || || || || || || || || || ||

Loans || || || || || || || || || || || || || ||

Tax incentives || || || || || || || || || || || || || ||

EEO/WC || || || || || || || || || || || || || ||

Hand in hand with the evolving policy
framework, as well as with the realisation that the main problem to address is
potentially not the lack of funding but rather its accessibility and
affordability, the provided EU financial support has extended its nature from
pure grants towards more sophisticated and investment-linked support,
addressing the issues related to capacity (to structure bankable investments)
and sub-optimal investment levels (caused by the risk-aversion attitude of
investors and lenders or affordability for borrowers, among other issues). It
became increasingly clear that public finance should be rather used as a
trigger for the private capital participation, through various forms of
financial Instruments (such as risk-sharing or credit enhancement mechanisms).

The experience gained so far has been
reflected in the design of the new Multiannual Financial Framework for the
years 2014 – 2020. The regulations for the new set of EU Programmes bring a
different understanding of the role of public funds in the area of energy
efficiency.

Table
25: Energy efficiency funding allocation under the Multiannual Financial
Framework for the years 2014-2020

Funding Source || Instruments/mechanisms || Total funding available || Funding for EE

European Structural and Investment Funds || Operational Programmes incl. financial instruments (e.g. off -the-shelf instruments etc) || Minimum € 27 billion for low-carbon economy investments including energy efficiency || to be defined in the Operational Programmes

Research Funding || Horizon 2020 (e.g. Energy Efficiency, E2B PPP, SPIRE PPP, Smart Cities) || € 5.6 billion for the whole energy challenge || ca € 840 million for energy efficiency including the ELENA Facility not including the funding for EeB PPP and SPIRE PPP

Programme for European Energy Recovery (EEPR) || European Energy Efficiency Fund (EEE F) || € 48 million (under first closing) plus expected further capital after second closing || 70% of funding to be dedicated to energy efficiency

LIFE + || EIB guarantee facility for retail banking sector for EE lending || €80 million (launch phase 2014 – 2017) || full allocation

The implementation principles for the
European Structural and Investment Funds (stress that public funding should complement
private investments, leveraging it and not crowding it out; call on Member
States to consider creating value for energy savings through market mechanisms before
public funding (energy saving obligations, energy service companies (ESCOs)...);
highlight that financial instruments should be used where potential for private
revenue or cost savings is sufficient and remind that grants should be used
primarily for social objectives, to support innovative technologies and
investments going beyond minimum energy requirements, thus making sure that
energy savings achieved with the public funding support are above those that
would be achieved at the "business as usual" level (without the
public support).

The European Structural and Investment
Funds for the first time ring-fence[11]
a significant EUR 27 billion (estimated minimum) specifically for low carbon
economy investments including energy efficiency. Managing Authorities are particularly
encouraged to set up financial instruments using their allocation to leverage
additional private capital participation while providing market based support
instruments (such as tailored loans or guarantees). To ease and speed-up the
application of Financial instruments, "off-the-shelf" instruments are
being designed by the Commission, to set the framework upon which faster
replication of financial instruments can be enabled. In the area of energy
efficiency, the "Renovation Loan" off-the-shelf instrument is under
preparation, based on a risk-sharing loan model.

The new EU Programme for Research and
Innovation, Horizon 2020, addresses the innovation challenges of the EU and
incorporates elements of the previous research and innovation programmes, FP7
and Competitiveness and Innovation Programme (Intelligent Energy Europe). The
Horizon 2020 earmarks EUR 5.6 billion for energy, out of which at least EUR 840
million is planned to be allocated for energy efficiency part of the programme,
addressing both technology-related and non-technology-related innovation
challenges. It also continues to provide specific support for development and
launch of innovative investments, expanding its scope to private sector
operators. Elena Facility continues under the programme.

Further, the LIFE + Work programme
2014-2017 has earmarked EUR 80m for a new EU risk-sharing (guarantee) facility
with the EIB - "Private Finance for Energy Efficiency" Instrument,
dedicated to extend the provision and enhance the affordability/attractiveness
of debt financing for energy efficiency investments at the retail lending
level.

Finally, the European Energy Efficiency
Fund (EEE F), still remains operational, investing into sustainable energy
projects, with (as of 31/3/2014) EUR 48 million still available and expected
second closing which would bring additional investors to achieve its target
size of EUR 600 million.

Annex III - Decomposition
analysis of energy consumption trends at EU and Member State level.

1. 
Methodology

The
decomposition analysis is based on the LMDI (Logarithmic Mean Divisia Index)
method[12].
This method has two main advantages[13]:

· 
In
difference to other methods used, for example the simple Laspeyre factorization
methodError! Bookmark not defined., the
LMDI does not generate residuals which cannot be explained

· 
The
method is easily applied to a larger number of factors which is not the case
for other decomposition methods which generate quite complex formulae in such
cases.

The analysis of primary energy
consumption is carried out at two levels:

· 
First
the energy conversion sector is analysed as a whole by distinguishing three
energy sector branches: electricity, heat and other sectors (which comprises
solid fuels, petroleum products, gas, renewable and wastes not used for
electricity or heat generation) (Level 1, see Figure 6).

· 
Second
the developments in the electricity and heat sector are analysed in greater
detail (level 2, see Figure 2).

Level
1 analysis takes into account:

· 
Changes
in energy available for final consumption[14],
excluding non-energy uses

· 
Changes
in the distribution losses across all energy sector branches

· 
Changes
in the energy sector consumption

· 
Changes
in the structure of the energy sector (mainly the influence from the increasing
penetration of the electricity sector, which has a lower conversion efficiency
as compared to the other branches of the energy sector).

· 
Changes
in the efficiency of the electricity and heat sector (which is mainly driven by
the structural change within the electricity sector, in particular by the
penetration of renewable, see below).

Figure
6:   Structure for the Level-1-Analysis of changes in Primary Energy
Consumption

Figure
7:   Structure for the Level-2-Analysis of changes in Primary Energy
Consumption (impact of electricity sector)

Level 2 analysis with a focus on the
electricity sector (Error! Reference source not found.) takes into
account:

· 
The
change in Gross Electricity Consumption (which includes distribution losses and
electricity consumption of the energy sector

· 
The
penetration of “100% efficiency renewables” (RES-E-100%), that is wind energy,
solar PV, hydro power, wave/ocean/tidal energy[15].

· 
The
decrease in the share of nuclear (with a nominal conversion efficiency of 33%)
due to the phase-our strategies in some Member States

· 
The
penetration of electricity from Combined Heat and Power generation CHP

· 
The
efficiency improvement in uncombined thermal electricity generation (including
renewable/wastes for uncombined generation.

2. 
Results EU level

Figure 8:
Decomposition analysis of changes in primary energy consumption 2008-2012
(Level 1)

Figure
8 shows the Level-1 analysis of Primary Energy Consumption:

· 
The
total change in Primary Energy Consumption in the period 2008-2012[16] was
-100 Mtoe.[17]

· 
The
main reason for the decrease was the decrease in final energy which amounted to
-70 Mtoe from 2008 to 2012 but which in primary energy terms translates to -96
Mtoe.

· 
Distribution
losses (+1.3 Mtoe, possibly due to a penetration of distributed renewables) and
Energy Sector Consumption (-2.3 Mtoe) had smaller influence on the changes in
primary energy consumption.

· 
A
comparatively large increase in primary energy with +24 Mtoe came from the further
penetration of the electricity sector in the structure of the energy sector
branches.

· 
This
was more than counterbalanced with -29 Mtoe by an improvement in the
electricity sector efficiency, which in fact comprises different factors of
influence, among others the penetration of RES-E-100%, see the analysis at
Level-2.

Figure
9: Decomposition analysis of changes in primary energy consumption 2000-2012
(Level 1)

Figure 9 shows for comparison purposes
the decomposition analysis for the longer time period 2000-2012. The main
differences with the analysis for the period 2008 to 2012 is that primary
energy is decreasing less (-34 Mtoe), that the penetration of the electricity
sector was more pronounced (+40 Mtoe) but which was also nearly totally counterbalanced
by the developments in electricity sector efficiency (-39 Mtoe).

Level-2 analysis shows the details of
what happened in the electricity conversion from primary energy consumption to
gross electricity consumption (Figure 10):

The total change in primary energy
  consumption due to electricity generation was -34 Mtoe in the period
  2008-2012. This was the combined effect of a decrease in gross electricity
  consumption (impact -15 Mtoe in primary energy terms), a change in the
  structure of electricity generation which induced a reduction of 29 Mtoe
  in primary energy, a worsening in thermal electricity generation which
  induced an increase in primary energy consumption of 10 Mtoe (possibly due
  to partly low capacity use of part of the thermal power plants).
 The structural effects were due to
  four individual components:
  The increasing penetration
  of RES-E-100 and CHP electricity increased Primary Energy Consumption by
  18 Mtoe and 0.4 Mtoe respectively. 
  However, this was by far
  overcompensated by the decrease in nuclear (-5 Mtoe primary energy) and
  uncombined thermal power generation (-42 Mtoe) with their much lower
  efficiencies.

For comparison Figure 11 shows the same
analysis for the longer period from 2000 to 2012. The main difference is that
the electricity sector still increased primary energy consumption by 11 Mtoe,
especially to the still strong increase in gross electricity demand (+46 Mtoe
in primary energy terms), the counterbalancing effect of the structure changes
in electricity generation (-49 Mtoe)

Figure
10: Decomposition analysis of changes in primary energy consumption due to
electricity generation 2008-2012 (Level 2)

Figure
11: Decomposition analysis of changes in primary energy consumption due to
electricity generation 2000-2012 (Level 2)

2.1. 
Decomposition analysis of final energy
consumption

In the previous section we identified as
the main driver for the decrease in primary energy consumption from 2008 to
2012 the decrease in final energy which amounted to -67.1 Mtoe but which in primary
energy terms translated to -96 Mtoe. In this section we will analyse the
details of the different final demand sector to the change of -67.1 Mtoe. An
overview is provided by Figure 12. This change is due to changes in activity
levels in the different sectors with nearly -33 Mtoe, further counter balancing
impacts of structural changes in industry, modal shift in transport as well as
comfort and social factors, climatic differences between the beginning and the
end of the period, and finally an important contribution of energy efficiency
with a reduction of nearly 53 Mtoe in the historic period 2008-2012 (around
10.5 Mtoe or 1.0% annually compared to the overall final energy demand in
2012). More sectoral details can be found in the following section. This
comprises both the impacts of autonomous energy savings and the impacts of
energy efficiency measures.

Figure
12:       Decomposition analysis of changes in final energy consumption
2008-2012

Figure
13:       Decomposition analysis of changes in final energy consumption
2000-2012

Figure 13 provides the same information
for the longer period 2000 to 2012. The main difference with the period 2008 to
2012 is that activity changes were contributing to an increase in final energy
consumption, as well as comfort factors, while energy efficiency improved more
strongly with 11.5 Mtoe annual savings or 1.05% of final energy consumption of
2012. As an overall result final energy decreased since 2000 only by around 28
Mtoe, as up to 2005 final energy demand was still increasing.

2.2. 
Sectoral results of the decomposition analysis
of final energy consumption

Figure 14 shows that industry and
transport reduced most final energy consumption in 2008-2012 while in 2000-2012
mainly industry contributed while services strongly increased final energy
consumption in the longer period. However the reasons for this development were
quite different from sector to sector:

The residential sector
  (Figure 15) had quite important contributions to energy efficiency in
  2008 to 2012 with 1.3% of energy consumption saved annually. However this
  was compensated by the increase in activity (population), social factors
  (less persons in dwellings, hence more dwellings), comfort/behavior (e.g.
  more heated surfaces in homes) and by climatic influences (as 2012 was a
  cold year as compared to the reference year 2007 for this period).

For industry (Figure
  16) activity effects (impact of the economic crisis), structural effects
  as well as efficiency effects all contributed to reduce energy
  consumption in the period 2008-2012, while in the longer period 2000-2012
  the activity effect was positive. However, the savings rate has slowed
  down to below 0.96% annual savings in the period 2008 to 2012 as compared
  to 1.40% over the longer period 2000-2012.

For passenger transport
  (Figure 17) efficiency effects (CO2 standards) strongly
  contributed to the reduction in energy consumption while activity effects
  were modest compared to the longer period 2000-2012. As passenger
  transport is less influenced by the impacts of economic down-turn, this
  is also a sign of saturation effects in transport. The annual savings
  rate is with 2.2% per year quite high.

Goods
  transport (Figure 18) is like industry strongly
  impacted by the economic development, hence a negative activity effect
  from 2008 to 2012. The efficiency effect is reversed (annual increase
  0.1% per year between 2008 and 2012.

In Services efficiency
  effects cannot be separated from structural effects at the level of the
  EU as a whole but only for some MS.

Agriculture,
  fishing and other sectors (Figure 19) is mainly
  dominated by efficiency changes which may also contain nevertheless some
  structural changes.

Figure
14: Sectoral decomposition of changes in final energy consumption 2008-2012 and
2000-2012

Figure
15: Sectoral decomposition analysis (residential sector) of changes in final
energy consumption 2008-2012 and 2000-2012

Note: The sector is broken down to the
applications space heating, sanitary water heating, cooking and electric
appliances/lighting. Some comfort factors in the trend towards more smaller
electric appliances per dwelling could not be separated from efficiency effects
for data reasons.

Figure
16: Sectoral decomposition analysis (industry sector) of changes in final
energy consumption 2008-2012 and 2000-2012 (lower figure)

Note: the impacts of the industrial
structure are based on the NACE-2 decomposition as used in the energy balance.
Further structural changes at lower levels are small.

Figure 17: Sectoral decomposition
analysis (passenger transport sector) of changes in final energy consumption
2008-2012 (upper figures) and 2000-2012 (lower figure)

Note: Passenger transport is broken down
to the modes road, rail, and domestic air transport. International air traffic
is considered separately as it is not in competition with other modes for modal
shift. Further details can be provided from the database.

Figure
18: Sectoral decomposition analysis (goods transport sector) of changes in
final energy consumption 2008-2012 (upper figures) and 2000-2012 (lower figure)

Note: Goods transport is broken down to
the modes road, rail, inland water ways and pipelines. Further details can be
provided from the database.

Figure
19: Sectoral decomposition analysis (agriculture sector) of changes in final
energy consumption 2008-2012 (upper figures) and 2000-2012 (lower figure)

Note: Agriculture, fishing and other
sectors is broken down into an activity effect and energy efficiency effect
only as no further details are available.

3. 
Country-specific analysis

In this section key selected country
comparisons for the decomposition analysis. Are shown.  For comparison purpose
the changes in the different factors are provided on an annual basis and
normalized to the final or primary energy consumption of 2012 for the country
(change in percent of final/primary energy per year). The main observations are
as follows:

Final
energy (Figure
20 and Figure 21)

While the annual total
  changes in final energy was still increasing in a number of countries in
  the period 2000-2012, especially in eastern Member States, it was
  decreasing in nearly all Member States in the period 2008-2012.
  This was largely due to the
  impact of the financial and economic crisis as seen by the activity
  component, which was still largely contributing to the increase in final
  energy in the period 2000-2012, while it was reducing final consumption
  since 2008.
  The structural component 
  was also contributing to the reduction in final energy on average in both
  periods but the changes were mixed across the countries.
  Comfort/behaviour and
  social factors were contributing in both periods to the increase in
  energy consumption though less in the period since 2008
  The impact of annual
  climate variations (weather impact) was to increase final consumption due
  to the fact that the end year 2012 was colder than both 2000 and 2007
  (the base year for the 2008-2012 analysis) which in the period 2000-2012
  appeared as rather warm years.
  The energy efficiency
  factor contributed to reduce final energy consumption by around 1% per
  year in both periods but it slowed down in the shorter period 2008-2012
  due to impacts of the economic crisis which for example in industry or
  goods transport has a negative impact on energy consumption due to lower
  capacity uses.

Primary
energy (Figure
22 and Figure 23):

Primary energy reflects
  partly the changes in final energy consumption and the changes in the
  conversion sector. Hence, the total change in primary energy is differing
  across countries and is influenced by different factors. Overall, primary
  energy consumption decreased since 2008.
  Activities (demand for
  energy available for final demand) drove the primary energy demand up in
  the total period 2000-2012 but contributed to an increase since 2008.
  This is due to the combined impact of the different factors impacting on
  final energy and discussed in the previous section.
  Both distribution losses
  and own consumption in the energy sector overall contributed to reduce
  primary energy consumption but comparatively little in comparison with
  other factors.
  Structural change in the
  energy conversion sector was impacting negatively the consumption of
  primary energy with the penetration of the electricity sector which as a
  lower efficiency than the other parts of the conversion sector. The
  impact was, however, less pronounced in the period since 2008.
  Energy efficiency in the
  transformation sector contributed strongly to mitigate the impacts of the
  structural change. This was in particular due to the electricity sector
  itself (see the next section), which changing shares in renewable energy
  sources and CHP.

Changes
in primary energy due to electricity generation (Figure 24 and Figure 25)

The electricity sector was
  strongly contributing to the different changes in primary energy as
  discussed in the previous section. In the period 2000-2012 primary energy
  was increasing due the strong increase in gross final electricity demand
  in all countries (activity effect). This effect slowed down and even
  reversed in the period since 2008 that is less demand for gross
  electricity demand contributed to reduce primary energy demand for
  electricity generation
  A large impact came from
  structural change in the electricity generation, away from thermal power
  generation and nuclear towards more renewable (with 100% nominal
  efficiency) and CHP in some countries.
  The efficiency of (thermal)
  power plants contributed to an increase in primary energy consumption in the
  period since 2008, possibly due to lower capacities uses of thermal power
  plants (under the combined impacts of the penetration of renewable and
  the lowered demand for electricity since 2008).

Figure 20: Total change in final
energy consumption and different factors 2000-2012 (annual change in percent)

Figure 21: Total change in final energy consumption and
different factors 2008 (incl.)-2012 (annual change in percent)

Figure 22: Total change in primary energy consumption (excl.
non-energy uses) and different factors 2000-2012 (annual change in percent)

Figure 23: Total change in primary energy consumption (excl.
non-energy uses) and different factors 2008 (incl.)-2012 (annual change in
percent)

Figure 24: Total change in primary energy consumption for
electricity generation and different factors 2000-2012 (annual change in
percent)

Figure 25: Total change in primary energy consumption for
electricity generation and different factors 2000-2012 (annual change in
percent)

Annex IV.
Analysis of sectoral correlations between changes in GDP and final energy
consumption

1. 
Correlation analysis

An analysis of the linear correlation of
change in GDP (∆GDP) to the change in final energy consumption within all
sectors has been performed. In the figures the change in energy consumption is
plotted against ∆GDP for the period from 2000 to 2011 (to 2010 for
transport due to lack of 2011 data), each data point representing a member
state. A linear fit was performed and the R2 value of the fit was computed (a
broken line is added to indicate the hypothetical perfect linear dependency
with an inclination of one). While the residential and tertiary sectors are
uncorrelated to ∆GDP, the industry sector shows signs of correlation and
the transport sector is strongly linear correlated to ∆GDP.

Figure
26:
Correlation between energy consumption in the residential sector and ∆GDP

Figure
27:
Correlation between energy consumption in the tertiary sector and ∆GDP

Figure
28:
Correlation between energy consumption in the industrial sector and ∆GDP

Figure
29:
Correlation between energy consumption in the transport sector and ∆GDP

Annex V:
PRIMES Methodology and modelling assumptions

PRIMES
  model

PRIMES which is a
partial-equilibrium model of the energy system, was used for setting the EU
2020 targets (including energy efficiency), the Low Carbon Economy and Energy
2050 Roadmaps as well as the 2030 policy framework for climate and energy. The
PRIMES model is suitable for analysing the impacts of different sets of energy
efficiency policies on the energy system as a whole, notably on the fuel mix,
GHG emissions, investment needs and energy purchases as well as overall system
costs. It is also suitable for analysing the interaction of policies promoting
energy efficiency with policies driving the GHG abatement and promotion of RES.

Modelling with PRIMES was therefore used
to create the scenarios that illustrate different policy options presented in this
IA (in terms of different levels of energy efficiency ambition) and to compare
their impacts on

· 
Energy
system with strong focus on security of supply

· 
Competitiveness

· 
Sustainability

Coherence
  with the 2030 Communication and its underlying Impact Assessment

The focus in the modelling exercise that
underpins this IA is on energy efficiency, investigating different levels of
ambition of energy efficiency policies, as the impacts of GHG and RES policies
were already analysed in detail in the 2030 IA.

The PRIMES modelling results
underpinning the 2030 IA were used as a starting point to make the two
modelling exercises consistent. In particular, the proposals of the 2030
framework regarding binding targets for GHG emission reductions and RES share
in final energy consumption by 2030 were reflected in this modelling exercise. Both
exercises also focused on decarbonisation perspective in 2050..

Reference
  scenarios

This
analysis is based on the PRIMES Reference Scenario 2013 "EU Energy,
Transport and GHG Emissions – Trends to 2050"[18]
("Reference"), which was also used in the 2030 Impact Assessment
(PRIMES model and data version of 2012-2013). In general, the purpose of a
reference scenario in the IA context is to serve as a basis projection to which
policy scenarios can be compared and thus their net effect assessed. In
defining the Reference, a statistical update has been performed around end of
2012, when year 2010 statistics were fully available. Projection of exogenous
variables to PRIMES, such as world fossil fuel prices, GDP, population and
production by sector of activity, has taken place via dedicated modelling
exercises, in the last quarter of 2012, reflecting views and data available at
that time. Similarly, the assumptions about future evolution of costs and
performance of various energy demand and supply technologies have been
consolidated in the beginning of 2013. A reference scenario follows the logic
of including only policy measures which have been adopted until a certain
cut-off date, without including new policies not yet officially adopted. In the
Reference, which has been published in December 2013, the cut-off date was
spring 2012 (the EED was therefore included although with fairly conservative
assumptions).

In
order to have the most accurate review the effects of possible new energy
efficiency measures and their overall level of ambition and to measure
precisely how close is the EU to achieve the 20% energy efficiency target in
2020, it was necessary to update this Reference Scenario 2013 with regard to
recently adopted and proposed policies with regard to energy consumption. The
update of the Reference is called the Reference Plus Scenario
("Reference+") and in addition to all assumptions of the Reference, it
also features the policies that were adopted (and in addition some relevant
acts proposed by the Commission) between spring 2012 and January 2014, namely:

In
  transport sector: additional initiatives in the field of transport
  proposed by the Commission: new EU rules for safer and more environmental
  lorries; Clean Power for Transport package concerning the infrastructure
  for alternative fuels; Forth railways package; Single European Sky) and
  several measures at MS level (road charging for Hungary, Belgium and UK
  and a bonus system for silent wagons for rail freight in the Netherlands
  and Denmark).
 New eco-design and labelling
  legislation together with updated evaluation of potential savings from
  existing legislation.

The
  recently agreed revision of the F-gas regulation, adopted in March 2014.
  The additional F-gas emissions reduction in 2030 has been estimated for
  every MS based on GAINS marginal abatement cost curves and for simplicity
  kept constant afterwards. For 2025 it is assumed that half of the 2030
  effect occurs.
 In
  addition, most up-to-date information on transposition of EED is included,
  which leads to small revisions of assumptions on the implementation of the
  national obligation schemes and alternative measures that the Member
  States notified under art. 7 of the EED[19],
  as follows:
  Sweden
  does not exclude the energy consumption of the transport sector while
  calculating the energy savings for 2014 – 2020.
  Denmark
  does not use the 25% exception and even goes beyond the obligations of
  art. 7 EED.
  France
  has well developed plans for implementing fully the 75% of the 10.5%

Commission's
proposals which do not have a clear timeline for adoption and where the content
of the final agreements is rather uncertain have not been included in the
Reference+. Two important cases omitted from the Reference+ are the Energy
Taxation Directive proposal and the proposal for the structural reform of ETS
("Market Stability Reserve") which were not included for this reason.

Also
the Commissions regulation (EU) No 176/2014 to determine the volumes of
greenhouse gas emission allowances to be auctioned in 2013-2020 was not taken
into account. As the focus for this analysis until 2020 is on the progress
regarding energy savings the backloading of allowances within 2013-2020 is of
less importance and the analysis beyond 2020 is not affected by this structural
measure.

The resulting
changes from the Reference projection are very small on the EU level. In
comparison to the Reference, the Reference+ scenario mainly shows small
reduction of energy demand (more specifically, there is a slightly lower demand
in transport, notably in aviation, and slightly lower demand in non-ETS sectors
including for electricity). Regarding the ratio of energy savings as percentage
of 2010 consumption, the Reference+ achieves 5.1% by 2020 which is a little
above the 5.0% shown in the Reference 2013 projection. In terms of the rate of
savings in primary energy consumption relative to PRIMES 2007 projection, the
Reference+ projection achieves 17% in 2020 and 21% in 2030, which are virtually
unchanged to the 16.8% in 2020 and 21% in 2030 ratios projected in the
Reference.

In
terms of the RES share in the final consumption, the Reference+ achieves 20.96%
by 2020, which is virtually equal to the 20.88% achieved by Reference. The
impacts on the ETS sector are also small and the modelling found no
justification to modify the equilibrium ETS prices which are maintained as in
Reference.

The
inclusion of the F-gas regulation in the Reference+ leads to higher reduction
of non-CO2 emissions post 2020 relative to the Reference. In particular, in
2030 the non-CO2 emissions reduction in the Reference+ is 42% relative to 1990,
with the respective figure being 38% in the Reference. The difference in total
GHG emissions reduction is however small (33% reduction in comparison to 1990
instead of 32% in 2030), as non-CO2 emissions constitute a small percentage of
overall emissions.

To
sum up, Reference+ is a projection very similar to the Reference; the only
noticeable differences are a very small reduction of energy demand in 2020,
which is a consequence of updated assumptions regarding the implementation of
the energy efficiency legislation and also of a few additional policies
considered for the transport sector, and the reduction of non-CO2 emissions due
to the implementation of the revised F-gas regulation.

The
described updates above were the only changes made regarding the Reference. All
other PRIMES assumptions for instance regarding the GDP projections and the
population growth, imported fossil fuel prices and technology costs are the
same as in the Reference.

While
Reference+ has an important role in identifying the exact progress in reaching
the 2020 target, for reasons of comparability with the 2030 IA all the results
of the energy efficiency scenarios are compared against the Reference.

Assumptions
  used in Energy efficiency scenarios

The
aim of this PRIMES modelling exercise regarding the 2020 time horizon is to
assess the progress towards the 2020 target on energy efficiency. With regard
to the 2030 time horizon, the aim is to find the optimal level of energy
efficiency ambition and identify, broadly, measures to deliver it, which
combined with the targets proposed in the 2030 Communication, will improve
Europe's security of supply, competitiveness and sustainability. The mix
of energy efficiency policies is not altered among the scenarios (it always
follows the logic of current legislation) and only the overall level of
ambition intensifies.

Six
scenarios were thus quantified, assuming a stepwise increase in the intensity
of energy
efficiency efforts after 2020 in all final energy demand sectors, which are
targeted by the current policy measures. These scenarios achieve
energy savings in 2030 (relative to PRIMES 2007 projections for
2030)
of 27.4% (EE27 scenario), 28.3% (EE28), 29.3% (EE29) 30.7% (EE30), 35.0% (EE35)
and 39.8% (EE40).

As
described above, the overall level of ambition of different energy efficiency
policies is progressively increased. The policy mix on energy efficiency - includes
the following measures:

ñ Increasing
energy efficiency of houses and buildings by means of a
continued energy savings obligation.

ñ Elimination
of market failures and imperfections (e.g. ESCOs, labelling, information
campaigns, addressing landlord-tenant problems) reflected in the reduction of
discount rates.

ñ Increased
uptake of advanced technologies by stricter Ecodesign standards and improved
labelling.

ñ Increased
uptake of BAT in industry through energy efficiency policies in this sector
(e.g. voluntary agreements).

ñ Higher
penetration of district heating and CHP through promotion of investments in CHP
and in distributed steam and heat networks.

ñ Measures
limiting grid losses.

ñ Measures
reducing energy consumption in transport, notably stricter CO2 standards for
light duty vehicles (passenger cars and light commercial vehicles).

ñ Measures
leading to improvements in the fuel efficiency of heavy duty vehicles (HDVs),
ambitious vehicle taxation reforms to shift to CO2 based taxation,
internalisation of external costs, wide deployment of intelligent transport
systems, development of infrastructure for alternative power-trains and other
soft measures like fuel labelling and eco-driving in line with the measures put
forward in the 2011 White Paper on Transport. Importantly, intensity of these
measures is not intensified across the scenarios.

The
modelling assumptions used to drive energy savings are summarized below:

a) Energy
Efficiency Obligations for Houses and Buildings:

Increasing
energy efficiency obligations related to thermal integrity of dwellings is
simulated by varying the energy efficiency values[20], which apply by
country and also for the EU as a whole. Energy efficiency values increase by
scenario and in time and drive a faster pace of investments in renovations, as
well as increasing deepness of renovations from an energy perspective. New
buildings codes are common under all scenarios, however demolishment rate and
enforcement of building codes slightly vary by EE scenario. National policies
towards stronger renovation (mirrored by the efficiency values at national
scale) increase gradually across the EE scenarios, and are more harmonized
across the EU in the ambitious cases. The energy efficiency values act in the
model only in the sectors of residential and office buildings and exert effects
on energy efficiency investment and behaviour as shadow prices associated to a
virtual energy saving obligation. This process is equivalent of having an
estimation about the degree of achievement of the obligation under Article 7 of
the Energy Efficiency Directive by country and over time, assuming that EED is
implemented and enhanced beyond 2020; this estimation is then mirrored in the
model projections by varying the energy efficiency values. Because the largest
part of energy consumption in these sectors is taking place for heating/cooling
purposes, the energy efficiency values and the ensuing investment to improve
thermal integrity constitute is by far the main driver of increasing energy
saving performance measured according to Article 7.

The
degree of renovation per year (as % of stock) is historically of the order of
1% but the energy-related part of the renovation works is not necessarily high
in the absence of energy-oriented incentives. In other words it matters for
energy savings how deep the renovation goes in insulations and other
interventions which improve thermal integrity of houses and buildings. Apart
from renovation pace and its deepness, energy efficiency progress is also
influenced by the energy-related strictness of the building codes which concern
new constructions and by the rate of demolishment. The rates of demolishment
and of new construction are, however, small in the EU and are driven by
demographics and economic growth which evolve slowly in Europe. The building
codes are already today very strict in most EU countries regarding the thermal
integrity of new houses and buildings, thanks to national policies and
the revised EPBD. It is assumed in the projections, already in the
Reference Scenario, that the building code standards become very strict in all
countries to a horizon of 2020 and a few years later, and remain at very strict
levels until 2050. But because the rate of new constructions is small,
achieving significant energy savings in the short/medium term cannot be
obtained only through the new constructions. It is mainly renovation rhythm and
its deepness that matter for that purpose.

Please
see in Annex VII projections of renovation rates.

b) 
Reduced
discount rates due to policy implementation:

Individuals
perceive a series of risk factors, lack information and have limited access to
funding when considering energy saving investment in their premises. The risk
factors are technical, administrative and institutional. Lack of information is
important concerning the future performance and robustness of interventions
when e.g. renovating a house. Barriers also stem from the different interests
and competences between owners and tenants of houses. One of the most important
barriers is the limited access that individuals have to capital markets. Access
to funding and cash flows depends on individual’s income and is particularly
difficult for the majority of individuals which have income below a threshold.
Using individual savings for energy saving renovations is hardly possible in
most cases as individuals associate very high opportunity costs (shadow
interest rate) to savings and in general to the drawing of funding. According
to the empirical literature, all the above barriers but most of all the lack of
access to funding, explain why individuals use very high values of subjective
discount rates when assessing costs and benefits of energy saving investments.

Subjective
discount rates are used in PRIMES to model the higher costs of consumers due to
the above described market failures in the decision making. Without any
policies to remove these market failures the sectoral discount rates in the
second column of  the figure below were used for the decision making in PRIMES.
Because of the implementation of the EED by June 2014, it is assumed in the
Reference that
a widespread penetration of ESCOs or similar institutions and mainly the
legislative provisions that savings obligations apply on utilities which have
to make sure efficiency investment at their consumer premises will change the
environment for decision making in the tertiary sector and for households on
energy saving investments. To reflect the removal of market barriers in the
Reference due to the EED, the sectoral discount rates were lowered in the two sectors
from 2015 on and
mainly from 2020 onwards (see column three and four of the
figure  below). For instance, the involvement of utilities and ESCOs implies
removal of risk factors regarding technical, administrative and institutional
issues, and also implies lower interest rates as these large organizations
collectively bargain with banks the funding of energy investment projects and
also collectively manage the individual project risks. As a result, the
subjective discount rates which prevail in capital-budgeting decisions when
such decisions are taken solely by individuals are reduced, moving closer to
business interest rates.

Figure 30: Discount
rates used in PRIMES assumed in the Reference Scenario 2013

Source:
Primes

Already
in the 2030IA, it is assumed for some scenarios (notably GHG40/EE and
GHG40/EE/RES30) that the energy efficiency policies continue and intensify
after 2020.

Consequently,
discount rates for these scenarios with more ambitious EE post 2020 have been
further lowered compared to the Reference. This reflects that economic actors
become more familiar with EE and market failures are being tackled successfully
through the implementation of energy efficiency policies. Wide deployment of
energy performance contracting (EPC) and stronger penetration of ESCOs is
mirrored by a further reduction of discount rates for households and  services
as presented in the Table below. In addition,
strengthening of European or national policies with regard to energy efficiency
financing and awareness rising of energy efficiency will lower the discount
rates for customers.

The
discount rates is this IA were not lowered below levels that were included in
the 2030 IA, even for the most ambitious energy efficiency scenarios. It has to
be also borne in mind that the more ambitious scenarios are in terms of energy
efficiency, the higher the level of investments, resulting in more restricted
lending conditions (due to higher exposure of banks to this specific sector and
higher competition for capital as the EE investments increase).

Table 26: Discount rates in the energy
efficiency policies scenarios

Discount Rates of the Residential Sector (%) || 2005 || 2010 || 2015 || 2020 || 2025 || 2030 || 2035 || 2040 || 2045 || 2050 || 2030 IA*

Reference || 17.5 || 17.5 || 14.75 || 12 || 12 || 12 || 12 || 12 || 12 || 12 ||

EE 27 || 17.5 || 17.5 || 14.75 || 12 || 11.7 || 10.5 || 10.2 || 10.2 || 10.2 || 10.2 || GHG35/EE®

EE 28 || 17.5 || 17.5 || 14.75 || 12 || 11.7 || 10.5 || 10.2 || 10.2 || 10.2 || 10.2 || GHG35/EE®

EE 29 || 17.5 || 17.5 || 14.75 || 12 || 11.7 || 10.5 || 10.2 || 10.2 || 10.2 || 10.2 || GHG35/EE®

EE 30 || 17.5 || 17.5 || 14.75 || 12 || 11 || 10 || 9.5 || 9 || 9 || 9 || GHG40/EE

GHG45/EE/RES35

EE 35 || 17.5 || 17.5 || 14.75 || 12 || 10 || 10 || 9 || 9 || 9 || 9 ||

EE 40

Discount Rates of the Tertiary sector (%) || 2005 || 2010 || 2015 || 2020 || 2025 || 2030 || 2035 || 2040 || 2045 || 2050 || 2030 IA*

Reference || 12 || 12 || 11 || 10 || 10 || 10 || 10 || 10 || 10 || 10 ||

EE 27 || 12 || 12 || 11 || 10 || 9.7 || 9.2 || 9 || 9 || 9 || 9 || GHG35/EE®

EE 28 || 12 || 12 || 11 || 10 || 9.7 || 9.2 || 9 || 9 || 9 || 9 || GHG35/EE®

EE 29 || 12 || 12 || 11 || 10 || 9.7 || 9.2 || 9 || 9 || 9 || 9 || GHG35/EE®

EE 30 || 12 || 12 || 11 || 10 || 9.5 || 9 || 8.5 || 8.5 || 8.5 || 8.5 || GHG40/EE

GHG45/EE/RES35

EE 35 || 12 || 12 || 11 || 10 || 9 || 9 || 8.5 || 8.5 || 8.5 || 8.5 ||

EE 40

(*) discount rates used are exactly the
same as in 2030 IA scenarios listed in this column

Source: PRIMES

The
discount rates assumed for the transport sector are differentiated between
decision making for private car choice, business transport choice and
decision making for the choice of transport means in public transport. For the
latter the model uses low discount rates reflecting either business practices (12%
e.g. private trucks and aviation) or policies in sectors regulated by the state
(8% e.g. rail, busses). For private cars the model assumes high discount rates
(17.5%) which reflect perception of risks by individuals and eventual limited
access to cash flow. The high discount rates in car choices have consequences
for market penetration of electric vehicles which have significantly higher
upfront costs but much lower operating costs than conventional cars.

The
discount rates for the transport sector are kept unchanged from 2030 IA in the
energy efficiency scenarios.

For
the industrial and energy supply sectors the discount rates assumed in the
reference scenario are in line with business practices and range between 7 and
9% (the lower end applies to infrastructure subject to state regulation). A
WACC at that level is reasonable and can be seen as a weighted sum of an
interest rate applied on equity and a bank lending rate, the latter being lower
than the former.

The
industrial WACC values are also kept unchanged from 2030 IA in the energy
efficiency scenarios for industry and energy supply sectors.

c) Anticipation
of enforcement of eco-design regulations

The
eco-design policy aims at reducing energy consumption of energy-using equipment
and appliances by promoting product varieties which embed higher energy
efficiency. Depending on implementing measures and voluntary agreements, the
eco-design regulations certify specific energy consumption by product variety
and eventually provides for mandatory requirements for certain products. The
requirements impose a minimum bound on energy performance of products. The bounds
are set for the next two to five years. This implies that the menu of
technologies for consumer choices in the future is restricted to product
varieties which have performances exceeding the minimum threshold value.
Obviously the menu of choice will allow selecting technologies which perform
above minimum threshold value; the choice will depend on relative costs,
perception of technical risks and the policy context. The eco-design
regulations, combined with the labelling directive, are playing an important
role to remove uncertainties regarding technical risks and those stemming from
lack of information.

The
model represents a generic set of technologies (ordinary, improved, advanced,
future, etc.) by product type. The technologies have increasingly higher energy
efficiency performance at higher upfront cost. Choice of technology by product
type is simulated within the economic optimization problem which drives actors’
decision making. Technology costs are perceived to be higher than under
conditions of market maturity, so as to reflect learning, scale return and
subjective risk factors. All these elements improve under active efficiency
policies implying that advanced technologies are adopted earlier than under
reference conditions and that learning is accelerated. The technical
characteristics of projected technologies are modified in a scenario if they
are inferior to eco-design regulations as assumed in this scenario.

The
reference scenario is assumed to include the currently adopted eco-design
regulations to a horizon of 2020. This implies that technologies until 2020
comply with the regulations and that beyond 2020 all projected technologies
perform equally or better than the regulations. The menu of choice obviously
includes technologies that perform above the regulations’ thresholds. As
mentioned their uptake by consumers depend on economic conditions.

For
the energy efficiency scenarios, it is assumed that beyond 2020 the eco-design
regulations increase the performance requirements and also that the policy
context, including the beneficial effects from labelling, is such that the
consumers increasingly trust in advanced technology and perceive lower costs by
neglecting risk factors. This mechanism is numerically escalated in a range
from Reference to the most ambitious energy efficiency scenario. The resulting
early uptake of advanced technology is modelled to induce acceleration of
learning making them cheaper and more efficient as they are getting towards
commercial maturity. So, the dynamic uptake of advanced technologies by
consumers has subsequently effects on the progress of these technologies. As
higher volumes of advanced technologies are chosen by consumers, production of
such technologies moves further on the learning curve; thus efficiency improvements
occur faster. At the same time, with increasing efficiency performance the cost
of investment in these technologies is increasing. Modelling parameters that
represent these two aspects of technology performance (increased efficiency and
increased investment cost) of the available technologies are modified
accordingly.

Overall,
the effect of the eco-design regulation and other measures can be summarized in
increased uptake of efficient technologies due to removal of barriers in
respect to consumer information (reduction of perception cost) and in increased
rate of improvements of the technical characteristics of technologies due to
learning effects. Therefore, the average efficiency of equipment used by the
residential and household sectors is improving both because more efficient
technologies penetrate the market and because the technologies themselves are
becoming more efficient faster. These benefits are partly offset by rebound
effects which are inherent in the modelling and are of course limited by
technical potential of performance improvement by type of product. So in very
ambitious energy efficiency scenarios, the projections show some degree of
saturation in the rate of improvement of performance of energy using equipment
and appliances.

It
should be noted that the eco-design policy was already included in the
reference scenario EE-policies package, with considerable effects on the uptake
of more efficient technologies and the technology progress. In the EE scenarios
the intensity of eco-design policy is assumed to increase after 2020 which adds
effects on the modelling of a context with intense energy efficiency measures,
which induce further uptake of advanced technologies. Therefore, as mentioned,
across the EE scenarios the perception of the cost is reduced and
techno-economic characteristics are improved.

To
the 2030 horizon, the effects of eco-design are simulated to intensify relative
to the reference scenario and across the EE scenarios. Moving from 2030 to
2050, the effects are simulated to intensify further relative to the 2020-2030
period and approach technical potential in the very ambitious cases. The
learning effects are modelled to be relatively lower until 2030 than after
2030.

Please
see in Annex VII projections on rates of improvement of energy using
equipment in residential sector.

d) Anticipation
of enforcement of best available techniques (BAT) in Industry

Energy
efficiency progress in the industrial sector in the energy efficiency scenarios
occurs through the deployment of BAT (best available techniques), both
vertically and horizontally; vertically refers to technologies associated with
the equipment used for specific industrial process; horizontally, refers to
systems that affect all industrial processes, such as energy control systems
and heat recovery systems.

Regarding
the technologies at the level of equipment, the menu of candidate for
investment BATs is the same in all energy efficiency scenarios. What varies
among scenarios is their uptake, depending on the intensity of energy
efficiency policies assumed. Similar to what has been described in the previous
section for the technologies in the residential and tertiary sectors,
anticipation of increased energy efficiency savings results in moderation of
the perception of risk associated with advanced technologies, and in
acceleration of their maturity and uptake. This effect is represented in the
energy efficiency scenarios through modifying the parameters that reflect the
perception of cost. The risk associated to anticipation does not refer to
technical risk or lack of information but rather refers to regulatory risk: in
the context of strong efficiency policy, as also in the context of strong
emission reduction policies, industry anticipates that enforcement is likely to
become more stringent in the future and so in order to avoid locking-in
inferior technologies increases the uptake of advance, hence more efficient
technologies.

Regarding
the horizontal BAT, their deployment leads to energy savings at all process
levels. These horizontal technologies are not the same as the technologies for
the equipment associated to the various processes. Such horizontal
possibilities mainly include energy control systems and heat recovery systems.
They also follow BAT specifications. The model database includes engineering
estimations of potential amounts of energy savings due to deployment of
horizontal BAT, such as control systems and heat recovery. The degree of
exploitation of this potential depends on relative costs and prices and also on
exogenous model parameters which reflect the degree of anticipation of future
emission cutting commitments, the degree of enforcement of BAT promoting
policies and generally the intensity of the policy context enabling such
savings. The values of the parameters controlling the pace of uptake of BAT
technologies in industry for horizontal energy saving purposes is escalating
across the EE scenarios, so as to mirror the assumptions about increasing
energy efficiency ambition across the scenarios. The model considers a maximum
potential for energy savings from horizontal BAT adoption, which is different
by sector and by country. The energy efficiency scenarios are designed to
exploit partly the maximum potential at a degree reflecting the intensity of energy
efficiency ambition by scenario. Therefore the uptake of horizontal BAT
increases by scenario but is limited by potential. Moreover, each scenario is
assumed to follow a different path towards achieving this potential.

Overall,
the uptake of BAT (vertical and horizontal) in industry contributes to
decreasing energy intensity of the sector. This leads to higher reduction of
energy consumption per unit of industrial output in the more ambitious
scenarios than in the policy scenario with a lower level of energy efficiency.

Please
see in Annex VII projections on industry savings potential.

e) DH
and CHP:

Energy
efficiency policies induce efficiency improvements on the supply side through
the promotion of investments in CHP and in distributed steam and heat networks.
These investments are combined with incentives on the consumer side to shift
towards heating through district heating, both in the residential and the
tertiary sectors. This results in a larger number of dwellings in the
residential sector having access to distributed heat networks, which in turn
allows for further participation of CHP in heat/steam supply.

To
simulate this effect, a parameter is utilized that controls the substitution of
heating through individual (non-central) heating equipment with district
heating. The choice of shifting to district heating is endogenous and depends
on its economic viability; what the model is controlling is the availability of
district heating in the menu of candidate technologies for space heating, which
in the EE-scenarios is increasing. As a result, the number of households that
are connected to district heating is increasing in the EE scenarios. In
parallel the share of CHP in heat/steam supply is increasing. Both are
necessary to increase overall efficiency in primary energy trends, because
district heating alone, without CHP, can have lower efficiency performance,
overall, than other configurations based on individually operating equipment
for heating.

This
is not to imply that the only factor resulting in increasing CHP in steam
generation is the penetration of district heating. In a context with intense
energy efficiency policies CHP penetrates both steam and electricity generation
as a result of a combination of factors, including the CHP promotion policies
and the increased requirements for energy efficiency in general. In the
modelling exercise for the EE policies scenarios, CHP penetration was not
facilitated through the modification of relevant parameters, as is the case for
district heating penetration. The level of facilitation is similar to the
reference scenarios, which already assumes considerable penetration of CHP.
Further penetration in the EE policies scenarios is thus the result of the
increasing use of district heating and of increased requirements of the supply
side for energy savings. But CHP penetration depends also on economics which
are influenced by scale parameters: the larger the volume of heat/steam and
electricity demand, the more economic CHP projects can be. Increasing energy efficiency
reduces volumes of steam/heat and electricity demand which goes against the
economics of CHP projects for reasons of lower return to scale. Variability of
load also acts to the detriment of CHP. In the context of high emission
reduction targets, clean power solutions such as nuclear and RES are
economically and technically superior options than CHP which is obliged to use
fossil fuels, at least to a certain degree, given the biomass resources are
limited and clean hydrogen is not yet a mature option. So in the long term the
projections show limited increase in CHP and further limitations are shown in
the context of the highly ambitious scenario.

Please
see in Annex VII projections on % of households connected to district heating
networks and in Chapter 5 the CHP indicator.

f) More
efficiency grids

Modification
of specific parameters has been used as an approach to represent the
improvement of the rate of grid losses due to smother load factor in
electricity demand enabled by smart metering and generally demand response
measures. Energy efficiency implies lower demand for electricity and generally
lower electrical charge in power grids thus lower losses. The rate of reduction
of grid losses across scenarios is assumed to be small as the potential for reducing
grid losses through smoothing the load curve is limited.

Please
see in Chapter 5 projections on electricity grid losses.

g) Transport
policies

Additional
measures for transport could contribute to energy savings in a 2030
perspective. These measures included in the policy scenarios draw on the 2011
White Paper on Transport and imply that the scope of the EED (Art 7) remains
unchanged in relation to transport. These measures are expected to mainly
contribute beyond 2020.

The
CO2 standards for cars and vans are key assumption leading to reduction of
energy consumption. The standards are tightened progressively within the energy
efficiency scenarios according to the table below.

Table 27:
Assumptions on CO2 standards (g/km) for cars and light commercial vehicles (vans)
across scenarios

cars || || || || || || ||

|| 2020 || 2025 || 2030 || 2035 || 2040 || 2045 || 2050

EE27 || 95 || 85 || 76 || 64 || 37 || 32 || 26

EE28 || 95 || 85 || 75 || 63 || 37 || 32 || 26

EE29 || 95 || 85 || 74 || 62 || 36 || 31 || 26

EE30 || 95 || 85 || 72 || 60 || 35 || 30 || 25

EE35 || 95 || 85 || 70 || 50 || 25 || 18 || 17

EE40 || 95 || 85 || 70 || 50 || 25 || 18 || 17

vans || || || || || || ||

|| 2020 || 2025 || 2030 || 2035 || 2040 || 2045 || 2050

all scenarios || 147 || 130 || 110 || 90 || 70 || 65 || 60

Source:
PRIMES

In
addition, all energy efficiency scenarios assume in line with the IA
accompanying the 2011 White Paper on Transport:

- 
Measures
leading to improvements in specific fuel consumption of heavy duty vehicles of
about 1.1% per year between years 2010 and 2030, as well as for the period 2030
to 2050.

- 
Full
internalisation of the costs of infrastructure wear and tear, congestion, air
pollution and noise in the pricing of transport for all modes by 2050. The
charges are set at 100% of the values of the external costs from “Handbook on
estimation of external costs in the transport sector”[21]).

- 
In
each Member State that did not introduce a CO2-related element, at least 25% of
the total tax revenue from registration and annual circulation taxes,
respectively, would originate in the CO2 based element of each of these taxes
starting with 2020. From 2025 at least 50% of the total tax revenue from both
the annual circulation tax and the registration tax would originate in the CO2
based element of each of these taxes.

- 
The
elimination of the favourable tax treatment of company cars (and of the
corresponding fuel use) by changes in car ownership, vehicle size in the fleet
and fuel consumption, based on the findings of a study commissioned by DG TAXUD[22].

- 
The
wide deployment of intelligent transport systems in road and waterborne
transport is gradually implemented starting from 2020.

- 
Measures
concerning railways and aviation

- 
Development
of infrastructure for alternative powertrains

These measures
are not progressively intensified across the scenarios.

Modelling
  of non-ETS emission reductions

In
this modelling exercise, the so called carbon values for the non-ETS sector
which were used in the 2030 Impact Assessment were not applied. In the energy
efficiency scenarios, the non-ETS sector is modelled with the above mentioned
concrete energy efficiency policies. Therefore, the use of such a carbon value,
which is the shadow price of the overall emissions reduction constraint was not
necessary.

Carbon
values in the non-ETS sector do not directly affect emitters budget but they
alter the relative costs of energy forms, because the use of fossil fuels would
be perceived as including the carbon value. Due to carbon
values, the consumption
is reduced because emissions due to the use of fuels/technologies have a higher
perceived price (substitution effect) but these are no carbon emission payments
which would reduce emitters’ budget (no income effect). This means that carbon
values in the non-ETS sector would lead to fuel switching. In addition, carbon
values also induce additional non-CO2 emission reductions in non-energy
sectors.
The carbon value mirrors a large variety of unknown policies needed to achieve
the overall carbon constraint of all sectors. The
overall emission reduction target should be allocated across sectors to
minimise total abatement costs. Carbon values are used to achieve a
cost-efficient split of abatement policies between the ETS and the non-ETS when
implementing
an overall emissions constraint. As in practice no market-based emission
trading system is implemented for the non-ETS system, the optimal distribution
of efforts regarding GHG emission reduction between the ETS and the non-ETS
sector was modelled with the help of carbon values in the 2030 Impact
Assessment.

In
the modelling work for the 2030 Communication the overall GHG emission
reduction constraint/target was specified for 2030. The volume of the ETS cap
was determined in this modelling exercise. For sectors belonging to ETS, the
emission abatement instruments were modelled in a way that they reflect the
design of the ETS Directive. For the non-ETS sectors a carbon value which is
equal to the ETS carbon price of the ETS sector was assumed since for the time
being no specific policies or measures are in place for the non-ETS sector. The
carbon value is used as a shadow value of an emission reduction target in the
non-ETS sectors, which is not a priori known. For the non-ETS sector the
results shows which fuel/technology switch is necessary and at which costs to
meet the target.

The
optimal level of overall GHG reduction in 2030 was calculated in the 2030 IA.
For the ETS sector where a concrete policy – the ETS system – is in place, it
was established in the 2030 Communication that the linear reduction factor
should be reduced after 2020 from 1.74 % to 2.2%. As in the non-ETS sector no
concrete policies to reduce emissions are in place carbon values were used to
model the contribution in emission reductions of this sector. Beyond 2030,
tighter CO2 standards for light duty vehicles were also assumed. In contrast,
in this IA, the focus is on choosing the right policy instruments for the
non-ETS sectors.

Enabling
  settings

In
the context of the modelling exercise for the 2030 Communication, some of the
scenario assumptions have been organized in two groups, one called reference
settings and the other enabling settings. The former group assumes that actors
in the energy sectors do not anticipate strong GHG emission reduction
commitments in the time period after 2020 and decarbonisation in 2050
perspective and so they do not necessarily take all actions that are necessary
to achieve optimal levels of infrastructure, technology learning and market
coordination. In contrast, the enabling settings mean that because of good
anticipation of future GHG emission reduction commitments, all conditions are
met in infrastructure, technology learning, public acceptance and market
coordination so as to enable the decarbonisation or in other words to maximize
the effectiveness of policy instrument which aim at driving strong GHG emission
cuts. Consequently, GHG emission cuts are more difficult, hence more costly,
under reference settings compared to enabling settings.

In
order to ensure that enabling settings do happen in reality, it necessary to
put concrete policies in place, but by definition the actual policy instruments
which are conceived for driving GHG emission cuts effectively are not included
in the settings, which include only the background and basic actions (e.g.
support for research, development and innovation, infrastructure development,
etc.) which are meant to facilitate the actual drivers of GHG emission cuts. This
means that it is assumed that enabling policies ensure the availability of
necessary infrastructure, progress in R&D, broad social acceptance of
technologies to reach the decarbonisation in 2050.

Box 1: Enabling conditions

Main enabling conditions include:

· 
Development at large scale of intelligent grids
and metering as well as management systems for recharging of car batteries to
facilitate demand response in power markets.

· 
Development of infrastructure to harvest
decentralised as well as remote RES for power generation; this is produced by a
streamlining of permitting procedures, higher investment, timely availability
of technology and appropriate price signal by smart and net metering.

· 
Development of carbon transportation and storage
infrastructure as well as public acceptance of the technology that leads to the
faster development of CCS.

· 
Technological progress enabling mix of hydrogen
and bio-gas in gas supply and possibility to use hydrogen-based storage.

· 
Development of electric vehicles battery
technology combined with development of battery recharging infrastructure and
public acceptance of electric vehicles leading to transport electrification.

· 
Accelerated innovation in biofuels in particular
enabling strong emission reduction in transport activities for which
electrification is not possible.

The
underlying modelling of the 2030 Communication is based on an ambitious
commitment to reduce greenhouse gas emissions in line with the 2050 roadmaps. In
addition, the proposed EU-wide target of at least 27% RES share in final energy
consumption was based on scenarios which assumed enabling settings.

For
these reasons, in the modelling exercise presented in this IA enabling
conditions were used in the PRIMES modelling as well - except for EE policies.
With regard to EE the enabling settings were replaced by concrete policies
which were intensified in the policy scenarios.

Modelling
  of ETS

For comparability purposes to the 2030
IA, the overall cumulative GHG emissions up to 2050 are equalized to the
projections of the GHG40 scenario from 2030 IA, i.e. a scenario achieving 40%
emission reductions in 2030 and 80% emission reductions in 2050 (mainly driven
by uniform carbon prices and carbon values). Similarly as in the 2030 IA, the
EU ETS is modelled in the energy efficiency scenarios via carbon prices. These
are varied in the scenarios until the cumulative ETS emissions approximate the
cumulative ETS emissions of GHG40.

Modelling
  of RES

In the 2030 Communication, a binding
European target of at least 27% RES was proposed for 2030. In the PRIMES
modelling conducted for this IA, this target was also set as a constraint and
the RES values have been used in order to achieve this target. RES values are
consequently increasing in comparison to the Reference scenario.

Modelling
  of non-CO2 emissions reductions

The
modelling approach of not using carbon values implies that there is no
incentive for additional non-CO2 emission reductions beyond those achieved in
the Reference scenario. Moreover, the policies to
reduce non-CO2 GHG emissions do not belong to the domain of the energy
efficiency (mainly agriculture and waste treatment are concerned). On
the other hand, for the consistency reasons with 2030 IA (notably reaching the
40% GHG target), some assumptions had to be made for these emissions.

Consequently, all scenarios feature assumptions on policies which reduce non-CO2
GHG emissions. The volume of reduction of these emissions as achieved by the
GHG40 scenario from the 2030 IA has been used as a starting point. In the GHG40
a certain amount of non-CO2 GHG emissions reduction was necessary in order to
reach 40% GHG reduction in 2030. Because of the higher level of energy savings
in the EE policy scenario modelled in this IA the contribution of non-CO2 GHG
emissions to achieve the 40% GHG target decreases (but is uniform across the
policy scenarios in order to ensure comparability).

Modelling
  of EED implementation

Art. 7 of the EED requires Member States
to establish policy measures – either energy efficiency obligation schemes – or
alternative policy measures ((e.g. financing, fiscal, voluntary, and
information measures) to reach certain amount of new, cumulative energy savings
over 2014-2020 period.

In line with the provisions of the
Directive, it is assumed that transport sector is excluded as the Directive
stipulates that the transport sector can be partially or fully excluded (for
Denmark and Sweden the transport sector has not been excluded). The possibility
for exclusion of industrial activities covered by the ETS
industries also exists, subject to a deliberate of choice of the MS concerned. In
the Reference scenario, ETS industries have therefore not been included in the
modelling of the energy savings obligation. However, this
choice is
part of the flexibility options within the on maximum 25%
limit of the amount of energy savings referred to in paragraph 1 of Article 7.

Given the overlaps of article 7 with
other requirements of the EED the expected saving obligations by country was
specified as part of the policy assumptions. In implementing the Directive,
Member States will decide on which provisions and alternatives to use,
reflecting their specific circumstances.

The table below illustrate the projected
energy savings achieved by residential, tertiary and industries due to the EED
implementation (mainly article 7 EED). The numbers expresses the difference as
percentage of energy consumption in 2010.

Table 28: Reduction of
final energy demand in industries, residential and tertiary due to the Energy
Efficiency Directive (EED) – in comparison to 2010.

Indicator || Ref || Decarbonisation Scenarios ||

EE27 || EE28 || EE29 || EE30 || EE35 || EE40 ||

-6.5% || -7.8% || -7.8% || -7.8% || -8.3% || -8.5% || -8.6% ||

Reduction of final energy demand due to the EED in 2020  (Savings as % of 2010 consumption of scenario w/o EED) ||

Reduction of final energy demand due to the EED in 2030  (Savings as % of 2010 consumption of scenario w/o EED) || -7.7% || -16.8% || -19.8% || -22.3% || -25.1% || -33.9% || -43.6% ||

Source: Primes 2014

Annex VI.
E3ME and GEM-E3 Methodology

The
results on macro-economic impacts are based on the PRIMES results for the
scenarios achieving respectively 25, 28, 30, 35 and 40% energy efficiency
targets. The
scenario with 25% energy savings has ambition similar to GHG40 scenario but is
built on the PRIMES scenario that has concrete EE policies rather than carbon
values - for better comparability with other scenarios. The macro-economic
modelling building on EE27 and EE29 scenarios would likely have very similar
outcome to results presented for EE28 and EE30, with little additional insight
brought to the analysis – for practical reasons, smaller number of scenarios is
therefore presented..

The
five scenarios analysed in this IA have escalating levels of energy savings
efforts after 2020, which are made possible by the significant investments in
all final energy demand sectors. These investments are the key driver of the
macro-economic impacts. In this IA, similarly to 2030 IA, two models have been
applied to assess the macro-economic impacts representing different schools of
economic thought and reflecting current uncertainty about the best way of
assessing these impacts. Application of two different models enables not only
to establish a range of possible impacts but also to identify the conditions
necessary for maximising the positive impacts.

Theoretical
background and assumptions

In
this IA, the models E3ME and GEM-E3 have been applied to assess the impacts on
GDP and employment of policy scenarios with escalating levels of energy savings
efforts. Both models enable to assess complex interactions between different
sectors of economy and to compare the results to respective baselines (please
note that because of different assumption applied by the models also the
baselines produced by each model are different).

The
path and magnitude of investment in energy efficiency in each scenario together
with other important drivers such as energy prices or overall energy balances
are taken from projections made in PRIMES: the E3ME and GEM-E3 models are then
calibrated to represent these changes in the energy system so that their
economy-wide impacts can be modelled. The two macroeconomic models have many
similarities. However, there are also important differences that arise from
their underlying assumptions and respective structures. E3ME is a
macro-econometric model, based on a post-Keynesian framework; GEM-E3 is a
general equilibrium model that draws strongly on neoclassical economic theory
and optimising behaviour of economic agents.

Due
to these theoretical differences, the two models will in some cases lead to
differing results. Any differences in results may be traced to the different
model structures:

A
  key difference between the two approaches is the modelling of supply and
  demand. In general equilibrium models (like GEM-E3), there is an
  assumption that markets will always clear because agents behave optimally.
  This is achieved through the full adjustment of prices which allow supply
  to equal demand and thus a ‘general’ equilibrium is reached and maintained
  throughout the system.

In contrast, post-Keynesian
econometric models do not adhere to the ‘general’ equilibrium rule; instead
demand and supply only partly adjust due to persistent market imperfections and
resulting imbalances may remain a long-run feature of the economy. The degree
of adjustment is derived from econometric evidence of historical non-optimal
behaviour. Therefore the level of output, which is a function of the level of
demand, may continue to be less than potential supply or a scenario in which demand
increases can also see an increase in output.

Another
  important difference is that in GEM-E3, capital markets are assumed to
  operate in an optimal manner. Since output and savings cannot be boosted
  by higher demand, the requirement that investment must be funded from
  savings implies that crowding out of certain investment must take place
  due to the capital resource constraint which is imposed at a global level.
  Therefore additional investment requirement in energy efficiency projects
  implies lower capital availability for the remaining sectors, unless there
  is also an increase in savings (either domestically, through a reduction
  in consumption, or through international financial flows (see below)). 
 In
  E3ME, investment in one particular sector does not automatically lead to a
  crowding out effect on investment in other sectors. This relates to the
  model’s underlying approach, which does not assume optimisation in
  markets. If there is spare capacity in the baseline case, then it is
  possible for there to be an increase in investment in the scenarios
  without necessarily having a reduction in investment elsewhere: the
  national income identity that savings equals investment is met either by
  the higher savings associated with a higher level of output or by capital
  inflows from abroad (see below).[23]
  If the investment is financed externally, then, again, the treatment
  between the two modelling approaches differs. In GEM-E3, investment is
  usually made subject to a binding capital constraint, meaning that
  investment cannot be financed through larger current account deficits.
  Therefore, in order to maintain the current account size relative to GDP,
  the terms of trade need to deteriorate to bring about a shift in
  production towards exports.

In contrast E3ME
does not hold a capital constraint rule at country level and therefore
additional funding from abroad is possible. This increases the current account
deficit but there is no assumption that the terms of trade will deteriorate to
close the deficit.

Due
  to market clearing assumptions in general equilibrium models like GEM-E3
  wages, like prices, adjust automatically so that the supply and demand of
  labour reach a state of equilibrium. The implication of this is that there
  is no involuntary unemployment in classical general equilibrium models.
  However, GEM-E3 does allow for labour market frictions, meaning that limited
  unemployment is a possible outcome. In E3ME, as in other non-equilibrium
  models, the response of wages to lower labour demand and the subsequent
  reaction of labour demand are estimated on the basis of historical
  experience: typically these responses are insufficient to prevent
  unemployment from rising when labour demand falls.

In
both models, therefore, the impact on employment depends on the stock of
available labour; if there are no spare labour resources available then boosts
to labour demand will push up wages rather than employment levels. Wages
consequently are based upon a bargaining equation which is dependent on the
slack in the labour market.

In
both the GEM-E3 and E3ME modelling an assumption has been made about the use
of ETS revenue, which is to remain with the government in order to finance
the energy efficiency investments.

In
  general, GEM-E3 allows for the recycling of
  additional public revenues (in this case from ETS) via reduction in
  employers’ social security contributions, lump-sum payments to households,
  subsidies to RES, etc. This option is applied in cases where the simulated
  policies generate additional public revenues from reference. This is
  particularly the case in decarbonisation scenarios where carbon prices increase
  so as to drive lower GHGs emissions. In all the energy efficiency
  scenarios presented in this IA, the ETS revenues are modelled to remain
  with the government and be allocated to lower the employers' social
  security contributions.[24].
 In
  E3ME, the
  revenues from the ETS allowances that are auctioned to the Power
  generation sector are recycled into a fund that is used to finance energy
  efficiency investment in other sectors. In the baseline, the value of ETS
  allowances purchased by the power generation sector is used to reduce
  direct income taxes. In the policy scenarios, auctioned ETS allowances
  (from power generation and industry sectors) are used to fund the
  investment in energy efficiency, with the balance (either surplus or
  deficit) made up by adjusting income tax rates. The scenarios are
  therefore ‘revenue neutral’ with no direct changes on Member State
  government balances.

GEM-E3
model

Table
below provides a theoretical summary of the changes induced in GEM-E3 and the
expected effects and outcomes. The system is subjected to an initial change
associated with energy efficiency targets and the undertaking of related
expenditures. Expenditures are financed by both households and the production
sectors of the economy.

Table
29: Changes and effects from energy efficiency expenditures

Change simulated || Trigger effects || Outcome || Total effect on the economy

Increase in expenditures in energy efficiency || Increase in demand for sectors providing inputs to energy efficiency improvements projects || Positive effect on activity and employment in sectors providing inputs to energy efficiency projects || Depending on the net effect of  contradicting outcomes combining economy expansion (Keynesian multiplier) effects and negative effects stemming from crowding out and pressures on primary factor markets

Increase in energy savings || Reduced energy demand and energy related imports || Negative effect on activity and employment in energy sectors. Reduction of energy imports dependence. Positive effects on all sectors which see lower variable costs in purchasing energy commodities.

Financing scheme || Increase in energy efficiency related expenditures || Crowding out effects due to equity-based funding. Crowding out effects due to funding from borrowed capital, possible increase in interest rates and higher cost of capital, slowdown of productive investment in other sectors of activity consumption reduction, deterioration in terms of trade, etc.

Source:
E3M
Lab notes

The
energy efficiency policies lead to higher expenditures by firms, the public
sector and the households to implement investment in building insulation and
renovation or in industrial processing helping to lower energy consumption per
unit of output. In addition they promote the purchase of more expensive
equipment, appliances or vehicles which are more energy efficient than the
existing cheaper varieties. The main macroeconomic effects of these policies on
the EU economy are summarized below:

a) Keynesian
multiplier effect: the additional energy efficiency
expenditure, relative to a reference scenario, implies higher demand for goods
and equipment which are used to implement energy efficiency improvement and
lower demand for energy commodities; this shift implies higher demand for
domestically produced goods and services and less imports of energy in the EU
countries; thus overall demand increases driven by a Keynesian multiplier
effect and as the goods and services replacing energy are more labour intensive
in their production, employment and activity tend to increase in the energy
efficiency scenarios relative to the reference.

b) Crowding
out effects on primary production factors and on capital markets: the
incremental activity generated by the energy efficiency expenditures requires
higher financial amounts and higher amounts of production factors (especially
labour) than in the reference scenario. Depending on the tightness conditions
in the markets of capital and labour, pressures on capital and labour prices
will be experienced which implies higher scarcity of primary production factors
and capital as used in other sectors of the economy.

If financing conditions are favourable,
the financial closure can be managed at a broad geographical scale and not at a
country level. It also implies that appropriate leveraging can accommodate
financing over a long period of time at low interest rates. If financing
conditions are not favourable, a country will have to draw the funding to the
detriment of other financing, probably also prior to implementation of the
energy efficiency project. So the degree of crowding out effects due to capital
market tightness can vary depending on assumed conditions. Similarly, the
labour market conditions influence the impact of energy efficiency expenditures
on wage rates. If unemployment is high and if the labour market is sufficiently
flexible, the increase in demand for labour may not imply higher wage rates and
thus impacts on costs and prices will be limited. Conversely, tightness in
labour supply or rigidities in the labour market will imply increase in real
wage rates as a result of energy efficiency expenditures, which could be
detrimental to competitiveness in foreign markets and will offset employment
increasing trends. Crowding out effects due to changes in the costs of primary
production factors can vary in intensity depending on assumptions and will be
experienced in all sectors of the economy.

c) Income
effects due to higher costs: the energy efficiency substitution
essentially is an exchange of reduced variable operating costs over time with
higher upfront costs. Depending on the technical parameters of the energy
efficiency expenditure by sector and also on the intensity of energy efficiency
ambition, the present value of costs of the energy efficiency cash flow may be
less or more expensive than the alternative which consists of keeping variable
operating costs unchanged.

The energy efficiency potential is known
to exhibit decreasing return to scale in the sense that, beyond a certain
level, incremental energy efficiency requires increasing marginal expenditures
per unit of energy savings. Due to this feature, cost-effectiveness of energy
efficiency expenditures decreases with the amount of energy savings targeted.
So beyond a certain threshold, it is possible that the present value of energy
efficiency cash flows implies higher costs than keeping energy consumption
unchanged. In principle this situation is unlikely and can only occur in
analytical studies which assume that the majority (if not all) of the cost
effective energy efficiency expenditures take place already in the reference
scenario  Otherwise, the income effect will tend to increase with the level of
ambition of the energy efficiency policy due to the diseconomies of scale.

d) Foreign
competitiveness effects: Currently the EU economies are
strongly exposed to foreign competition both in the intra-EU and in the global
markets. The relative competitiveness of the domestic economy can be
potentially weakened as a result of eventual pressures in primary production
factor markets leading to higher interest or wage rates Under such
circumstances, exports will decrease and imports will increase and thus
domestic activity will tend to reduce implying offsetting of increasing trends
due to the multiplier effect.

e) Positive
externalities in technology: Implementing ambitious energy
efficiency improvement implies usage of more advanced technologies which may
profit from increased market potential to become commercially mature with
higher performance and lower unit cost. This is a kind of positive externality
through learning by doing. Its occurrence depends on the nature of technology,
the size of the market, the spill-over conditions and other factors. Positive
externalities alleviate both the income and the foreign competitiveness
effects.

The
net outcome on economic activity and employment depends on the equilibrium
resulting between the forces described in the last column of the table. On a
positive outcome, activity increases as a result of increased demand for inputs
in energy efficiency projects. Following this change, employment in the sectors
also tends to increase (with noticeable effects as construction sector is
fairly labour intensive). On the negative side, activity and employment tend to
decrease in the energy sectors and in sectors affected by lower consumption and
potential loss of competitiveness (in foreign trade) due to crowding out
effects.

The
policy scenarios analysed in this IA have assumed very significant increase of
expenditures for energy efficiency purposes especially in the period until
2030. These
expenditures are assumed to be partly financed by the economic agents
(households and firms) and partly by the economies’ aggregate savings.

Consequently,
a fairly realistic approach has been adopted assuming that the financing of the
energy efficiency expenditures from saving resources in the economy is
effectively leveraged throughout the projection period (till 2050); this
implies less pressure until 2030 and a smaller crowding out effect. Should a
full funding of the energy efficiency expenditures was made through the closure
with savings till 2030, the macroeconomic impacts would be found increasingly
negative after 2030 and higher in magnitude.

E3ME
model

In
the scenarios modelled for this IA, E3ME uses the following outputs from the
PRIMES model:

Energy
  balances
 Energy
  prices
 CO2
  prices
 Investment
  costs

As
noted above, an additional assumption is made about how the investment is
financed, using ETS auction revenues, with income tax rates adjusted to achieve
revenue neutrality.

The figure
below summarises how these inputs (the top half of the diagram) affect key
macroeconomic indicators in the model (the lower half). Although it is not
possible to capture all the interactions in a single diagram, the most
important ones are included. The main ways in which GDP is affected are:

Higher
  electricity prices and CO2 prices, which feed through to the prices of
  final products, depending on the rate of cost pass-through in the sectors
  involved (which is estimated empirically). Higher product prices will both
  reduce the purchasing power of domestic households (leading to lower real
  incomes and expenditure) and will adversely affect the competitiveness of European
  firms (leading to a worsening trade balance). In both cases the result
  will be a reduction in GDP. 
 The
  revenue recycling, through changes to income tax rates, will also affect
  household incomes. In the scenarios with high levels of energy efficiency,
  income tax rates must increase to fund the measures. Reduced household
  income will lead to lower rates of spending and lower GDP.
 Higher
  rates of investment will provide a boost to output in the construction and
  engineering sectors and their associated supply chains. Investment itself
  is a component of GDP and so the changes in investment have a direct
  impact.
 For
  most European countries, a reduction in energy demand will lead to reduced
  imports of fossil fuels, as long as Europe remains dependent on imported
  fuels. Resources that would have been spent on imported fuels may instead
  be spent on domestically-produced goods (households) or returned in the
  form of higher profits (businesses), in both cases providing a boost to
  GDP.

The
net impact on GDP is the sum of these separate impacts. The impacts on
employment are determined by a combination of the GDP impact and the sectoral
pattern of output. As the scenarios modelled in this IA are based on a shift
from energy to labour-intensive activities it is reasonable to expect
employment to increase. As described below, this outcome is conditional on
labour being available and wage rates not increasing to any significant extent.

Employment
and multiplier effects

As
noted above, E3ME does not assume an optimal starting point so it is possible
for output to increase unless there are capacity constraints (see below). In
addition, multiplier effects are a standard feature of the modelling results.

Type
I multiplier effects occur through the supply chains that are represented in
the model’s input-output structure. In these scenarios, it is mainly the basic
manufacturing sectors (e.g. metals, cement) that supply the sectors that
produce and install investment goods. These supply chains may cross borders,
with activity levels in one country allowed to influence those in its trading
partners.

Type
II multiplier effects are shown in the diagram as the loop from GDP to
employment, real incomes and household expenditure. Essentially, higher
employment levels and incomes are able to stimulate spending in other parts of
the economy (e.g. in the retail sector), leading to further output and job
creation. A positive feedback from this loop depends on there being available
workers to meet an increase in the demand for labour; otherwise the result will
instead be higher wages and inflation.

Capacity
constraints

Economists
engage in efforts to estimate the ‘output gap’ and economic capacity at
national level but there is no agreed definition and very few estimates at
sectoral level. Over time, new investment can add to capacity.  E3ME’s equation
structure allows prices to increase as output moves beyond a ‘normal’ or
expected level, but does not attempt to estimate or impose an absolute level of
capacity for industry production. This approach is in contrast to the CGE
modelling approach, where the economy as a whole is effectively operating at
capacity to begin with.

The
exception to this in E3ME is the labour market, where there is a clear
constraint imposed by the available labour force. As the economy moves towards
full employment, further increases in labour demand translate into higher wage
rates, leading to a crowding out of labour (increases in one sector drive up
wage rates and reduce employment elsewhere). Nevertheless, this representation
is still not complete; as with other modelling approaches, there is an implicit
assumption that the workforce has the necessary skills to fill the available
vacancies.

Overall,
it is up to the model user to determine whether the scenarios that are being
modelled breach constraints that are likely to exist in reality but are not
recognised formally in the modelling framework. For marginal changes it is
reasonable to assume that it would be possible to adjust production patterns to
meet the additional demands placed on the economy. For the more ambitious
scenarios, however, there is a much higher degree of uncertainty around the
model results and a supplementary analysis would be required to investigate
whether the changes are possible.

Figure
31: E3ME structure

Source:
E3ME

Annex VII: Additional modelling results

In addition to the results shown in the
main text of this IA some more details are given in this annex on the effects
of the different energy efficiency scenarios.

1. PRIMES modelling

Buildings renovation

As
described in the Annex V on the PRIMES methodology and modelling assumptions,
the energy savings obligations related to the thermal integrity of dwellings is
increased for the different energy efficiency scenarios by varying the energy
efficiency values. The projected renovation rates escalate across scenarios
mainly in the time period until 2030 reflecting the assumption that the
efficiency ambition varies in the scenarios mainly for 2030. The average
renovation rate increases from 1.37 % in 2021-2030 in the Reference to 2.42% in
the most ambitious energy efficiency scenario. Beyond 2030 the renovation rates
decrease again.

The
deepness of renovation in relation to energy is projected to double in the
decade of 2020 compared to the previous decade. The average energy savings
after renovation increase from 31,47% in Reference to more than 46% in the very
ambitious energy efficiency scenarios in the period 2021-2030.

Table 30:
Renovation projections (average) in the various scenarios

(%) || Average renovation rate EU28 || Average energy saving % after renovation EU28

|| 2015-2020 || 2021-2030 || 2031-2050 || 2015-2020 || 2021-2030 || 2031-2050

Reference 2013 || 1,28 || 1,37 || 1,11 || 20,91 || 31,47 || 35,68

EE27 || 1,44 || 1,67 || 1,11 || 21,78 || 40,73 || 42,73

EE28 || 1,48 || 1,84 || 1,15 || 21,93 || 43,55 || 45,79

EE29 || 1,53 || 2,11 || 1,22 || 22,04 || 45,04 || 47,55

EE30 || 1,61 || 2,21 || 1,26 || 22,08 || 45,82 || 48,48

EE35D || 1,64 || 2,39 || 1,32 || 22,10 || 46,19 || 48,84

EE40 || 1,65 || 2,42 || 1,33 || 22,11 || 46,18 || 48,85

Source:
PRIMES 2014

The
question arises how these levels benchmark against existing practice, i.e. are
they realistic. Renovation rates observed across the different Member States vary
greatly. They depend on several circumstances, such as the state of the
economy. More importantly, these rates also depend on whether specific programmes
were deployed at a given time in a given Member State. This points to the
conclusion that well-targeted policies can significantly increase renovation
rates. Renovations rates observed in recent years across the different MS and
EEA range from 0.36% in Lithuania to 3.5% in the Netherlands in the case of
residential and from 1.5% in Norway to 2.75% in Lithuania in the case of
non-residential[25].

Energy-using
equipment and appliances

In
the tables below, the indicators of energy efficiency improvement by category
(improvement of output compared to a fixed energy input) of equipment or
appliance, grouped by purpose of use, is shown for the residential and the
tertiary sector. The resolution of the PRIMES model is lower than the list of
products considered in the Ecodesign regulations. In addition, the model has
limited representation of engineering bottom-up information regarding the use
of each equipment. Therefore, direct comparisons of model projections with Ecodesign
regulations is hardly possible; comparison can only be drawn from projections
of energy efficiency improvements by category of energy use.

With
regard to the 2030 horizon, the effects of eco-design are simulated to
intensify relative to the Reference and across the EE scenarios. Moving from 2030
to 2050, the effects are simulated to intensify further and approach technical
potential in the very ambitious cases. The learning effects are modelled to be
relatively lower until 2030 than after 2030.

It
can be seen in the tables below that with increasing levels of policies
focusing on the reduction of the perceived costs of advanced technologies and
policies aiming to improve the technical characteristics of technologies the
equipment output is projected to increase significantly over the next years in
the more ambitious scenarios.

Table 31:
Indicative ratios of improvement of energy using equipment in residential
sector

Avg. Energy Efficiency improvement in equipment as effectively used by scenario, relative to 2010 (in % change)

|| 2020 || 2030 || 2050 || 2020 || 2030 || 2050

|| Heating || Cooling

Reference ||             7,7 ||           18,8 ||           28,8 ||           17,6 ||           28,3 ||           62,1

EE27   ||           11,3 ||           28,1 ||           44,4 ||           22,6 ||           66,0 ||         115,2

EE28   ||           11,4 ||           28,8 ||           46,5 ||           22,5 ||           65,5 ||         115,1

EE29   ||           11,6 ||           29,2 ||           47,7 ||           22,5 ||           65,4 ||         115,0

EE30   ||           13,2 ||           30,7 ||           49,4 ||           24,5 ||           73,1 ||         124,3

EE35   ||           14,2 ||           31,3 ||           50,5 ||           25,9 ||           76,4 ||         129,0

EE40   ||           14,1 ||           31,3 ||           50,8 ||           25,8 ||           76,9 ||         129,1

|| || || || || ||

|| Water heating || Cooking

Reference ||           10,7 ||           17,9 ||           26,5 ||             3,9 ||             6,4 ||             9,3

EE27   ||           11,6 ||           19,9 ||           23,1 ||             5,5 ||           14,6 ||           32,7

EE28   ||           11,6 ||           19,9 ||           23,1 ||             5,6 ||           15,3 ||           34,2

EE29   ||           11,6 ||           19,9 ||           23,2 ||             5,7 ||           15,6 ||           35,0

EE30   ||           12,0 ||           20,9 ||           24,7 ||             7,0 ||           18,9 ||           40,5

EE35   ||           12,2 ||           21,7 ||           25,9 ||             8,0 ||           21,3 ||           43,5

EE40   ||           12,2 ||           21,6 ||           26,1 ||             8,1 ||           21,2 ||           43,6

|| || || || || ||

|| Lighting || White appliances

Reference ||         163,7 ||         372,9 ||         400,2 ||           45,9 ||           60,5 ||           66,3

EE27   ||         184,7 ||         380,3 ||         415,0 ||           47,3 ||           69,2 ||           82,9

EE28   ||         184,6 ||         380,2 ||         414,9 ||           48,0 ||           69,4 ||           83,3

EE29   ||         181,4 ||         377,1 ||         414,9 ||           47,3 ||           69,3 ||           83,2

EE30   ||         185,5 ||         380,6 ||         414,8 ||           48,0 ||           70,7 ||           89,7

EE35   ||         186,9 ||         381,2 ||         414,7 ||           48,3 ||           71,0 ||           96,4

EE40   ||         186,1 ||         380,7 ||         414,6 ||           48,6 ||           70,9 ||           96,4

|| || || || || ||

|| Black appliances || Central boilers

Reference ||           18,2 ||           27,9 ||           30,3 ||           11,2 ||           23,6 ||           45,9

EE27   ||           19,0 ||           34,6 ||           49,0 ||           14,1 ||           31,7 ||           57,3

EE28   ||           19,0 ||           34,5 ||           49,0 ||           14,1 ||           31,6 ||           57,0

EE29   ||           19,0 ||           34,5 ||           49,0 ||           14,0 ||           31,5 ||           57,0

EE30   ||           19,1 ||           34,7 ||           53,7 ||           15,5 ||           32,7 ||           58,5

EE35   ||           19,1 ||           34,9 ||           60,3 ||           16,2 ||           33,6 ||           59,7

EE40   ||           19,1 ||           34,8 ||           60,5 ||           16,2 ||           33,6 ||           60,3

|| || || || || ||

|| Gas heaters || Heat pumps

Reference ||           14,2 ||           28,1 ||           49,1 ||           18,1 ||           35,5 ||           61,5

EE27   ||           16,3 ||           33,5 ||           57,7 ||           20,7 ||           44,4 ||           73,2

EE28   ||           16,3 ||           33,4 ||           57,5 ||           20,8 ||           44,5 ||           73,1

EE29   ||           16,3 ||           33,3 ||           57,5 ||           21,0 ||           44,4 ||           73,3

EE30   ||           17,0 ||           34,3 ||           59,0 ||           22,8 ||           46,3 ||           75,3

EE35   ||           17,5 ||           34,8 ||           60,1 ||           23,5 ||           47,3 ||           77,0

EE40   ||           17,5 ||           34,8 ||           60,7 ||           23,4 ||           47,2 ||           77,9

Source:
PRIMES 2014

Table 32:
Indicative ratios of improvement of energy using equipment in tertiary sector

Avg. Energy Efficiency improvement in equipment as effectively used by scenario, relative to 2010 (in % change)

|| 2020 || 2030 || 2050 || 2020 || 2030 || 2050

|| Heating || Cooling

Reference ||           15,6 ||           36,7 ||           49,8 ||           16,3 ||           27,2 ||           44,7

EE27   ||           19,1 ||           49,8 ||           58,7 ||           17,4 ||           30,2 ||           55,0

EE28   ||           19,3 ||           54,9 ||           63,7 ||           17,4 ||           30,1 ||           54,9

EE29   ||           19,8 ||           57,3 ||           66,6 ||           17,4 ||           30,1 ||           54,9

EE30   ||           21,0 ||           59,2 ||           68,0 ||           17,7 ||           31,1 ||           56,6

EE35   ||           22,0 ||           60,3 ||           68,2 ||           17,8 ||           31,5 ||           57,1

EE40   ||           22,1 ||           59,5 ||           67,5 ||           17,8 ||           31,7 ||           57,2

|| || || || || ||

|| Lighting || Electric appliances

Reference ||         156,8 ||         374,3 ||         394,4 ||             5,5 ||           21,3 ||           54,1

EE27   ||         225,0 ||         371,6 ||         392,8 ||             6,9 ||           27,7 ||           63,9

EE28   ||         224,7 ||         371,3 ||         392,8 ||             6,9 ||           27,4 ||           63,4

EE29   ||         224,2 ||         371,2 ||         392,8 ||             6,9 ||           27,2 ||           63,3

EE30   ||         235,9 ||         372,5 ||         394,5 ||             7,3 ||           28,9 ||           65,7

EE35   ||         242,5 ||         375,5 ||         395,0 ||             7,7 ||           29,8 ||           66,6

EE40   ||         240,1 ||         375,1 ||         395,9 ||             7,5 ||           30,4 ||           66,8

|| || || || || ||

|| Greenhouses-agriculture || Pumping in agriculture

Reference ||             3,9 ||             7,4 ||             9,8 ||             9,8 ||           16,4 ||           28,1

EE27   ||             5,3 ||           11,9 ||           22,5 ||           10,3 ||           19,2 ||           68,0

EE28   ||             5,3 ||           11,9 ||           22,4 ||           10,3 ||           19,3 ||           68,3

EE29   ||             5,3 ||           11,9 ||           22,5 ||           10,4 ||           19,5 ||           68,4

EE30   ||             5,8 ||           14,0 ||           26,7 ||           10,6 ||           20,0 ||           68,8

EE35   ||             6,2 ||           15,0 ||           28,7 ||           10,7 ||           20,5 ||           68,8

EE40   ||             6,2 ||           15,0 ||           28,7 ||           10,8 ||           20,3 ||           68,5

Source:
PRIMES 2014

The
modelling of product efficiency is based on currently-available technologies,
i.e. it does not assume technological breakthroughs therefore it can be considered
as realistic or even conservative.

Best available
technology in industry

As
described in the Annex V on the PRIMES methodology and modelling assumptions
the uptake of BAT in industry is varied across the energy efficiency scenarios.

Regarding
the horizontal BAT, their deployment leads to energy savings at all process
levels. PRIMES considers a maximum potential for energy savings from horizontal
BAT adoption, which is different by sector and by country. The energy
efficiency scenarios are designed to exploit partly the maximum potential, at a
degree reflecting the intensity of energy efficiency ambition by scenario.
Therefore the uptake of horizontal BAT increases by scenario but is limited by
potential.

As
shown in the figure below, in the EE27 scenario, the energy savings potential
that energy intensive industry is able to exploit in 2030 is assumed to be app.
11% of its maximum level. Already in the EE29 scenario this figure increases
considerably, reaching by 2030 16.5%. In the EE30, EE35 and EE 40 scenarios, energy
intensive industries can exploit even larger percentages of their maximum
savings potential, reaching for the most ambitious scenario 50%. These savings
further increase in longer term perspective. In non-energy intensive
industries, the differences are assumed only between the moderate and ambitious
scenarios.

Figure 32:
Assumed uptake of horizontal energy saving BATs in the industrial sector as %
of maximum potential

Source:
PRIMES 2014

CHP and district
heating

In
the six energy efficiency scenarios different levels of policies focusing on
district heating and the penetration of CHP are modelled. This leads to a visible
increase from 11% to 14% of households connected to district heating networks
in 2030. Beyond 2030, further increases in the shares can be seen in the most
ambitious scenarios.

Table
33: % of households connected to district heating networks

% of households connected to district heating networks || 2010 || 2020 || 2030 || 2050

Reference 2013 || 9 || 10 || 11 || 11

EE27 || 9 || 10 || 11 || 16

EE28 || 9 || 10 || 11 || 16

EE29 || 9 || 10 || 11 || 15

EE30 || 9 || 10 || 12 || 15

EE35 || 9 || 10 || 14 || 15

EE40 || 9 || 10 || 14 || 16

Source: PRIMES 2014

These
numbers are fairly conservative: even in the ambitious scenarios the share of
CHP (see Chapter 5) and district heating does not increase substantially,
mainly due to a lower heat demand associated with better insulated buildings. In
a study by Aalborg University the share of district heating is substantially
greater with a 30% share in 2030[26].

POLES modelling

In
addition to the PRIMES, GEM-E3 and E3ME model the POLES model was used to analyse
the effects of different levels of energy savings on the international fuel
prices due to reduced energy demand.

POLES
is a simulation model to develop long-term energy supply and demand scenarios
for different regions of the world. It includes modelling of primary fuel
supply and international fuel markets. It can give some insights on the effect
of energy policies with respect on the impact on prices as it does not take
international fuel prices as an exogenous input parameter as in other models.
Therefore, it is possible to project impacts of EE policies on prices of
internationally-traded fuels, namely the coal, gas and oil prices.

In
order to analyse the impact on the fuel prices of the scenarios analysed with
PRIMES, the POLES model was calibrated to reproduce the PRIMES reference case
on the aggregated EU level in terms of energy consumption.[27]

Starting
from that Reference, the final energy consumptions as produced by the PRIMES
model for the EE scenarios were reproduced with the POLES model[28]. The
relative changes of the energy demand with respect to the reference result in a
set of different prices in POLES. These relative price changes are reported and
can be used as an estimate of the impact of reduced energy use due to EE
policies in the EU on the international fuel prices.

Figure
33: Projected impacts of EE policies on international fuel prices (in%)

Source:
POLES

It is
projected that European EE policies would have an impact on international
fossil fuel prices. Especially the gas price could be lower. This can be
explained because of the significant reduction of the gas demand in the EE
scenarios in the EU. The missing flexibility of the gas infrastructure produces
a higher price effect on the European gas markets since the gas producers
cannot easily redirect their fuel exports to other markets.

As
these results were not fed back into the PRIMES model it is not possible to
quantify possible rebound effects of decreasing global coal, gas and oil
prices. The bigger the decrease of global coal, gas and oil prices is the more
important it would be to use these decreased prices in PRIMES again to show the
rebound effects on the European energy consumption, GDP and employment again.
This has to be taken into account when interpreting these modelling results.

Annex
VIII. Overview of national energy efficiency measures investigated by
Fraunhofer and their expected impact[29]

[1] Study
by CE Delft for European Commission, 2014

[2] Potential
implications of minimum EP requirements from cost-optimal calculations,
Concerted Action report

[3] Implementing the
Energy Performance of Buildings Directive ; Concerted Action report ,
ADENE, 2013, October 2013

[4] It has not so far
proved possible to make a comparable economic calculation.

[5] COM(2014) 285 final

[6] COM
(2013) 479

[7] IEA (2013), Energy efficiency
market report 2013

[8] Regulatory
requirements concerning the energy efficiency of buildings are being tightened
in a number of countries, with the EU leading the way. These requirements push
the average performance of buildings upward. Buildings with low performance are
losing value as the benchmark moves up and may be difficult to sell since they
will require upgrades to meet legal requirements.

[9] For
example in the US, buildings with an Energy Star label have stronger financial
performance than similar unlabelled buildings: 13.5 per cent higher market
values, 10 per cent lower utility costs, 5.9 per cent higher net income per
square foot, 4.8 per cent higher rents and 1 per cent higher occupancy rates. 
In the EU an analysis of developments in several Member States concluded that a
one grade increase on the scale of a building Energy Performance Certificate
corresponded to an approximately 4% increase in its values

[10] JRC (2014): Draft
report on financing of energy efficiency in buildings

[11] A minimum 12%, 15% or
20% of the ERDF allocation has to be invested into the "shift to
low-carbon economy" investments in less developed, transition and more
developed regions of the EU, respectively.

[12]             See for
example http://www.ise.nus.edu.sg/staff/angbw/pdf/A_Simple_Guide_to_LMDI.pdf. We use the
LMDI-I method. A more complex LMDI-II method has also been developed.

[13]             See for
example B.W. Ang: The LMDI approach to decomposition analysis: a practical guide, Energy Policy
Volume 33, Issue 7, May 2005, Pages 867–871

[14]             This
differs from final energy consumption in a minor manner through the inclusion of statistical
differences.

[15]             Note
that solar thermal (both Concentrated Solar Power CSP and solar thermal for
heat provision) are not accounted for in the same manner in Eurostat balances
as are the other RES100%. These are
directly accounted for in Gross Inland Consumption and are passed through to
the electricity sector as Interproduct Returns. Solar Thermal (CSP) enters the
transformation inputs as the solar heat is converted to steam.

[16]             Starting
year of the factor analysis is 2007 as the last year before the period 2008-2012 under
consideration

[17] All
graphs and figures in this annex are primarily based on input data from
Eurostat

[18] http://ec.europa.eu/energy/observatory/trends_2030/doc/trends_to_2050_update_2013.pdf

[19] In general, in PRIMES
a conservative approach is taken. It is assumed that the MS do not fully
implement the obligations laid down in the EED, including with regard to art. 7
EED.

[20] Efficiency
values are a key modelling instrument used to simulate energy saving
obligations in the sectors of houses and office buildings. The efficiency value
is measured in EUR/toe-saved and can be seen as a threshold which indicate as
profitable all portions of energy saving investment which have an annual
marginal energy saving cost equal or below the threshold value. The efficiency
value is the additional amount that has to be borne annually for a limited
period of time incurring as a unit cost above average fuel price in order to
economize over fuel payments for an unlimited period of time due to the energy
saving investment.

In
the model, the efficiency value is perceived by the demand actors as a virtual
marginal value stemming from energy savings: it makes profitable all portions
of the cost-potential curve (with increasing slope) of energy saving investment
possibilities which are positioned below that value and thus the corresponding
energy saving investments are selected and deliver energy savings over
subsequent periods of time.

The
logic of setting the levels of efficiency values in a scenario context is to
iterate until a certain pre-determined energy saving amount is obtained from
scenario results. In this sense, the efficiency values are not policy
instruments, but the ensuing energy saving amounts can be considered as targets
or obligations and so they are policy instruments. The PRIMES model does not
cover the details of policies which enforce such a target or obligation.
Nonetheless, considerations of accompanying policies which aim at enabling more
effective implementation of the target/obligation can be mirrored in the model
assumptions, as for example the change in discount rates related to the
assumption of implementing the targets as obligations on utilities (see below
for more details).

[21] Source: http://ec.europa.eu/transport/themes/sustainable/doc/2008_costs_handbook.pdf

[22] See page 44 of the
TAXUD study:
http://ec.europa.eu/taxation_customs/resources/documents/taxation/gen_info/economic_analysis/tax_papers/taxation_paper_22_en.pdf

[23] This
is an important distinction between the modelling, which should not, however,
be overstated – in particular it is important to note that in these scenarios
the direct investment in energy efficiency is funded through higher domestic
savings rates that are imposed through taxation.

[24] The assumption is
made already in the Reference case that recycling of the ETS revenues happens
via the reduction of employer’s social security contribution. It is also assumed
that the government policy on employment remains the same in the energy efficiency
scenarios and the lower rate of social security contributions remains the same as
in the reference case (even though the revenue from ETS would decline as the
scenarios become more ambitious). Such an approach enables to compare the net
effects on EE policies.

[25] Europe’s buildings
under the microscope, BPIE, 2011

[26]
Heat
Roadmap 2050, Aalborg University, 2013.

[27]
Please note that the international energy prices in that POLES reference case
are not the same as assumed in the PRIMES scenarios.

[28]
Similarly as for macro-economic modelling with GEM-E3 and E3ME, the POLES
scenarios that have been modelled build upon PRIMES scenarios with 25, 28, 30,
35 and 40% energy savings. The scenario with 25% energy savings has ambition
similar to GHG40 scenario but is built on the PRIMES scenario that has concrete
EE policies rather than carbon values - for better comparability with other
scenarios. The macro-economic modelling building on EE27 and EE29 scenarios
would likely have very similar outcome to results presented in the chapter for
EE28 and EE30, with little additional insight brought to the analysis – for
practical reasons, smaller number of scenarios is consequently presented.

[29] The
list includes significant planned and existing measures in 15 Member States
covering 91.5% of EU primary energy consumption. The impact corresponding to
the measures in the remaining Member States was based on the extrapolation of
results for the 15 Member States covered.

Annex
VIII. Overview of national energy efficiency measures investigated by
Fraunhofer and their expected impact

(continued)

Annex
IX. Impact of the currently implemented EU
energy efficiency legislation

Key conclusions of the impact assessment
accompanying a proposal for the recast of the Energy Performance of Buildings
Directive[1].

The minimum total impact of the most
beneficial options for which quantification was possible, is:

- 
60
– 80 Mtoe/year energy savings by 2020, i.e. a reduction of 5-6% of the EU final
energy consumption in 2020;

- 
160
to 210 Mt/year CO2 savings by 2020, i.e. 4-5% of EU total CO2
emissions in 2020;

280,000
(to 450,000) potential new jobs by 2020, mainly in the construction sector,
energy certifiers and auditors and inspectors of heating and air-conditioning
systems.

- 
investment
requirements and the administrative costs of the measures were analysed and are
relatively low compared to the benefits and the returns. For example, on an EU
scale abolishing the 1000 m2 threshold would lead to €8 billion/year
additional capital costs but would trigger €25 billion/year energy cost savings
by 2020 and therefore create negative CO2 abatement costs.

- 
The
investment needs differ substantially across Europe depending on the social and
economic conditions, on the initial state of the property and on the type of
renovations to be undertaken. They are not equally distributed amongst EU
citizens, i.e. there will be additional costs for those who make major
renovations of their buildings or are engaged in property transaction. However,
with high oil prices these initial investments will have attractive returns.

- 
The
overall benefits for society in terms of reduction of energy consumption and
thus reduced CO2 emissions and energy import dependency, job
creation, especially at local and regional level, positive health and labour
productivity far exceed the costs of the measures analysed.

Key conclusions of the impact assessment
accompanying a proposal for the Energy Efficiency Directive[2]:

- 
The
instrument mix put forward will contain a number of overlaps and interactions.
The modelling of the whole package showed that primary energy demand in 2020
will be reduced by between 19.7% and 20.9% compared to the PRIMES 2007 baseline
projection. The sectors reducing demand most are transport and residential.
Reductions are substantial in the tertiary sector, too, due to improved
appliances and improved heating and cooling. Generation efficiency also
improves and some of the measures to reduce final energy demand lead to lower
electricity consumption and thus lower production.

- 
Measures
to achieve the 20% energy saving target in 2020 will support the greenhouse gas
reduction target, in particular in non-ETS sectors. According to the Low Carbon
Economy Roadmap 2050 the achievement of the 20% EE and RES targets enables a
25% greenhouse gas emission reduction. In this context, the Commission has said
that it will monitor the impact of new measures to implement the 20% energy
efficiency target on the ETS.

- 
Impacts
on the ETS are presented in the overall 20% efficiency model runs, albeit
results differ substantially depending on the model used. While both models
project a further decrease in GHG emissions, they show different results
regarding the impact on the ETS price: the E3ME model run projects a drop to
zero of the ETS price in 2020 whereas the PRIMES scenarios project a much lower
impact (a reduction from €16.5/t to €14.2/t in 2020).

- 
Additional
costs to the total energy system rise by between 2.6% and 4.7% compared to the
reference scenario. The increase in energy efficiency will tend to increase
electricity prices in the short term from 141€/MWh to 146€/MWh due to the need
to finance the fixed costs of energy efficiency measures. However, in the long
run, this increase pays off by stabilising electricity prices through a lower
demand.

- 
It
can therefore be confirmed that the package of policy put forward is capable of
reaching the 20% objective and reaping additional benefits that remain tangible
beyond 2020. The additional costs of achieving the overall 20% target through
the set of measures proposed are proportionately small.

[1] SEC 2008/2865

[2] SEC 2011/799