EUROPEAN COMMISSION Brussels, 30.11.2016 SWD(2016) 405 final COMMISSION STAFF WORKING DOCUMENT



IMPACT ASSESSMENT

Accompanying the document Proposal for a Directive of the European Parliament and of the Council



amending Directive 2012/27/EU on Energy Efficiency



{COM(2016) 761 final}

{SWD(2016) 406 final}



Table of Contents Glossary of acronyms and abbreviations 1 What is the problem and why is it a problem? 1.1 Scene setter 1.2 What is the problem? 1.3 Drivers of the problem 1.4 Existing framework and outcome of the evaluations 1.4.1 Evaluation of progress towards the 2020 target (Articles 1 and 3) 1.4.2 Outcome of the evaluation on Article 7 1.4.3 Outcome of the evaluation on Articles 9-11 (on metering and billing) 1.5 Why does the problem need to be tackled now? 1.6 Nature and extent of the problem 2 Why should the EU act? 3 What should be achieved? 4 What are the various options to achieve the objective? 4.1 2030 energy efficiency target level – policy options for Articles 1 and 3 4.1.1 Level of energy efficiency target 4.1.2 Character and formulation of energy efficiency target

4.2 Attracting private investment – Policy options for Article 7 4.2.1 Option 1: Baseline scenario – no regulatory action at EU level; continue with guidance on regulatory framework and work on enforcement until 2020 4.2.2 Option 2: Extend Article 7 to 2030 4.2.3 Option 3: Extend Article 7 to 2030; simplify and update 4.2.4 Option 4: Extend Article 7 to 2030, increase the rate of savings 4.3 Empowering consumers - Policy options for Articles 9-11 4.3.1 Option 1: Non-regulatory – Continue with the existing framework but give further guidance 4.3.2 Option 2: Clarification and updating of provisions relating to thermal systems 5 Assessment of policy options 5.1 2030 energy efficiency target level 5.1.1 Energy system impacts 5.1.2 Macro-economic and other economy-wide impacts 5.1.3 Environmental effects and health impacts 5.1.4 Social impacts including affordability issues 5.1.5 Energy related investments 5.1.6 Energy system costs 5.2 Assessment of the character of the target 5.3 Assessment of the formulation of the target 5.4 Impacts of policy options for Article 7 5.4.1 Impacts of option 1: No action at EU level – continue with guidance on regulatory framework and work of enforcement until 2020

5.4.2 Impacts of option 2: Extend Article 7 to 2030 5.4.3 Impacts of option 3: Extend Article 7 to 2030; simplify and update 5.4.4 Impacts of option 4: Extend Article 7 to 2030; increase the rate of savings 5.5 Empowering consumers - impacts of policy options for Article 9-11 5.5.1 Reduction of energy consumption 5.5.2 Costs 5.5.3 Administrative burden 5.6 Interaction between energy efficiency policies 6 Comparison of the policy options 6.1 Preferred option for the level and formulation of the 2030 target 6.2 Comparison of the policy options for the character of the 2030 target 6.3 Comparison of the policy options for the formulation of the 2030 target 6.4 Comparison of the policy options for Article 7 6.5 Comparison of the policy options for Article 9-11 7 Monitoring and evaluation 7.1 Monitoring the progress towards the 2030 target 7.2 Monitoring and evaluation of Articles 7 and 9-11 of the EED





Table of Contents of the Annexes 1. Annex - Procedural issues 3 1.1 Lead DG and associated DGs 3 1.2 Consultation of the Regulatory Scrutiny Board 3 1.3 Public consultation 4 1.4 Overview of Member States' positions on Article 7 (to Public Consultation) 8 1.5 General Issues Raised with Member States in the EU Pilots on Article 7 13 1.6 Other consultations 14 2 Annex - Who is affected? 16 2.1 Article 1 and 3 16 2.2 Article 7 and 9-11 16 3 Annex - Interactions with other elements of the 2030 energy climate framework 19 3.1 EED interaction with the EPBD, ecodesign and labelling 19 3.2 Effort Sharing Decision / Regulation 19 3.3 EU Emissions Trading System 21 3.4 Renewable energies 22 3.5 Internal energy market 22 4 Annex - Analytical models and model-based scenarios used 24 4.1 Description of analytical models used 24 4.2 The EU Reference scenario 2016 39

4.3 Summary of EU Reference scenario 2016 main results 48 4.4 Overview of model-based policy scenarios 66 4.5 Additional PRIMES policy scenario results 85 4.6 Comparison with 2014 energy efficiency analysis 87 4.7 Sensitivities 89 4.8 Description of modelling set-up for the policy scenarios for macroeconomic models 92 4.9 Additional macro-economic results 105 4.10 Industrial Energy Efficiency Modelling (IEEM) 117 4.11 Modelling of international fuel price impacts 119 5 Annex - Additional information – decomposition analysis 120 6 Annex –Analytical approach used for Articles 7 and 9-11 125 6.1 Analytical approach for Article 7 125 6.2 Analytical approach for Articles 9-11 134 7 Annex – Tables and figures on Article 7 141 8 Annex – Energy efficiency investments 152 9 Annex – Review of the default coefficient – Primary Energy Factor for electricity generation referred to in Annex IV of Directive 2012/27/EU 157



Glossary of acronyms and abbreviations

CA EED Concerted Action of the Energy Efficiency Directive CEPPI Coordinated energy-related PPI actions for cities CHAP Central registry for complaints and enquiries Commission European Commission, unless specified otherwise DG Directorate-General Directive Energy Efficiency Directive, unless specified otherwise EcoDesign EcoDesign Directive (2009/125/EC) EE Energy efficiency EEA European Economic Area EEC Energy Efficiency Calculation Tools EED Energy Efficiency Directive (2012/27/EU) EEOS Energy efficiency obligation scheme Energy Labelling Energy Labelling Directive (2010/30/EU) EPBD Energy Performance of Buildings Directive (2010/31/EU) ESCOs Energy services companies ESD Effort Sharing Decision (DECISION No 406/2009/EC) ESIF European Structural and Investment Funds ETS Emissions Trading System EU PDA EU Project Development Assistance FI Energy agency or regulator

GRASP Growth and sustainability policies for Europe H2020 Horizon 2020 ICT Information and Communication Technologies IEM Internal Energy Market legislation Ktoe kilotonnes of oil equivalent MS Member State(s) MSR Market Stability Reserve under the ETS Mtoe Million tonnes of oil equivalent M&V Monitoring and verification NEEAP National Energy Efficiency Action Plan NZEB Nearly Zero Energy Building RAP Regulatory Assistance Project RES Renewable Energy RES Directive Renewable Energy Directive SME Small- and medium-sized enterprise SWD Staff Working Document TCO Total Costs of Ownership



1What is the problem and why is it a problem?

1.1Scene setter The Energy Union and the Energy and Climate Policy Framework for 2030 establish ambitious EU commitments to further reduce greenhouse gas emissions (by at least 40% by 2030 compared to 1990), to increase the share of renewable energy consumed (to at least 27%), and to save at least 27% energy and to review this level “having in mind an EU level of 30%”, to increase Europe's energy security, competitiveness and sustainability. In December 2015 the European Parliament voted for a "40% energy efficiency target; emphasised that the post-2020 EU energy efficiency target should be binding and implemented through individual national targets […]" . The EU is already achieving significant energy efficiency progress. Although the decline in energy consumption can to a certain extent be attributed to the economic crisis and its aftermath of restrained production and freight transport activity, EU energy efficiency policies have played a more significant role in decoupling economic activity from energy consumption since 2006 (see decomposition analysis for the period 2005-2014 in Annex 5). Source: Eurostat A similar trend is observed on the global level. According to the International Energy Agency (IEA), energy efficiency improvements in IEA countries accelerated considerably since 2000 and generated enough energy savings to power Japan for a full year. Even in the context of lower energy prices, global energy intensity improved by 1.8% in 2015. While GDP grew by 2% in IEA countries, efficiency gains led to the flattening of growth in primary energy demand. IEA countries saved an average of 490 USD per capita in energy expenditure in 2015 as a result of energy efficiency improvements since 2000. However, besides the multiple benefits of energy efficiency, the level of investment in energy efficiency in Europe is still below its economic potential. Energy efficient investments with a payback time of four or five years are often not undertaken in the private and public sectors. Market and behavioural barriers (see Annexes 4 and 6) hinder consumers from taking up energy efficiency measures, which would lower their energy bills and would bring other benefits for the whole society e.g. health, environmental and economic improvements. EU energy efficiency policies and strategies focus on correcting market and regulatory failures (see Annex 3). This serves to realise energy saving potentials by triggering economically viable investments, which do not take place because of market or regulatory barriers or failures. The current 2020 energy efficiency framework is based on mutually reinforcing instruments: 1)An overall drive for a decrease in energy consumption, via the establishment of an EU headline target to give public and private actors confidence that this is a sector worth investing in. An indicative EU 2020 energy efficiency target was set in 2007 underpinned by indicative national targets notified in 2013 (under Articles 1 and 3 of Directive 2012/27/EU on energy efficiency (EED)). 2)EU policies to speed up the rate at which people and businesses choose to upgrade the energy performance of their buildings, systems and appliances (Article 7 of the EED and financing through European funds and assistance projects). These polices bring more energy efficient products to be traded in the internal market. 3)Minimum performance requirements (depth of the upgrading) for new buildings, buildings which undergo a major renovation, new appliances and new vehicles (Directive 2010/31/EU on the energy performance of buildings (EPBD), eco-design and CO2 standards for vehicles). Energy efficiency is an enabler for economic modernisation. 4)Information for consumers and industry – labels for products, certificates for buildings and consumer rights for metering and billing – to enable them to choose the efficiency level that is right for them (Energy labelling, EPBD, Articles 8 and 9-11 of the EED). 5)Research and innovation particularly through the Strategic Energy Technologies Plan, to bring down the cost of key technologies that are currently technically but not economically viable and to bring them to the internal market. 1.2What is the problem?

The problem for energy efficiency policy in general is that, because of market and regulatory failures, large amounts of cost-effective investments in energy efficiency will not take place. This will lead to a level of energy consumption in 2030 which is not in line with the agreement of the European Council of October 2014 (at least 27% reduction compared to 2007 baseline) and the Energy Union ambition and which does not achieve the multiple benefits related to lower energy consumption in 2030. This level is also not in line with the EU's ambition for decarbonisation by 2050 as all decarbonisation scenarios rely on a significant share of energy efficiency. This insufficient progress in energy efficiency holds back the full benefits of lowering Europeans' energy bills, reducing Europe's reliance on external suppliers of oil and gas, helping protect the environment and mitigating emissions with negative health impacts such as particulate matter and NO2. In addition, the full potential of positive economic and employment impacts of local energy efficiency investments and decarbonising the economy remains unexploited. Well-documented market failures and regulatory barriers include: Information failures; Split incentives; Short investment horizons in both companies and households; Lack of awareness of the "business case behind energy efficiency investments"; High transaction costs for small projects; Capital market failures; and Lack of clear signals for companies to become actors in an energy efficiency market. Existing energy efficiency legislation at EU level already addresses parts of these failures. E.g. the EPBD, via Energy Performance Certificates, provides transparency with regard to the energy use of a building for a future tenant or the owner to address information failures. In addition, it provides an incentive for the owner to invest in energy saving opportunities as those investments are reflected in the rating and, often, in the rental or sale value. Articles 7 (energy saving obligations and alternatives) and 18 of the EED create business cases for companies providing energy efficiency services. The two central failures that energy saving obligations can tackle are high transaction costs and the lack of clear signals for companies to become actors in an energy efficiency market. Without a specific regulatory signal e.g. to energy suppliers, it is difficult to imagine how one of them would be induced to help its customers to save energy and thus ultimately buy less of its services. When such an obligation is generalised and the costs of energy efficiency investments supported by the public budget/passed on to the consumer, electricity and gas suppliers can become an active agent in the transition towards a more efficient and decarbonised economy. Against this background, this Impact Assessment tackles three specific problems: 1)The need to identify the level of energy efficiency ambition for 2030 as well as its character (binding or non-binding) in order to fulfil the political mandate given by the European Council and by the European Parliament. The need for an explicit energy efficiency target for 2030 has already been agreed by the European Council and the European Parliament. The European Council of October 2014 set an "indicative target at the EU level of at least 27%" and requested the Commission to review this level by 2020 "having in mind an EU level of 30%" . In December 2015, the European Parliament voted for a "40 % energy efficiency target; emphasised that the post-2020 EU energy efficiency target should be binding and implemented through individual national targets […]" . The assessment of the impact of the EU’s 2020 target for energy efficiency showed that the adoption of an explicit energy efficiency target played an important role as part of the policy framework for overcoming the barriers to the implementation of cost-effective energy efficiency measures. The identification of the 2030 target will lead to a revision of Articles 1 and 3 of the EED, which currently lay down only the EU 2020 energy efficiency target. 2)Article 7 has a sunset clause for 2020. However, the EED also requires the Commission to assess the progress of implementation of Article 7 by 30 June 2016 and to assess whether it should be extended after 2020. Therefore, the second specific problem identified in this Impact Assessment is the lack of long term predictability concerning provisions of Article 7 which will prevent cost-effective energy efficiency investments. As a consequence, a substantial amount of economically viable energy savings will not be taken up. 3)Persistent information failures affecting energy consumers' ability to understand and regulate their own energy consumption.

The EED (in Articles 9-11) and the Internal Energy Market legislation already contain provisions aimed at enabling/incentivizing energy savings through sufficiently frequent feedback to consumers about (the cost of) their energy consumption. Nevertheless many Europeans still only infrequently receive information based on their actual consumption (e.g. only once or twice a year), and often the information is unclear, incomplete or too complex/overwhelming. This is in part due to the current framework being complex and open to interpretation with regard to the nature and scope of key obligations, and in part due to the potential of new technologies in this field not being fully exploited yet. This Impact Assessment tackles only the three above mentioned specific problems because the main transposition deadline of the EED was in June 2014, and it is considered too early to carry out a full review of the remaining provisions. As required by Article 24(8) EED, the Commission carried out an evaluation of Article 6 on public purchasing of energy efficiency products and services. The findings showed that it is premature to review Article 6 at this stage as Member States are still putting in place the necessary measures for its implementation. Thus, it is not analysed in this Impact Assessment. The evaluation report can be found in Annex X. The legal proposal that this Impact Assessment accompanies also includes a modification to Annex IV of the EED, revising the default coefficient applied to savings in kWh electricity – the so called Primary Energy Factor (PEF). Article 22 of the EED empowers the European Commission to review this default coefficient via a delegated act. However, in this particular occasion of the revision of other provisions of the EED through a co-decision process, the review process for Annex IV is included into the legal proposal for the sake of efficiency and reduced administrative burden. The proposed revision of the default coefficient follows three meetings with Member States and stakeholders conducted in accordance with the rules for the preparation of delegated acts. A summary of the process that concludes the revision procedure of the default coefficient can be found in Annex 9 to this Impact Assessment. 1.3Drivers of the problem The drivers of the problem are the market and regulatory failures that have not been fully tackled by existing energy efficiency legislation. Therefore, large amounts of cost-effective investments in energy efficiency will not take place. a)Regulatory barriers: incorrect/sub-optimal/delayed implementation of the 2020 policy framework might lead to insufficient savings in 2020, having a negative impact on 2030 target and the decarbonisation of the economy in 2050 The EED has not yet been completely transposed by all Member States which might prevent energy savings to be exploited by 2020. However, positive progress can be observed in recent months, with the majority of Member States having fully transposed it. The incomplete and slow legal transposition and implementation is partly due to lack of political commitment for energy efficiency policies in some Member States as it is in particular the case for Article 7, something which might have negative implications in view of the achievement of the 2020 target. A gap towards the 2020 target has implications for the 2030 target as more savings would then have to be achieved in the period post-2020. Delayed implementation may be partly due to missing political commitment or Member States underestimating the transposition needed for the obligations of the EED. The Commission's services initiated infringement procedures for non-communication of all necessary measures of transposition against those Member States which did not declare full transposition of the Directive by the transposition deadline on 5 June 2014 to ensure that the complete legal framework enabling energy savings is in place at national level. b)Short-term perspective The expiration after 2020 of one of the key provisions in the EED, namely Article 7 on savings obligations, will deepen the uncertainty for investors and have a negative effect not only on the long-term planning of national energy efficiency policies, but also on investment decisions made by obligated parties, other market actors and public administrations. Long-term energy efficiency measures will continue to have some effect post 2020. However, without new measures required by legal obligations energy savings will diminish as time goes by. In the absence of a post-2020 framework, preference might be given to short-term measures towards the end of the existing obligation period. In particular, if the energy saving obligation is not continued, electricity and gas suppliers might not continue investing in energy efficiency projects for their customers and hence opportunity will be lost for an innovative and profitable new business segment, also for new energy efficiency service providers. c)Current EU framework on metering and billing is complex and open to interpretation with regard to the nature and scope of certain key obligations An evaluation of the existing EU provisions on metering and billing has identified a number of problems or gaps which limit their effectiveness in guaranteeing adequate provision of information on energy consumption. As regards electricity and gas, this notably arises from the fact that metering and billing is regulated both in the EED and in the Electricity and Gas Internal Market Directives. This could be addressed by consolidating and updating the provisions in the Internal Energy Market legislation and will be done in the context of the forthcoming proposals under the Market Design Initiative. Consequently, the present Impact Assessment only considers metering and billing of thermal energy. For thermal energy (heating, cooling and hot water), the existing EED provisions lack clarity in particular as regards their application in the case of sub-metered consumers (that occupy/use individual units in multi-apartment/purpose buildings). d)Technical progress in metering and billing technologies for thermal energy not reflected in the current provisions of the EED In addition to certain provisions lacking clarity, significant market developments over recent years resulting in cost reductions for intelligent metering systems are not adequately reflected in the current provisions, some of which date back to as far as 2006 (Article 9(1)) of the EED was copied from Article 13 of Energy Services Directive (ESD)). The requirements are therefore rather conservative, and out of date, particularly in a 2030 perspective, when it comes to the promotion of individual measurement devices. There is clear empirical evidence that accurate and timely information on consumption can help trigger behavioural changes leading to additional energy savings. Most heat cost allocators being installed in multi-apartment buildings nowadays are electronic and remotely readable devices not requiring manual readings and access to individual flats, thus allowing for cost-effective provision of enhanced – and notably more frequent - consumption information. Until and unless such devices replace conventional ones requiring access to individual flats, it will in most situations be difficult or too expensive to provide all consumers with such enhanced information in line with the vision for a New Deal for Energy consumers. e)Market barriers: poor access to capital and lack of information Poor access to finance hinders the exploitation of cost-efficient energy efficiency potentials. In particular, the energy poor have no access to the financing needed to reduce their energy consumption.

In addition, ineffective, uncoordinated and fragmented use of public finance - with too great a focus on grants and the use of publically supported financial instruments which are set up ad-hoc, are overly subsidised and do not reach sufficient economic scale to attract private finance can impair the development of well-functioning markets for energy efficiency investments. Today, there are about 200 energy efficiency financing schemes in operation across different Member States, targeting the different markets and testifying to the broad range of different circumstances. In some cases, various schemes address the same sectors and the same beneficiaries in the same Member States, with different intensity of public support and competing solutions. In the area of energy services high intensity grants sometimes crowd out private investment (e.g. in public lighting or industry sectors), which is clearly sub-optimal. In 2015, the Energy Efficiency Financial Institutions Group (EEFIG) reported to the Commission with an analysis of the obstacles that prevent up-scaled investment in economically viable energy efficiency projects. It identified four challenges: 1)De-risking: Addressing the financial community's perception, based on lack of experience with energy efficiency, of the high level of risk of investments in this sector and unclear business case (unclear benefits) at the demand side that reduces the investment appetite; 2)Aggregation: Enabling project promoters to bundle small, heterogeneous projects in larger packages which reduce transaction costs while enabling more effective (and profitable) investment structuring and governance; 3)More effective use of public funding: Reinforcing the use of public finance via financial instruments moving away from grants in favour of instruments that maximise the triggering of private capital allocation for energy efficiency; 4)Regulatory framework: Full implementation of existing energy efficiency legislation as well as "future concerted and consistent regulatory pressure to improve buildings efficiency". The report states that "The importance of leadership and signalling for energy efficiency investments should not be underestimated in the context of the EU's 2030 Climate and Energy package; the headline positioning of energy efficiency targets would impact how EU buildings' energy use will decrease and decarbonize from now until 2050 with intermediate milestones. If the EU wants to unlock the enormous potential for energy savings in its existing building stock then it clearly requires bold policy intervention going beyond the strong implementation of existing legislation." The Commission is tackling these specific issues in its initiative on Smart Financing for Smart Buildings. Energy saving obligations are an important complementary tool as they mobilise private money for energy efficiency investments (usually put in first by the utility and then paid back via energy bills). 1.4Existing framework and outcome of the evaluations 1.4.1Evaluation of progress towards the 2020 target (Articles 1 and 3) In 2007, the EU committed itself to a 20% energy efficiency target in 2020, which means at most 1086 Mtoe of final energy consumption and 1483 Mtoe of primary energy consumption. Member States set their indicative national energy efficiency targets in 2013, which together add up to a reduction in primary energy consumption reduction of 17.6 % in 2020 and 20.6% expressed in final energy consumption. Member States have made efforts to implement EU energy efficiency legislation, mainly the transposition of the EPBD by July 2012 and the EED by June 2014. In addition, energy labelling and eco-design requirements and CO2 light duty vehicle standards have had a considerable impact on products' performance. In 2014 primary energy consumption fell to 1507 Mtoe and final energy consumption to 1061 Mtoe. Compared to the 2007 baseline projections for 2020, this equals a reduction of 18.7% expressed in primary energy consumption and 21.8% in final energy consumption. This means that the European Union is close to achieving its primary energy efficiency target in 2020 and has already achieved its final energy consumption 2020 target, provided this level of consumption can be kept until 2020. While more progress is expected in implementation of energy efficiency policies, economic growth and lower fossil fuel prices might boost energy consumption in the next years. However, the overall expectation is that both targets will be met. Final energy consumption decreased from 1191 Mtoe in 2005 to 1062 Mtoe in 2014 (-11%). Source: Eurostat

Quantifying the saving impacts of energy efficiency measures based on a bottom-up engineering calculation is challenging for each energy efficiency measure as other external factors (e.g. weather) might overcompensate the savings effect of the measure. Furthermore, each type of measure has its own baseline and methodology for calculation of savings and thus adding up measures can only be an approximation. Another method is a top-down approach based on historical energy consumption statistics. Such a top-down calculation, called decomposition analysis, indicates how energy savings, but also other elements, such as increased activity, contribute to changes in energy consumption. Energy savings are mostly brought about by energy efficiency policies, but also by natural replacement of equipment and technological progress. The decomposition analysis does not allow singling out the impacts of each of the policies versus other drivers. However, it gives an indication of how much energy efficiency policies in total (and facilitated by normal replacement and technological progress) might have contributed to the overall downwards trend in energy consumption in the past years. In addition, at this point in time, official historical data is only available until 2014. Therefore the specific impacts of the EED, which came into force in 2014, cannot be shown yet. Nevertheless, the impacts of the other energy efficiency policies which were implemented so far can be estimated. An analysis based on statistical data from 2012 showed that energy savings brought about a reduction of 53 Mtoe in energy consumption in the period 2008-2012 while the economic crisis (or more broadly activity level) contributed to this reduction with 33 Mtoe, structural changes with 5 Mtoe and modal shifts in transport with 3 Mtoe. This analysis was confirmed by a decomposition analysis performed under the Odyssee-Mure project. The analysis shows that a higher level of economic activity, demographic, structural and lifestyle changes would have led to an increase of final energy consumption in the period between 2005 and 2014. However, through the important contribution of energy savings it was possible to obtain a more-than-offsetting reduction in consumption by 151 Mtoe. The contribution of climate and other changes reduced final energy consumption together by 33 Mtoe. This shows that energy efficiency improvements were the most important factor leading to lower final energy consumption in 2014 compared to 2005. Source: Odyssee-Mure To close the remaining gap towards the 2020 target expressed in primary energy consumption, the Commission indicated in its Impact Assessment on Energy Efficiency in 2014 and its Energy Efficiency Progress Report 2015 that Member States need to accelerate their efforts in implementation of European legislation and their own policies in order to achieve their national energy efficiency targets for 2020 or to go beyond them. The National Energy Efficiency Actions Plans (NEEAP) submitted to the Commission in 2014 and the Annual Reports show that Member States, in addition to a range of EU policy measures (e.g. eco-design, labelling, EU ETS, light duty vehicles standards), have introduced energy efficiency measures in the industrial, residential, services, transport and power generation sectors. They indicate that most Member States have increased their effort and either strengthened existing energy efficiency measures or introduced new ones. To achieve the 2020 primary energy consumption target of 1483 Mtoe in 2020, primary energy consumption needed to be reduced by 370 Mtoe compared to 2007 baseline projections for 2020. Primary energy consumption was 1507 Mtoe in 2014. Therefore, an additional reduction by 24 Mtoe is needed by 2020. As highlighted in the Impact Assessment on Energy Efficiency in 2014 proper implementation in the three following policy areas are key for the achievement of the 2020 energy efficiency targets: Article 7 of the EED: The 2011 Impact Assessment on the EED estimated that 108-113 Mtoe of primary energy savings would be delivered by the implementation of Article 7 in 2020. The Commission reassessed the figure during the negotiations down to 84.5 Mtoe in primary energy. A preliminary analysis of the Annual Reports 2016 shows that Member States achieved 12 Mtoe of energy savings in 2014. EPBD: The estimated energy saving impact of 60 – 80 Mtoe energy savings in 2020 of the revised EPBD will not be fully realised unless it is properly implemented. With the current state of implementation 48.9 Mtoe of savings were achieved in 2014. Therefore, proper implementation could bring an additional 15 Mtoe savings. Ecodesign, energy labelling, Energy Star and tyre labelling measures: The different regulations are estimated to contribute with 162 Mtoe primary energy savings in 2020. In 2014, the assessment concluded that poor compliance holds back the full saving potential of Ecodesign and Energy Labelling. With stronger enforcement an additional 4 Mtoe savings could be achieved. These are the three most important policy areas on which Member States should focus in the next years. These policy areas contribute mainly to the 2020 target achievement, but they are also expected to bring the most significant savings in the course of the next decade as they target the sectors in which the highest cost-effective energy efficiency potential was identified in a study and modelling exercise performed in 2014. As the table below shows, targeting barriers to energy efficiency with the help of moderate but targeted policies (LPI scenario) would lead to the highest cost-effective energy efficiency savings in the tertiary sector. If barriers to energy efficiency investments are almost completely removed with strong energy efficiency policies (HPI scenario), the highest cost-effective energy efficiency potentials can be realised in the residential and tertiary sector (final energy consumption in 2030 could be reduced by 25.9% in each sector compared to the baseline scenario). However, also the transport sector and industrial sector also have remaining cost-effective potentials which need to be exploited through the removal of energy efficiency barriers. Source: Fraunhofer, PwC, TU Wien Consequently, all the measures listed above (Articles 7 and 9-11 of the EED, EPBD and ecodesign/labelling) will be analysed regarding their operation post-2020 and in view of the contribution to 2030 target. For other energy efficiency measures no revision is foreseen as the legal provisions that underpin them are fit for purpose. These measures will continue post-2020 (e.g. ESCOs, renovation of public buildings) and they form an important part of the policy mix to exploit the cost-effective energy efficiency potentials in the different sectors. It has to be noted that the additional saving impact of the product legislation is expected to be less in the 2020s than currently, as most of the product groups which bring major additional savings are already covered by ecodesign legislation or other policy regimes or a natural limit of efficiency is achieved – although significant potential remains through reviewing these regulations.

This impact assessment focuses mainly on analysing the potentials of the first policy area, namely EED/Article 7, to deliver the 2030 target. As a part of Energy Efficiency package, a separate impact assessment for the EPBD looks at potentials of buildings renovation. 1.4.2Outcome of the evaluation on Article 7 Overview of the existing framework and progress in implementation Article 7 on Energy Efficiency Obligation Schemes (EEOSs) is designed to attract private investment. It requires each Member State to deliver 1.5% new end-use energy savings per year of retail energy sales over the 2014-2020 obligation period, leaving the Member State to decide whether to achieve this through an EEOS or alternative policy measures or a combination. It is also in the remit of Member States to determine the sectors in which the measures should primarily take place. Energy saving obligations regulate the outcome but leave it to the market operators to determine the most cost effective path for achieving that outcome. It is not the government that decides how the obligated parties deliver their targets. If well-designed, such schemes can address multiple market failures, as they use the knowledge of well-placed actors in the energy sector who have information about the available energy efficiency services, technologies and the behaviour of their customers. They address the challenge that households in many cases do not have the necessary capital for upfront investments, nor the knowledge of what would be technically and economically feasible in each case. They can ensure that energy efficiency investments benefit from a scale effect and hence can lower the transaction costs for energy efficiency projects. Also they provide a general incentive to invest in energy efficiency in a market environment with inflexible prices and puts energy providers at the centre of the energy sector transition. In a well-designed scheme, the market delivers the desired outcome at least-cost. Energy saving obligations can further encourage the development of an ESCO sector, which is a key element in stimulating the adoption of energy efficiency improvements. At the time of adoption of the Directive in 2012, the Commission services estimated that Article 7 and the related Annex V would be responsible for more than half of the energy savings the Member States should achieve under the EED. In implementing this provision, Member States' subsidiarity has been respected by leaving them flexibility in how they achieve the 1.5% end-use savings as long the cumulative savings amount is achieved by 2020. For example, Member States can choose a wide range of policy measures, energy using sectors and individual energy efficiency improvement actions (in total 477 measures were notified to achieve the 250 Mtoe of end-use savings by 2020, and 16 out of those are obligation schemes implemented by utilities). Finally, Member States were free to not adopt an energy savings obligation scheme if in their particular regulatory context this was not deemed to be the most cost effective way, e.g. when due to a long history of national energy efficiency legislative efforts other measures already addressed the lack of incentives for energy efficiency investments. Given the fact that the EED has triggered the uptake of energy efficiency obligation schemes (increasing in number from 5 to 16), and the fact that some Member States use specific trading platforms at national level, the Commission services organised a stakeholder meeting on 29 February 2016 to discuss the feasibility of cross border tradability of documented savings. The outcome of the meeting suggests that at this stage it is not feasible to establish an EU white certificate scheme and thus the option of tradability of savings across Member States was not considered in this impact assessment (see Annex 1). Conclusions of the Evaluation In terms of effectiveness, the evaluation of the implementation of Article 7 on energy efficiency obligation schemes and alternative measures reveals that Member States are on track to achieve the required savings by 2020 (based on their current notifications), provided that the measures are effectively implemented and that robust monitoring and control systems are established to check the credibility of reported energy savings. The evaluation showed that simplification of certain requirements of Article 7 and clarification of aspects such as what savings are eligible as well as concepts such as 'materiality' would improve implementation at national level and would allow an effective and efficient achievement of the required savings by Member States. In terms of efficiency, the evidence of pre-existing schemes shows that the EEOS are highly cost-effective instruments. Certain alternative policy measures also tend to be cost-effective, for example voluntary agreements, taxation measures and financing schemes and incentives. Despite initial start-up costs, the administrative costs to run EEOSs are relatively low, although they can be expected to vary between Member States. There is more evidence available on how the monitoring and verification systems work for the EEOS than for the alternative measures, including only limited evidence on the administrative costs associated with the monitoring of the alternative measures under Article 7. In terms of relevance, Article 7 remains relevant as it addresses a wide range of market and regulatory failures and can, in particular, be instrumental for making energy efficiency services and investments a business case. This becomes even more relevant in the context of the new 2030 ambitious climate and energy objectives. In terms of coherence, Article 7 remains coherent with other measures of the Energy Efficiency Directive. The energy savings requirement of Article 7 provides an important contribution to the EU's collective energy efficiency target as set out in Article 3. It also complements other EU energy efficiency policies in two ways. Firstly, only those energy savings that exceed the minimum requirements of other EU policies are eligible and can be counted towards the Article 7 target, so overlaps are minimised. Secondly, it drives forward the application of the energy efficiency requirements of other policies. For example, the Energy Performance of Buildings Directive (EPBD) sets minimum energy requirements for new or renovated buildings, but contains no requirements as to how many buildings must be renovated, or by when. By contrast, Article 7 requires Member States to show actual energy savings, and therefore encourages the building renovations to take place in practice. The same logic applies to eco design and energy labelling, when Member States have policies under Article 7 to encourage the purchase of highly efficient boilers or household appliances. Article 7 can therefore be seen as a 'pull' factor which increases the practical application of the other EU energy efficient policies, and indeed for national energy efficiency policies. Finally, in terms of added value, Article 7 allows more effective and coordinated achievement of the EU 2020 energy efficiency objectives, while respecting the subsidiarity. Article 7 allows ensuring the stability to investors that in turn helps unlock the needed financing for implementing the energy efficiency measures. 1.4.3Outcome of the evaluation on Articles 9-11 (on metering and billing) Overview of the existing framework and progress in implementation EED Article 9 contains provisions on individual metering generally, on smart metering of electricity and gas and on metering of thermal energy in multi-apartment/purpose buildings. Article 10 sets requirements for consumption based billing information in general (incl. as regards minimum frequency) and requirements on consumption information from smart meters for electricity and gas, as well as general information and billing requirements pertinent to costs, consumption and payment. Article 11 ensures that metering and billing are generally free of charges and sets out the conditions for the pass-through of cost of sub-metering/billing. In addition, Annex VII sets minimum requirements for billing and billing information based on actual consumption. These requirements set out both general requirements for all energy forms and specific requirements for where smart electricity and gas meters are installed, without requiring that such meters are installed. These complement the provisions in the internal market legislation on roll-out and functionalities of smart meters. The EED also covers thermal energy forms, which are not addressed in the internal energy market legislation. Given that provisions on metering and billing are found in both the EED and in the Internal Energy Market (IEM) legislation, the Commission services developed "thematic" cross-cutting evaluations of these. The evaluation concluded that amendments to Articles 9-11 and related Annex VII would improve effectiveness, as detailed below. The objective of Articles 9-11 is to strengthen the empowerment of final customers as regards access to up-to-date information on their actual, individual energy consumption at a frequency enabling them to regulate their energy use. The evaluation of existing metering and billing provisions notes that it is too early to draw too many firm conclusions as regards the effectiveness of Articles 9-11 of the EED given the relatively recent deadline for EED transposition (5 June 2014) Nevertheless it is already possible to identify, as regards the thermal sector, certain gaps, problems and potential improvements and clarifications. There was an evident intention at the time of the adoption of the EED to clarify the pre-existing requirements on metering and billing that were then contained in the 2006 Energy Services Directive, and in the IEM legislation. This intention was however only partially met and the current framework remains complex and open to interpretation with regard to the nature and scope of certain key obligations. This is particularly the case regarding the rights of consumers in multi-apartment/purpose buildings with central supply of heating, cooling and/or hot water to be informed about and billed according to their own consumption and the frequency with which this must happen. Moreover, Articles 9(2) and 10(2) of the EED specifically concern requirements for smart electricity and gas meters, the roll-out of which is regulated in the IEM Directives and covered by a partially overlapping Commission Recommendation.

Conclusions of the Evaluation In terms of effectiveness, the evidence available suggests that the provisions on metering and billing in the IEM Directives and EED, to the extent they can be assessed at this time, together are likely to have made some contribution towards the achievement of their dual objectives (enabling energy savings and effective consumer choice), although it is very difficult to quantify. However, the ambiguous wording of certain provisions has substantially reduced their impact, depending on how they were interpreted in individual Member States. This not least concerns the applicability of billing/information provisions for sub-metered consumers of thermal energy. In terms of efficiency, there is reason to assume that the provisions considered have generally been efficient in terms of the proportionality between impacts and resources/means deployed. With regard to relevance, most provisions remain highly relevant, although parts of both the IEM and the EED to some extent have been surpassed by developments and could benefit from being revisited / updated, including in the light of technical progress made in terms of the deployment of remotely readable devices for heat measurements. In terms of coherence, the evaluation pointed to a number of issues where improvements would seem possible and desirable. Most importantly it would be simpler to ensure full consistency if billing and metering for gas and electricity was regulated in only one place and not also covered by EED legislation, hence those provisions should be moved to the Electricity and Gas Market Directives in the context of the future market design proposal. As regards the EU added value, the evaluation concluded that, in a single market for energy, there is a strong case for suppliers being subject to similar if not identical obligations and rules, and for consumers to enjoy the same basic rights and be provided with comparable and recognisable information. Delivering a New Deal for energy consumers as part of an Energy Union with consumers at its heart means inter alia providing consumers with frequent and meaningful, accurate and understandable information on their energy consumption and related costs. This contributes to realising the Energy Union and meeting EU goals on energy efficiency and greenhouse gas reductions. 1.5Why does the problem need to be tackled now? The assessment of 2030 energy efficiency target needs to be developed now for several reasons: 1.The level of the EU wide target for energy efficiency affects the amount and type of greenhouse gas reductions achieved in the non-ETS sectors. This in turn contributes to the achievement of the national green house gas (GHG) reduction targets for the non-ETS sectors in the Effort Sharing Regulation for which Commission's proposal was published on 20 July 2016. The aim of the Regulation is to achieve in 2030 the EU 30% GHG emission reductions compared to 2005 in the non-ETS sectors. However, energy efficiency policies will not only contribute to the emission reduction targets for 2030, they are also helping pave the way for a cost-efficient way for 80-95% emission reductions by 2050 (see Annex 3). 2.Current uncertainty about the energy efficiency ambition for 2030 can lead to delays and lower ambition of national contributions to EU objectives under the governance process of the Energy Union. The new governance system will ensure that a transparent and reliable planning, reporting and monitoring system is in place for all 2030 climate and energy targets, based on integrated national energy and climate plans and streamlined progress reports by Member States. Therefore, a timely and clear agreement on the energy efficiency target for 2030 is important to ensure a coherent planning of climate and energy policies on a national and European level. 3.The market design and renewable energy initiatives of the Commission will cover areas which are also linked to energy efficiency policies e.g. metering, consumer rights and demand response and deployment of renewables. To ensure that the energy efficiency is seen as an energy source in its own right and to accommodate energy efficiency and its value in increasingly flexible market, the contribution of energy efficiency in 2030 needs to be fixed. The overall energy efficiency framework should be made fit for purpose for the 2030 perspective to ensure that the different pillars of the Energy Union are coherent. 4.The Commission adopted in July 2016 its Strategy for Low-Emission Mobility . The transport sector has the highest share of final energy demand. It can make an important contribution to energy efficiency notably via standards for vehicles and transport management policies. Furthermore, in the transport sector, potential synergies can be exploited in terms of realising important co-benefits in terms of decrease in pollution, congestion and thus improving quality of life, especially in cities. Therefore, different levels of the 2030 energy efficiency target require efforts in the transport sector which are analysed in this impact assessment and, in more detail, in the Staff Working Document accompanying the Communication Strategy for Low-Emission Mobility. As regards the metering and billing provisions in Articles 9-11, the problems identified need to be addressed now in order to contribute to the delivery of a New Deal for Energy Consumers announced as part of the Energy Union. Delivering the New Deal means providing consumers with frequent access, including in near real-time, to partially standardised, meaningful, accurate and understandable information on consumption and related costs as well as the types of energy sources not just on electricity and gas but also on heating and cooling was set out in the Heating and Cooling strategy. 1.6Nature and extent of the problem The 2016 EU Reference scenario ('REF2016'), reflecting a scenario based on currently implemented policies and adhering to binding 2020 targets, demonstrates that the EU objectives of sustainability, energy security and competitiveness will not be reached. It indicates that the current national and European energy efficiency framework would lead to 23.9% of primary energy reduction compared to 2007 baseline projections in 2030. In the EU Reference scenario, primary energy consumption reaches 1436 Mtoe and final energy consumption reaches 1081 Mtoe in 2030. This is because without a 2030 energy efficiency framework, large amounts of cost-effective investments in energy efficiency will not take place in the different sectors. This is in itself damaging for all EU citizens because the benefits for the environment, lower energy costs for households and companies, increased jobs and economy-wide economic activity and health protection possibilities are not exploited. Insufficient energy efficiency could also increase the risk of not achieving the agreed objective of at least 40% GHG reductions by 2030 and put the 2050 long term goal to decarbonise our economy in jeopardy or outside a cost efficient trajectory. In terms of security of supply, high energy demand increases the dependence of the EU on energy imports, in particular of gas. Gas imports amounted to 254 Mtoe in 2014 and in the Reference scenario are projected to rise to 295 Mtoe in 2030. Various Member States rely on fossil fuel imports from single providers and their dependency on single import routes create many risks, including price volatility and sudden disruptions of supply.

The evaluation of Article 7 shows that the saving obligation will play a key role in the delivery of the 2020 target thanks to its "pulling" effect as it attracts private investment in energy efficiency, thus increasing the rate of energy efficient renovations or uptake of energy efficient appliances and techniques. Therefore the expiry of Article 7 would not facilitate the realisation of sufficient savings in view of a 2030 target. It is likely that some Member States with a strong political drive for energy efficiency would continue using this instrument in the absence of EU framework, but the situation before the EED was adopted suggests that most would not. With regard to metering and billing, the lack of clarity of certain key provisions has become evident in the course of the work with Member States to transpose and implement the provisions nationally, and dialogue with/feedback from stakeholders have confirmed that major divergences in interpretations exist, e.g. as regards the applicability of provisions for sub-metered heat consumers. The analysis presented later in this reports seeks to estimate the extent of the potential energy savings not exploited due to inadequate consumption information being given to sub-metered consumers of thermal energy. 2Why should the EU act? According to Article 194 of the Treaty on the Functioning of the European Union, Union policy on energy shall aim, in a spirit of solidarity between Member States, to promote energy efficiency and energy savings. The European Parliament and the Council, acting in accordance with the ordinary legislative procedure, shall establish the measures necessary to achieve the objectives. In October 2014 the European Council requested the Commission to review the minimum 2030 energy efficiency target of at least 27% by 2020, having in mind an EU level of 30%. In December 2015, the European Parliament pointed to the need to assess the viability of a binding 40% EU energy efficiency target. Agreeing on a common framework for energy efficiency for 2030 on the EU level as part of the overall energy and climate framework will help Member States to achieve a sustainable, secure and affordable energy system for European society as a whole and for European citizens. These challenges cannot be tackled at national level alone as climate change and security of supply are trans-boundary problems. All Member States face the same risk of increasing energy prices, which could lead to high energy bills for consumers and could weaken Europe's competiveness. The 2020 framework has been already proved to be an effective way of targeting these challenges. Co-ordinated EU action helps Member States to better target national energy efficiency policies. EU-wide headline targets, coherent with other energy and climate objectives, namely the ETS, the Effort-Sharing Regulation and the EU Renewable energy target for 2030, facilitate the establishment of national policies and indicative targets. As in 2020, Articles 1 and 3 of the amended EED would again provide the appropriate legislative framework for all Member States to fix a coherent European 2030 energy efficiency level. The overall level of target will influence the level of ambition of European energy efficiency policies, notably EU standards. The role of Member State action will, however, remain crucial to delivery of the target as it is mainly national measures that contribute and ensure meeting the overall agreed EU target. If cost-effective investments in energy efficiency are not undertaken, then other potentially more costly mitigation measures need to be taken to achieve the same GHG reduction effort. Therefore improving the business case for energy efficiencies can reduce the overall costs of GHG abatement as long as Member States have sufficient freedom to define the areas which they want to target and the policy approaches. The market and regulatory failures identified above are of relevance to all Member States alike as they are inherent to energy efficiency rather than linked to certain political and institutional set-ups. In particular all EU Member States will need to bring their energy systems on a decarbonisation path and create a framework in which there is a strong business case for energy efficiency. One of the main articles of the EED is Article 7 which has delivered an effective contribution towards reaching the agreed indicative EU energy efficiency targets. With its binding nature, it requires Member States to address the fundamental obstacles preventing energy efficiency to take place – either through an obligation or through a set of alternative measures with similar effect. This is necessary as otherwise EU instruments only set minimum requirements, but do not fundamentally improve the attractiveness of investing in energy efficiency as such. In line with the Better Regulation guidelines, Member States have significant flexibility on how they implement Article 7, thus allowing all energy consumers in the EU to benefit from energy savings both directly (reduced energy consumption and lower energy bills) and indirectly (higher comfort level and better air quality, etc.). The extension of Article 7 is important in particular for the development of an energy efficiency market. It promotes investments and energy services available in the market thanks to the increased demand for energy efficiency improvements. This in turn creates new jobs, triggers innovation and the development of new technologies and techniques. In a single market for energy, there is a strong case for suppliers being subject to similar, if not identical, obligations and rules, and for consumers to enjoy the same basic rights and be provided with comparable and recognisable information. The EU needs to decide if and in which form Article 7, which would be a major contributor to the 2030 target, should continue to ensure that cost-effective energy saving measures are implemented post 2020. Updating the existing energy savings requirement of Article 7 is fully in accordance with the energy legal base introduced by the Lisbon Treaty, is in line with the conclusions of the evaluation of the EED and also fully respects the principle of subsidiarity by leaving it to the Member States to decide which policies and measures they would use to achieve the required savings in accordance with their national situation and specificities. With respect to Articles 9-11 only the EU can act to ensure that its legal provisions are sufficiently clear and adequately reflect the possibilities offered by technological advances made. Guaranteeing certain minimum standards in terms of the frequency and content of billing and billing information empowers consumers and contributes to realising the Energy Union. This proposal is entirely in line with Article 37 of the Charter for Fundamental Rights, under which a high level of environmental protection and the improvement of the quality of the environment must be integrated into the policies of the Union and ensured in accordance with the principle of sustainable development. The proposals on metering and billing of energy for consumers will help ensure a high level of consumer protection, as required under Article 38 of the Charter. The requirement that meters or cost allocators be remotely readable respects the right to privacy of home and family life. The increased emphasis on solutions to energy poverty helps to combat social exclusion and poverty in accordance with Article 34. Overall, the revised EED framework will help achieving the 2030 climate targets in a cost-effective way, while leaving flexibility to Member States on how to achieve the savings. 3What should be achieved? The general objective of this initiative is to ensure that energy efficiency contributes to the development of a competitive, sustainable and secure EU energy system in 2030 and beyond, as recognised by the Energy Union Strategy and in accordance with the 'energy efficiency first' principle. The three specific objectives are as follows: 1.To respond to the political mandate given by the European Council and the European Parliament to determine the energy efficiency target in 2030, taking into account the multiple benefits and costs related to lower energy consumption, while respecting all other 2030 objectives. In addition, it has to be assessed whether the target should be binding or non-binding in nature. 2.To ensure that Article 7 contributes to the achievement of the energy efficiency target for 2030, as well as the overall GHG targets for 2030 and beyond by attracting private investments. In this respect, a business case for long-term energy efficiency private investments post 2020 needs to be ensured, while respecting the overall architecture of EU energy and climate change policies.

3.To empower consumers of thermal energy through better and sufficiently frequent feedback on their consumption including by taking advantage of progress in technology. The three operational objectives are as follows: 1.In relation to the energy efficiency target, a legal revision of Article 1 and 3 is necessary to fix the EU 2030 energy efficiency target. 2.In relation to Article 7 it will require a legal revision of the policy framework so that it ensures that Member States achieve their required national energy savings by the end of 2030. 3.In relation to Articles 9-11 a legal revision is necessary to clarify the metering and billing requirements for consumers of heating, cooling and hot water and update them to reflect the capabilities of the technologies now available. 4What are the various options to achieve the objective? 4.12030 energy efficiency target level – policy options for Articles 1 and 3 4.1.1Level of energy efficiency target As discussed above, the updated 2016 EU Reference scenario (REF2016) indicates that with no new policies beyond those adopted by the end of 2014, only 18.4% reduction of primary energy consumption will be achieved in 2020 (hence missing the 2020 indicative target). As the policy initiative supported by this impact assessment does not propose additional measures before 2020, the policy scenarios do not achieve the 2020 target either. In this respect, the policy scenarios are conservative. If the 2020 target is indeed achieved – and the Commission believes that it will be - less effort and investments will be needed after 2020 to achieve any given 2030 target. REF2016 projects a 23.9% primary energy consumption reduction compared to the 2007 baseline projections for 2030. It is assumed that national policies to achieve the required savings under Article 7 are mostly phased-out after 2020 because of the expiry of this article. Renewable energy would account for 24.3% of gross final energy consumption and GHG emissions would be reduced by 35.2% (37.7% in the ETS sectors and 23.7% in the ESD sectors) in 2030. Different energy models have been used in order to respond to the political mandate given by the European Council and the European Parliament to determine the energy efficiency target in 2030, taking into account the multiple benefits and costs related to lower energy consumption, while respecting all other 2030 objectives. Energy efficiency targets need to be assessed within the framework of the other targets that have been agreed by the European Council, i.e. an overall GHG emissions reduction (at least 40% compared to 1990), a GHG emissions reduction in ETS sector (43% compared to 2005, including the Market Stability Reserve and the proposed revision of the linear reduction factor), a GHG emissions reduction in sectors covered by the Effort Sharing Regulation (30% with respect to 2005) and renewable energy shares in final energy consumption (at least 27%). The different policy areas reinforce each other and are analysed as a package. In terms of ETS and non-ETS targets in 2030, these are met in the EUCO27 and EUCO30 scenarios, but necessarily overshoot in some of the more ambitious scenarios. In contrast to the REF2016, all policy scenarios are consistent with the EU's long term GHG reduction objective for 2050. The first policy option is to achieve a target of 27% reduction of primary energy consumption (compared to the 2007 baseline), the minimum energy efficiency ambition level agreed by the European Council in 2014. The scenario that reflects this policy option is considered as the baseline scenario in this impact assessment and the policy scenarios are, most often, compared to this scenario. Four further policy options explore 2030 targets of a 30%, 33%, 35% and 40% reduction of primary energy consumption (compared to 2007 baseline). The policy options with a level above 30% energy efficiency in 2030 also include higher RES shares of 28% which makes them closer to the 2030 renewable energy target called for by the European Parliament. The baseline scenario and the four policy scenarios which reflect the different policy options are called respectively EUCO27, EUCO30, EUCO+33, EUCO+35 and EUCO+40. Comparing the policy scenarios against REF2016 would show the costs (notably investment expenditure) necessary to achieve the GHG, Effort Sharing Regulations and RES target all together. Likewise, if compared to REF2016, benefits shown by a policy scenario are combined benefits of achievement of all targets. If, however, the policy scenarios are compared to EUCO27 (which is considered as the baseline), they only show incremental changes in impacts due to scaling up level of energy efficiency.

The mix of energy efficiency policies assumed for the scenarios follows the logic of the current European legislation. This policy mix involves policy instruments including carbon pricing to reduce emissions in the ETS and non-CO2 emissions in the non-ETS sectors, standards, reduction of market barriers, incentives and obligations related to energy efficiency and RES policies in a coherent manner across Member States, taking into account the current policy framework (as developed in the REF2016). A top-down modelling approach was used to show the impacts of different energy efficiency levels on the energy system (e.g. energy mix) and macro-economic impacts (e.g. GDP, employment), social, environmental and health impacts. Energy efficiency policies are, however, depicted only in an aggregated and stylised manner which does not allow quantifying the achieved savings or costs of individual policy measures (e.g. Articles 7 or 9-11 of the EED). The link between the policy scenarios and what they mean in practice can be explained in the following way: the energy efficiency targets are achieved by simulating a mix of European and national energy efficiency policies in all sectors: residential, tertiary, industrial, transport and supply. The mix of energy efficiency policies assumed for the scenarios follows the logic of the current European legislation: the EED, the EPBD, regulations adopted under Eco-design, energy labelling and specific measures in transport (e.g. CO2 standards for cars and vans). The stringency and intensity of the policy differs between the policy scenarios. Overall, the modelling aims to reflect a cost efficient achievement of GHG reductions in the context of different sets of GHG, energy efficiency and RES targets and existing policies. The set-up of the five policy scenarios is different with respect to the intensities of the following policies: Standards (eco-design, building codes and CO2 standards for vehicles) are intensified for all sectors in the different policy scenarios. Standards are an essential feature of a cost-effective approach. Both modelling experience and current practice show that the benefits in terms of economies of scale and overcoming market failures by using internal market rules are very important. For the most ambitious scenarios, the application of BAT (best available technology) in industry is assumed. Shadow Energy Efficiency Values (EEVs) were applied and scaled up representing yet to be identified policy measures aiming at achieving energy savings (notably reflecting implementation of Article 7, other national incentive and saving schemes). As EEVs apply to the entire residential, tertiary and industrial sector, they trigger the most cost-effective options in these sectors. The use of behavioural discount rates was adjusted with increasing energy efficiency levels in 2030. The Commission is working on improving financial instruments and other financing measures at the European level to facilitate access to capital for investment in thermal renovation of buildings. Together with further labelling policies for heating equipment and for other product groups, this can lead to a reduction of behavioural discount rates for households and the service sector. Some specific measures aimed at improving the efficiency of the transport system and managing transport demand are included as scenarios become more ambitious, in line with measures assumed in the scenarios presented in the Staff Working Document on Low Emission Mobility (e.g. full internalisation of local externalities on the inter-urban network, ambitious deployment of Collaborative Intelligent Transport Systems, promotion of efficiency improvements and multimodality, taxation). Policies were assumed which are facilitating the uptake of heat pumps for the scenarios more ambitious than EUCO27 to reflect option 3.b of the Article 7 analysis which would allow counting savings stemming from on-site renewable energies (e.g. heat pumps) within the 25% exemptions, more ambitious eco-design/labelling policies in this respect and the change of the primary energy factor. A description of the approach and definition of the policy scenario is to be found in Annex 4. As explained above, while some energy efficiency policies, notably standards for different product groups, are represented in greater detail, others are represented in an aggregated and stylised manner and the impacts of such policies are subject to higher uncertainty. Therefore the assessment regarding the level of the target would have to be complemented by specific assessments and associated analytical tools that would assess in more detail the effects of specific policy measures and instruments (but which lack a system-wide perspective). It is therefore likely that different policy mixes and specific policy instruments, different parameters of these policies (e.g. in case of CO2 standards for cars and vans) and nature of instruments (e.g. regulation, voluntary agreement, financing, information campaign) from the ones assumed in this modelling exercise might be necessary, appropriate or desired. 4.1.2Character and formulation of energy efficiency target With regard to the character of the 2030 Energy efficiency target, the policy options start from the European Council Conclusions 2014 and the 2015 request from the European Parliament as described above. Policy options Articles 1 and 3 Option 1.1 Continuation of the current framework: Indicative EU target, indicative national pledges coupled with specific EU measures together with a governance system. Option 1.2 Binding EU target, coupled with indicative national pledges and specific EU measures together with a governance system. This would replicate the intended approach for the renewable energy targets for 2030. Option 1.3 Binding national targets. With regard to the formulation of the 2030 Energy efficiency target, the options as shown in the table below are analysed. Policy options Articles 1 and 3 Option 2.1 Energy saving target Option 2.2 Final and primary energy consumption target Option 2.3 Either final or primary energy consumption target Option 2.4 Final and primary energy intensity target





4.2Attracting private investment – Policy options for Article 7 A set of policy options including non-legislative and legislative options are considered in order to address the drivers of the problems identified above. Policy options Article 7, Annex V (energy savings obligation) Option 1 – No changes relating to regulatory framework Baseline scenario – no regulatory action at EU level; continue with guidance on regulatory framework and work on enforcement until 2020 Option 2 – regulatory Extend Article 7 to 2030 Option 3 – regulatory Extend Article 7 to 2030; simplify and update Option 4 – regulatory Extend Article 7 to 2030; increase the rate of savings 4.2.1Option 1: Baseline scenario – no regulatory action at EU level; continue with guidance on regulatory framework and work on enforcement until 2020 If pursued with this option, the regulatory framework which requires Member States to achieve annual savings of 1.5% from the annual energy sales under Article 7 of the Directive would expire after 2020. Under this option, the focus would be on continuing providing guidance to Member States on the application of the requirements of Article 7 and Annex V until 2020, such as what savings can be counted and on materiality or on the existing scope of eligibility (which were all assessed in the evaluation) in order to avoid delays in implementation and incorrect implementation. At national level, energy efficiency obligation schemes would possibly continue in some Member States. Some alternative measures (in particular renovation of buildings) might also still be pursued although only as voluntary action and continue delivering some savings beyond 2020 and 2030 thanks to the long lifetimes of these measures. It is difficult to estimate to what extent such voluntary action would generate new savings, but it is likely that this would be minimal without EU intervention given the previous experience. Exchange of best practice and experience through organising thematic workshops and seminars would be part of the work on enforcement. The focus would be on the annual monitoring of Member States' performance until the end of 2020, dialogue with Member States, and relevant infringement proceedings could also be taken in the context of the existing regulatory framework laid down to achieve the cumulative savings requirements by 31 December 2020 in line with Article 7(1). While this option would reduce the risk of non-delivery of savings by 2020, it would however not address the issue of the short term perspective as Article 7 would cease to apply after 2020 and thus would not secure the needed investments to achieve savings and would not address the existing market and regulatory barriers in view of the 2030 target. This might in turn put a significant risk on the achievement of the EU 2030 energy efficiency target and also on the greenhouse gas emissions GHG target which depends strongly on energy efficiency measures (especially for non-ETS sectors) to be implemented in all Member States. A number of respondents to the public consultation (including Member States) pointed out that guidance is needed on materiality and on which savings can be counted. Many respondents stated that exchange of best practice through platforms and workshops is also needed. The non-regulatory financial measures set out in the Smart Financing for Smart Buildings Initiative would enable a framework with greater private capital participation for in the sector. However, the necessary up-take of the opportunities offered by this framework would not be guaranteed and would be significantly lower without Article 7. 4.2.2Option 2: Extend Article 7 to 2030 This option foresees the extension of Article 7 beyond 2020 while retaining the existing approach (1.5% of energy end-use savings from annual energy sales to be achieved via energy efficiency obligation schemes and/or alternative measures). Other options with a slower rate of savings are not investigated here because evidence shows that the current rate of savings is likely to be cost-effective in narrow terms, even without taking into account wider societal benefits. In this option Article 7 will retain the same level of flexibility for Member States to fully or partially exclude energy sales in transport from the baseline (used by almost all Member States) or to use the four different exemptions up to 25% of the total saving requirement. Besides flexibility in the calculation of savings requirement, Member States will retain their freedom how to achieve the energy savings in terms of selecting measures according to national situation and choosing the end-use sectors, including choosing how the savings are distributed over the whole commitment period as long the cumulative amount is achieved by the end of the period. This flexibility will also be important to maintain coherence with the flexibilities foreseen for the achievement of the proposed more ambitious non-ETS GHG emissions targets in Member States under the Effort Sharing Regulation in view of the 2021 to 2030 period. Member States would be required to continue achieving new annual savings of 1,5% for ten year periods after 2030, unless review(s) by the Commission conclude that this is not necessary to achieve the Union's long term energy and climate targets for 2050. 4.2.3Option 3: Extend Article 7 to 2030; simplify and update

As under the previous option, the extension of the period to 2030 would be in line with the general objective of aligning Article 7 with the overall 2030 framework for climate and energy. In addition to the elements analysed under option 2, this option aims at simplification and clarification of certain requirements posing most challenges in the current framework, in particular how to calculate savings. Article 7 already allows Member States to impose requirements with a social aim, in particular related to energy poverty, on energy companies under their energy efficiency obligation schemes. The need to tackle energy poverty has been recognised politically at the EU level. Extending Article 7 to 2030 could encourage more Member States to include social aims in the measures they use to achieve their savings obligation in the next obligation period, in particular in relation to households affected by energy poverty. If it were not considered appropriate to propose any regulatory action, consideration should be given to guidance, monitoring and reporting and exchange of good practice, etc. Sub-option a) Simplification of what savings can be counted The current Article 7 and Annex V lay down that only energy saving which are additional to those required under other EU legal requirements, can be counted for the purposes of Article 7. The evaluation shows that as it applies to savings calculated from national building codes , this requirement has been difficult to understand and to apply. It could be simplified by allowing Member States to count all savings stemming from energy efficiency renovations under national building codes, not only those above the cost-optimal level set in accordance with the Energy Performance of Buildings Directive, provided the materiality criterion is fulfilled. This would facilitate the calculation of savings triggered by energy efficient renovation of buildings. This option would trigger more renovations of existing buildings, encourage long term energy saving measures and also ensure greater coherence with the EPBD. Under this option the Commission would aim to develop a harmonised notification template (as suggested by the evaluation) for Member States to submit the Article 7 notifications for measures in the 2020-2030 period, which would then be integrated in the national energy and climate plans under the governance initiative of the Energy Union. Sub-option b) Allow counting on-building RES This sub-option looks at whether Member States and obligated parties could be allowed to count to some extent on-building renewable energy measures towards their Article 7 savings requirement. 4.2.4Option 4: Extend Article 7 to 2030, increase the rate of savings Similarly as under the previous options 2 and 3, the extension of the commitment period to 2030 would be in line with the general objective of aligning Article 7 with the overall 2030 framework for climate and energy. Two different levels of increased annual savings requirement for future obligation periods are examined while retaining the existing flexibilities and exemptions under Article 7(2). Sub-option a) 1,75% savings per year; Sub-option b) 2,0% savings per year. These more ambitious levels should be looked only in conjunction with more ambitious scenarios for the energy efficiency target in 2030. 4.3Empowering consumers - Policy options for Articles 9-11 This impact assessment considers options with respect to thermal energy forms only – that is, metering and billing of heating, cooling and hot water supplies. Electricity and gas aspects will be addressed in the context of the Market Design Initiative. Given that the objectives are essentially to clarify and simplify the existing requirements in certain places (taking advantage of the fact that EED Articles 9-11 in the future would focus on thermal energy carriers only), whilst at the same time addressing some specific policy objectives already announced in the New Deal for Energy Consumers Communication and in the Heating and Cooling Strategy, only two options are considered: Non-regulatory (based on further guidance) and regulatory clarification and updating of provisions relating to thermal systems. It should be stressed that Article 9(3) was introduced with the EED and the deadline for the application of its second subparagraph is only 31 December 2016. It is, therefore, premature to evaluate and change that particular subparagraph. However, the ongoing transposition work has already exposed challenges related to ambiguities in other provisions. Option Option 1 Option 2 Short title Component/sub-options Non-regulatory guidance Clarification / updating Further guidance related to thermal energy in multi-unit buildings ✓ ✓ Simplification and clarifications of min. billing requirements, e.g. -Applicability to sub-metering -Simplified feasibility conditions for billing & billing info -Nature of comparisons (✓) ✓ Heat meters/cost allocators must be remotely readable to enable enhanced consumption feedback -if installed after 1 January 2020 -anywhere as of 2022 Member States required to introduce transparent rules on cost allocation ✓ Further clarifications and simplifications -Improving coherence & eliminating redundancy ✓

4.3.1Option 1: Non-regulatory – Continue with the existing framework but give further guidance Under this option, Articles 9 to 11 would not be changed with respect to thermal energy, and the focus would be on implementation and enforcement of the existing provisions based on the already issued Commission guidance note of November 2013 and on further guidance. Such further guidance is currently already under development with respect to heating, cooling and hot water in multi-apartment/purpose buildings. This further guidance in particular focuses on the good practices for the application by Member States of the technical feasibility and cost-effectiveness criteria in Article 9(3), but could conceivably be expanded to include further guidance on any other issue related to the interpretation and implementation of Articles 9-11. The key arguments in favour of this option are regulatory stability as the Directive is relatively recent. 4.3.2Option 2: Clarification and updating of provisions relating to thermal systems Under this option, in addition to the guidance already under development referred to under Option 1, Articles 9-11 of the EED and Annex VII would be changed to clarify, simplify and modernise with respect to thermal energy whilst they, in so far as electricity and gas are concerned, would be consolidated with the provisions in the Internal Energy Market legislation and any future changes proposed to these as part of the Market Design Initiative. More specifically, the following sub-options could be considered: 1.1. Require heat measurement devices (meters or heat cost allocators) to be remotely readable

- If they are newly installed as of 1 January 2020; - Anywhere by 1 January 2027. Both would aim at enabling transition to at least monthly feedback by 2022 for all buildings where meters or heat cost allocators are in place. 1.2. Require that Member States "shall" rather than "may" introduce transparent rules on cost allocation (cf. Article 9(3)). 1.3. Clarification and simplification 1.3.1. General clarification of applicability to sub-metered heat consumers (in particular clarify the extent to which obligations relating to "final customers" in Articles 9, 10 and 11 apply to consumers in multi-apartment/purpose buildings supplied with thermal energy from a central source). 1.3.2. Clearer and simpler nature of obligations in Annex VII, section 1.1 (=replace "technical and cost-effectiveness" conditions for consumption and frequent billing with condition of whether or not meters/heat cost allocators are installed, and whether they are remotely readable). 1.3.3. Clarify the nature of minimum information elements (e.g. mandatory climate correction of heating and cooling comparisons and graphic comparisons). 1.3.4. Address certain overlaps between Annex VII 1.2.c and 1.3 (by deleting 1.3). 1.3.5. Clarify the respective role of the current Article 9(1) and 9(3) in respect of thermal energy forms, so that paragraph one of Article 9 is about metering (at entry of customer/building premises), and paragraph 2 is about sub-metering (in multi-unit buildings). In the public consultation, 43% of all respondents expressed the view that the EED provisions on metering and billing are sufficient to guarantee all consumers easily accessible, sufficiently frequent, detailed and understandable information on their own consumption of energy, versus 32% who opposed this view and 25% who had no view. Most "free text" comments were provided by participants who did not think that the provisions are sufficient. Many argued that energy bills would be too complex to be properly understood by most customers. Furthermore, certain energy bills would be provided only once per year, which would not suffice to incentivise behavioural change. Yet others called attention to the possibility that suppliers are exploiting the conditionalities of the articles, so as to avoid having to provide individual metering. Finally, several participants also called for more live energy consumption data, which could be expressed in terms of Kilowatt hours and Euros. At the stakeholder event organised in Brussels on 14 March 2016, support was expressed for both options 1 and 2. 5Assessment of policy options 5.12030 energy efficiency target level The sections below present a comparison of impacts of the different policy scenarios representing different level of ambition of the overall EU 2030 target with the baseline scenario. Each target is achieved applying a cost-effective approach within the values attributed to parameters used in the model, i.e. exploiting first the options with lowest costs in the targeted sectors across the countries as this is inherent feature of the PRIMES model. A multi-dimensional analysis of different levels of ambition is performed using also other models and assessments resulting in a comprehensive overview of benefits and costs of different ambition levels.

As described above, it needs to be kept in mind that a comparison of the policy scenarios against REF2016 would show the costs (notably investment expenditure) necessary to achieve the GHG, Effort Sharing Regulation and RES target all together. Likewise, if compared to REF2016, benefits shown by a policy scenario are combined benefits of achievement of all targets. If, however, policy scenarios are compared to EUCO27, they only show incremental changes in impacts due to scaling up level of energy efficiency. Therefore, EUCO27 is considered as the baseline scenario in this impact assessment. The overall level of ambition would need to be delivered by policies at both European and national level. In order to represent the targets by scenarios, a series of assumptions was made about policies that would lead to achievement of targets (see Annex 4). The assumptions follow the logic of the current policy mix. These assumptions read together with impacts on energy consumption indicate in which sectors the highest efficiency gains lie (residential, tertiary) and indicate the broad level of ambition of the specific measures – be it standards or energy efficiency obligations. These assumptions, however, do not prejudge the policy set-up that will be put in place in order to achieve the targets in the next decade. The impacts of intensifying the current policy mix – as assumed in the policy mix of respective scenarios – are shown below. 5.1.1Energy system impacts 5.1.1.1Primary energy and fuel mix Despite growth in EU GDP, gross inland energy consumption and primary energy consumption are, by construction, reduced step-wise according to the increasingly ambitious options for the energy efficiency target for 2030. The absolute values for consumption and changes in consumption compared to the 2007 baseline, REF2016 projections and 2005 historical values can be found in Table 6 . A target of 27% energy efficiency would equal primary energy consumption of 1369 Mtoe in 2030. When increasing the target to 30%, primary energy consumption is 1321 Mtoe in 2030. The policy scenarios demonstrate significant differences in terms of the consumption of various primary energy sources. As regards solid fuels (in particular coal), absolute gross inland consumption is significantly reduced in EUCO27 in comparison to REF2016. For EUCO30, EUCO+33 and EUCO+35 solid fuels consumption increases slightly compared to EUCO27 but still remains well below the solid fuel consumption in the REF2016. The highest intensity of energy efficiency measures leads to an overall reduction of solids consumption. In general lower ETS prices allow maintaining consumption of solids as the scenarios become more ambitious. Also, energy efficiency measures tend to target more specifically gas and oil consumption, as they represent the main fuel in, respectively, heating and transport energy consumption. In the most ambitious EUCO+40 scenario, GHG emission levels are reduced by more than 40% and consequently the required reduction in solid fuels consumption is stronger. For oil, the absolute reduction of consumption is closely linked with transport policies, notably CO2 standards for light duty vehicles becoming more stringent. Additional reductions in oil consumption vary from 2% in EUCO30 to 9% in EUCO+40 compared to EUCO27. Natural gas is the fuel for which the reduction of consumption is most pronounced. The more ambitious the energy efficiency target, the higher are the reductions achieved as energy efficiency policies improve the thermal integrity of buildings which reduces gas consumption. EUCO27 reduces gas consumption by 5% compared to REF2016. EUCO30 further reduced natural gas consumption by 10% compared to EUCO27. In EUCO+33, the reduction amounts to 19%. In the most ambitious scenario EUCO+40, gas consumption is reduced by 34% compared to EUCO27 baseline. Absolute consumption of nuclear decreases in 2030 in all scenarios. The consumption of renewables reflects the achievement of the target of 27% (or even overshooting it as in case of EUCO+ scenarios) of RES in gross final energy consumption. As energy consumption decreases with increased energy efficiency, the shares of renewables in electricity, heating and cooling and transport "mathematically" increase. However, absolute consumption of renewables also declines (see table below) especially in heating and cooling as renovation of buildings reduces the need for all sources of heating and cooling, including renewable energy.  Impacts on energy consumption (2030) Ref2016 EUCO27 EUCO30 EUCO+33 EUCO+35 EUCO+40 Gross Inland Energy Consumption (Mtoe) 1554 1486 1438 1377 1337 1245 Primary Energy Consumption (Mtoe) 1436 1369 1321 1260 1220 1129 Change in primary energy consumption in 2030 compared to 2007 Baseline (1887 Mtoe in 2030)

(% change) -23.9 -27.4 -30.0 -33.2 -35.3 -40.1 Change in primary energy consumption compared to REF2016 (Mtoe) -67 -115 -176 -216 -307 Change in primary energy consumption compared to REF2016 Reference (% change) -4,7 -8,0 -12,3 -15,0 -21,4 Change in primary energy consumption compared to historical 2005 energy consumption levels (1713 Mtoe in 2005) (% change) -16 -20 -23 -26 -29 -34 Reduction requirement starting from the 2020 primary energy consumption target (1483 Mtoe) (Mtoe) -47 -114 -162 -223 -263 -354 Reduction requirement starting from the 2020 primary energy consumption target (1483 Mtoe) (% change) -3 -8 -11 -15 -18 -24 Energy Intensity (2005 = 100) (primary energy to GDP) 63 60 58 56 54 51 Gross Inland

Consumption for REF and EUCO27 (Mtoe) and % change from EUCO27 1554 1486 -3 -7 -10 -16 - Solid fuels 185 164 4 1 2 -8 - Oil 513 470 -2 -4 -6 -9 - Natural gas 371 351 -10 -19 -24 -34 - Nuclear 187 187 -1 -2 -3 -11 - Renewables 297 314 -3 -7 -11 -15 Gross Inland Energy Consumption Shares (%) of: - Solid fuels 12 11 12 12 12 12 - Oil 33 32 32 33 33 34 - Natural gas 24 24 22 21 20 19 - Nuclear 12 13 13 13 14 13 - Renewables 19 21 21 21 21 21 Renewables Shares (%) in gross final consumption - Overall 24 27 27 28 28 28 - Share in heating & cooling 25 27 26 29 28 28 - Share in electricity 42 47 49 49 48 51 - Share in transport 14 18 19 19 20 22 Overall RES consumption (Mtoe) 273 292 279 274 261 245 - RES consumption in heating & cooling 124 128 117 114 107 92 - RES consumption in electricity 128 143 142 140 135 133 - RES consumption in transport 39 46 48 48 49 53 Source: PRIMES If the 2020 target is met, primary energy consumption will be 1483 Mtoe in 2020. This means that EU28 would have reduced energy consumption by 173 Mtoe over 10 years from 2010 to 2020. To achieve a 27% energy efficiency target the EU would need to reduce its energy consumption by 114 Mtoe from 2020 to 2030. A 30% target would require the EU28 to save 162 Mtoe in the next 10 year period between 2020 and 2030. The achievement of an almost similar energy consumption reduction could be facilitated by technological progress and experience gained in recent years. In addition, the realisation of remaining energy efficiency potentials in regions and sectors with currently low energy efficiency levels could contribute to achieve broadly the same amount of energy consumption reduction as in 2010-2020. 5.1.1.2Final energy consumption and sectoral split Energy efficiency policies affect final energy consumption in all four sectors: residential, tertiary, industrial and transport. As scenarios become more ambitious the reductions in energy demand become more significant across the four sectors. In the scenarios presented, energy efficiency improvements are most prominent in the residential and tertiary sectors. Energy efficiency improvements are lower in industrial and transport sectors, reflecting the current policy instruments and in the case of transport, the projected growth trend in activity. As shown in Table 7 reductions in the residential sector range from 9% for EUCO30 to 37% for EUCO+40 compared to the baseline EUCO27. Similarly, reductions in the tertiary sector range from 9% to 35%. These reductions reflect decreasing demand for heating and cooling due to buildings’ thermal renovation, behavioural change, improved efficiency of heating and cooling appliances, including higher uptake of heat pumps and lower demand for electricity from other appliances. For the transport sector, reductions range from 1% to 5%. The key drivers are the assumptions on CO2 standards for light duty vehicles, which become more stringent as the scenarios become more ambitious. Other measures affect heavy duty vehicles and transport demand, but their impact is smaller. In REF2016 there is already a reduction in energy demand in the industrial sector that reflects the increased energy efficiency embedded in newer production assets and the structural changes towards higher value added and less energy-intensive production. In the policy scenarios PRIMES modelling shows that reductions in industry range from 0.5% to 12% compared to the baseline EUCO27. They are mainly driven by the ETS and by the impact of ecodesign on performance of industrial motors. In the most ambitious scenarios horizontal energy efficiency measures and application of Best Available Technologies (BATs) have also a considerable impact.

Final energy consumption reduces as scenarios become more ambitious. In EUCO30 gross final energy consumption for heating and cooling demand is reduced by 7%, electricity demand by 3% and transport energy demand by 2% compared to the baseline EUCO27. The reductions increase in the EUCO+ scenarios. In order to see the effects of ecodesign, it is useful to focus on the residential sector performance in EUCO30 where heating and cooling useful energy per appliance use is reduced by 18 Mtoe, for water heating and cooking by 5 Mtoe, and for electrical appliances and lighting by 2 Mtoe compared to the REF2016 baseline EUCO27.



Other energy system impacts (2030) Ref2016 EUCO27 EUCO30 EUCO+33 EUCO+35 EUCO+40 Final Energy Demand (Mtoe) 1,081 1,031 987 929 893 825 Industry 270 269 268 259 251 237 Residential 288 267 243 213 199 169 Tertiary 179 166 152 135 127 108 Transport 344 329 324 322 316 312 Reduction requirement starting from the 2020 final energy consumption target (1086 Mtoe) (Mtoe) -5 -55 -99 -157 -193 -261 Reduction requirement starting from the 2020 final energy consumption target (1086 Mtoe) (% change) -0,4 -5,0 -9,1 -14,4 -17,8 -24,0 Final Energy Demand in REF2016 and EUCO27 (Mtoe) and change from EUCO27 (% change) 1,081 1,031 -4.3 -9.9 -13.4 -20.0 Industry 270 269 -0.5 -3.8 -6.7 -12.0 Residential 288 267 -9.2 -20.4 -25.6 -36.9 Tertiary 179 166 -8.6 -18.5 -23.9 -35.0 Transport 344 329 -1.2 -2.0 -3.9 -5.1 Change in Final Energy Demand - compared to 2005 levels (1191.3 Mtoe in 2005) (% change) -9,2 -13,4 -17,1 -22,0 -25,1 -30,7 Industry -17,6 -17,8 -18,2 -20,9 -23,3 -27,7 Residential -6,4 -13,1 -21,1 -30,8 -35,3 -45,2 Tertiary -2,3 -9,4 -17,1 -26,2 -31,0 -41,1 Transport -6,3 -10,7 -11,8 -12,5 -14,1 -15,2 Gross final energy consumption (Mtoe) 1,133 1,086 1,040 987 948 876 Heating and cooling 485 454 423 373 350 304 Electricity 302 302 292 286 278 260 Transport 274 256 252 250 242 239 Gross final energy consumption - REF2016 and EUCO27 (in Mtoe) and change from EUCO27 (% change) 1,133 1,086 -4