EUROPEAN COMMISSION Brussels, 23.7.2014 SWD(2014) 256 final COMMISSION STAFF WORKING DOCUMENT



EXECUTIVE SUMMARY OF THE 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 {COM(2014) 520 final}

{SWD(2014) 255 final}



EXECUTIVE SUMMARY OF IMPACT ASSESSMENT 1.Policy context 1.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. 2.The recent European Energy Security Strategy (EESS) highlights moderating energy demand as "one of the most effective tools to reduce the EU's external energy dependency and exposure to price hikes". 3.The 2030 Communication lays down the broad modalities of the EU climate and energy framework for the period between 2020 and 2030 . 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 also 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 proposed in 2030 Communication. 2.Lessons learned and problem definition 4.Having increased from 1618 Mtoe in 2000 to 1721 Mtoe in 2006, the EU's primary energy consumption has been decreasing ever since. 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. Efficiency has improved since 2000 and the rate of improvement has accelerated since 2008. However, 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 only about 2/3 from increasing energy efficiency improvements 5.Between 2008 and 2012, primary energy consumption fell in the majority of Member States. 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, the effect of these factors was countered by changes in the level of consumption (e.g. increasing average size of dwellings). 6.The energy efficiency policy framework has developed significantly in the last years. The target EU target on 20% energy savings has now been clearly defined, providing political momentum, guidance for investors and a benchmark to measure progress At European level, the most effective policies so far have been product efficiency standards, including ecodesign and energy labelling of products and the CO2 legislation for cars and vans. The Energy Performance of Buildings Directive (2010 recast) and the Energy Efficiency Directive of 2012 have the potential to further drive energy efficiency in the EU provided they are properly implemented by Member States. The long-term potential of the EED is however limited to some extent by the fact that some of the key provisions stop applying in 2020. 7.At national level, Member States report success with different policy measures. 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. 8.Despite this progress, analysis suggests that at current pace, the EU energy efficiency target of saving 20% of energy by 2020 will be missed by 1 to 2 percentage points. 9.Various analyses looking beyond 2020, including by the IEA and Fraunhofer ISI, indicate that the current policy framework will not suffice to realise the full cost-effective energy-saving potential. The Impact Assessment accompanying the 2030 Communication also makes it clear that current policies (as depicted in the Reference scenario) would not ensure a cost-effective transition to a low-carbon economy achieving merely 21% savings by 2030 compared to 2007 projections. 10.The principal reason why the 2020 target is expected to be missed is that, even with recent more positive developments, there is sometimes insufficient commitment at Member State level to the implementation of the existing legislative framework. As regards the perspective beyond 2020, 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. Furthermore even with current rules important barriers to energy efficiency persist. 11.Because of these underlying drivers the general problem is that the cost-effective energy-saving potential (both short- and long-term) is not fully realised and therefore energy efficiency does not sufficiently contribute to the EU's energy policy objectives. This has the following consequences: (a) high energy demand increases the dependence of the EU on energy imports, notably of gas; (b) the unused energy efficiency potential negatively impacts the affordability of energy and limits the competitiveness of the EU economy; (c) high energy demand makes the transition to a low-carbon economy more costly because many energy efficiency measures are among options for GHG abatement with the lowest cost. 3.Subsidiarity 12.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: (a) 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 the means to achieve the agreed objectives; (b) creating a platform for exchanging best practice and stimulating capacity building; (c) setting minimum requirements in areas where there is a risk of internal market distortions if Member States take individual measures; (d) using EU instruments to promote energy efficiency, e.g. through financing. 4.Scope and objectives 13.The general objective is to ensure that energy efficiency contributes to the development of a competitive, sustainable and secure EU energy system. 14.The specific objectives are to:

-To agree on the measures necessary to achieve the 20% energy efficiency target in 2020 providing thus the relevant actors with information on the actions that need to be undertaken in the short term; -To agree on the level of ambition of energy efficiency policy in the long term providing thus Member States and investors with more predictability and certainty. 5.Description of policy options and methodology 15.Regarding policy options for closing the gap towards the 2020 target the following elements are considered: a.No action. b.New primary legislation laying down binding national targets or additional binding measures. c.Strengthened implementation of current policies. Option a 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. 16.Regarding the analysis of the optimal level of energy savings for 2030, six scenarios with a stepwise increase in the intensity of energy efficiency efforts in all sectors targeted by current policy measures were modelled. By comparing the results of the scenarios with the Reference case, the impacts of these efforts on energy system (including security of supply aspects), competitiveness and sustainability are assessed in 2030 as well as in 2050 perspective. The scenarios achieve in 2030 respectively: 27.4%, 28.3%, 29.3%, 30.7%, 35.0% and 39.8% of savings compared to PRIMES 2007 baseline and consequently later are referred to as EE27, EE28, EE29, EE30, EE35 and EE40 scenarios. The analysis builds on and is fully coherent with the IA underpinning the 2030 Communication including 40% GHG reductions and (at least) 27% share of renewable energy in final energy consumption proposed by the Commission as binding targets for 2030. It takes into account the progress that Member States are making towards their national targets under the EED. 17.Regarding options for the architecture of the energy efficiency framework post-2020 the following options are identified a.No action. This implies that post 2020 there would be no energy efficiency target; b.Indicative EU target, coupled with specific EU measures. This would be a continuation of the current framework. c.Binding EU target, coupled with specific EU measures. This would replicate the approach proposed by the Commission in the 2030 Communication for RES. d.Binding MS targets, coupled with EU polices solely in areas linked to the internal market. 18.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:

a.Consumption target; b.Intensity target; c.Hybrid approach. 6.Analysis of impacts and conclusions Policy options for closing the gap to 2020 target 19.For 2020 the impact analysis shows that a proper implementation of the current policy framework would be both necessary and sufficient to bridge the expected gap. By contrast, proposing new primary legislation would be unlikely to make a significant contribution to bridging the gap given the minimum time necessary to carry out the normal legislative procedure and transposition into national law. Analysis of the optimal level of ambition for 2030 20.In terms of energy system impacts (including security of supply), all scenarios show that energy efficiency policies reduce effectively energy consumption (both primary and final) and decrease the energy intensity. The different policy scenarios demonstrate some differences in terms of the consumption of various primary energy sources. 21.Energy efficiency has a significant impact on security of supply and the level of gas imports in particular. Net energy import decreases translate into savings in the energy fossil fuel imports bill. For the EE27, EE28 and EE29 scenarios, the savings in fossil fuel import costs in the period 2011-30 can reach between €285bn and €346bn. For the more ambitious targets of 30% energy saving and beyond, the savings can reach between €395bn and €549bn. 22.In terms of economic impacts, energy system costs increase in all scenarios compared to the Reference scenario. Increased energy efficiency leads to average annual (2011-2030) energy system costs in policy scenarios that are between 0.01 and 0.8 percentage points of GDP higher than the Reference. The increases in absolute values (average annual for the period 2011-2030) are between €2bn and €114 bn. 23.There is a general shift in the structure of costs with diminishing energy purchases and increasing capital costs and direct efficiency investments. Investment expenditure increases sharply in all scenarios - more significantly in more ambitious scenarios and again mostly in the residential and tertiary sectors. 24.Electricity price changes compared to the Reference are very small in 2030 ranging from 1% to 3% in the year 2030. The ETS price differs substantially across the various scenarios, reflecting the important contribution of energy efficiency to emission reductions in the ETS sectors (via reduction of demand for electricity) and the fact that energy efficiency achieves significant reductions in the non-ETS sector. As their ambition grows, EE policies reduce both costs and incentives from the ETS itself for GHG abatement. 25.GDP impacts for scenarios reducing emissions by 40% GHG and increasing energy efficiency can be either negative or positive (depending on theoretical approach and consequent assumptions) 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 resources are currently fully used -, the effects on GDP are positive.