Opinion of the Economic and Social Committee on the 'Communication from the Commission on Energy for the future: renewable sources of energy (Green Paper for a Community Strategy)` (97/C 206/09)

On 26 November 1996 the Commission decided to consult the Economic and Social Committee, under Article 198 of the Treaty establishing the European Community, on the above-mentioned communication.

The Section for Energy, Nuclear Questions and Research, which was responsible for preparing the Committee's work on the subject, adopted its opinion on 2 April 1997. The rapporteur was Mr Morgan.

At its 345th plenary session held on 23 and 24 April 1997 (meeting of 24 April 1997), the Economic and Social Committee adopted the following opinion by 40 votes in favour, one against and one abstention.

1. Introduction

1.1. The Economic and Social Committee welcomes the green paper. In its Opinion on the Community's Energy Policy (), and in its Opinion on the Green Paper 'For a European Union Energy Policy` () the ESC presented its views on the strategic importance of the renewable energy sector.

1.2. The green paper is written in two parts:

- The first five chapters outline the case for renewable sources of energy and highlight the impediments preventing a greater market share for renewables.

- The sixth and last chapter outlines the Commission's strategy for increasing the share of renewables and asks the strategic questions to which the ESC is invited to reply.

1.3. This opinion is written in three parts:

- In section 2, we outline the Commission's thesis and give our opinion on the main issues.

- In section 3, we give our replies to the Commission's strategic questions.

- In section 4, we give our summary and conclusions.

2. The Commission's thesis

2.1. Background

2.1.1. The European Union's current energy situation calls for effective management of all available resources to attain Community objectives. A well balanced fuel mix, in which all appropriate energy sources play their proper role, is essential to support sustainable economic growth. Renewable sources of energy are currently unevenly and insufficiently exploited in the EU.

2.1.2. Renewable energies are non-depletable forms of energy including, in particular, hydropower, wind and solar energy (both thermal and PV), biomass and geothermal energy. Municipal and other organic wastes, although depletable, are normally also classified as renewable sources of energy. The list of renewables furthermore includes a number of technologies which are still at an experimental stage or which have still to prove their economic viability, such as wave energy, tidal energy and hot dry rock.

2.1.3. Promotion of renewable sources of energy has for a considerable period of time been a central objective for Community energy policy which has three objectives: improved competitiveness, security of supply and protection of the environment. Promotion of renewable energy sources is among other policies identified as one important element in achieving these objectives.

2.1.4. A strategy for renewable energy sources is required for a number of reasons:

2.1.4.1. Most importantly, renewables will not make major inroads into the Community energy balance unless targets are set and supportive policies established.

2.1.4.2. A long-term stable framework for the development of renewable sources of energy covering the political, legislative, administrative, economic and marketing aspects of renewables is the top priority for the economic operators involved in the development of renewables.

2.1.4.3. Europe is to a large extent the world's leader in renewable energy technologies.

2.1.4.4. A strong competitive position in the global marketplace can best be maintained and improved only with a significant and growing home market. A clearly defined strategy will preserve and strengthen the position of the European Union in this respect.

2.1.4.5. A policy for the promotion of renewables will require across the board initiatives encompassing a wide range of Community competencies including agriculture, external affairs, research and technological development (including demonstration), fiscality, regional and environmental policies.

2.1.5. This green paper is the first major step in the establishment of such a strategy for renewable energy sources. It contains the political philosophy related to renewable energy sources and it outlines the areas in which further action can be undertaken.

2.2. The current situation: The potential for renewables energy sources in the European Union is unevenly and insufficiently exploited

2.2.1. The unexploited technical potential is particularly significant with respect to biomass, including energy crops, wind and solar energy.

2.2.2. The large differences between Member States can be partly explained by different geographical and climate conditions. The industrial structure and the energy policies pursued at national level play an important role. As one example of the results of positive policy incentives for renewables, 70 % of the total installed wind energy capacity in the EU is located in Germany and Denmark.

2.2.3. Large scale hydro dominates the present renewable energy mix.

2.2.4. Biomass comprises residues from forestry and agriculture, energy crops and biofuels. Forest residues are currently the most important element comprising, in particular, wood chips (including manufactured pellets). There is not yet an established market for energy crops. Biofuels, mainly rape seed oil and bio-ethanol, have a small market in a few Member States.

2.2.5. Wind energy is, in some Member States, currently the fastest growing energy source for electricity production.

2.2.6. Solar thermal heating technology is almost fully developed. It is cost competitive compared to electric water heating, in particular in the southern parts of the EU. Solar photovoltaic is the most prestigious renewable energy technology, but costs are still significantly higher than for electricity generated with conventional fuels.

2.2.7. Energy from waste represents a significant energy resource. Improvements in re-use and recycling are expected to reduce future waste disposal volumes.

2.2.8. Geothermal energy is not a considerable contributor to renewable energy in the EU.

2.2.9. Tidal and wave energy represent a considerable potential.

2.2.10. Many renewable technologies need little or no further R& D efforts to become competitive. The key to a higher market penetration is to overcome market barriers and market imperfections. For these technologies, which notably include passive solar, biomass, waste, small hydro, on-shore wind turbines, and conventional geothermal, the principal political incentives needed are market enabling measures. Photovoltaics, off-shore wind farms and energy crops require further RD& D, with particular emphasis on the demonstration phase while more basic research is required for tidal, wave and hot dry rock geothermal energies.

2.3. Market penetration - forecasts: Renewables can make a major contribution to EU energy consumption

2.3.1. The most recent long-term energy forecast published by the Commission is European Energy to 2020. With a view to illustrating the potential effects of specific policy initiatives in the field of renewable energy sources, the Commission has built on this exercise with the TERES II study, in which a number of scenarios were developed.

2.3.2. The last scenario developed under TERES II is based on Best Practice Policies which assumes that the policies which have been most effective in promoting the use of renewable energy sources are applied EU-wide. These policies include:

- government programmes concentrated on moving renewable energy technologies to commercialization and improved systems for local planning;

- increased R& D leading to a 20 % cost reduction;

- land availability for energy crops increased by 25 % and set aside subsidies on 12 % of food producing land guaranteed until 2000; and,

- internalization of external costs of conventional fuel cycles.

2.3.3. Overall renewable energy volumes under the policy assumptions included in the Best Practice Policies scenario amount to 12,5 % of gross inland consumption by 2010. This compares with 5 % in 1990 and 5,4 % in 1994. Recognizing that the share of large-scale hydro may not have much further growth potential, the enormous challenge represented by this Best Practice Policies scenario is clear.

2.3.4. Unless specific incentives are put in place it is unrealistic to expect that the large potential for renewable energy will be exploited.

2.4. The advantages of renewable sources of energy: Renewables contribute to achieving Community energy policy objectives, environmental protection, employment and regional development

2.4.1. The Commission believes that increased use of renewable energy sources, as a result of a comprehensive strategy, will bring a number of advantages for the energy sector and the economy.

2.4.2. Environmental protection

2.4.2.1. Developments in recent years have highlighted the environmental problems directly linked to the use of fossil fuels, in particular the problems related to CO2 emissions and climate change. Increased use of nuclear energy offers only a limited contribution to solving these problems due to the fact that not many Member States have chosen the nuclear option. The current overall energy mix is incompatible with the long-term requirements for sustainable development.

2.4.3. Security of supply

2.4.3.1. Renewables are by definition non-depletable and indigenous. Further exploitation of the potential can improve security of supply.

2.4.4. Competitiveness

2.4.4.1. There are sound reasons for promoting renewables vis-à-vis the third EU energy policy objective i.e. improving overall competitiveness of European industry. The Commission's 1993 White Paper on growth, competitiveness and employment argues that clean technologies are a key to future economic prosperity and that the current general taxation system does not lead to an optimal resource allocation. In this light and with the prospect of future internalization of external cost, renewables could make a strong contribution to a sustainable and competitive European energy system.

2.4.4.2. Another important aspect is the potential growth of the European renewable energy industry. Globally the renewable energy market potential for further expansion, in particular in developing countries, is impressive and has been estimated at more than ECU 1 700 billion by 2020. To grow an export market it is essential that the EU industry is able to grow in its home market.

2.4.5. Regional development, social and economic cohesion and employment

2.4.5.1. Renewables are local energies. Production of renewable heat and power and the installation of renewable energy plants are, in many instances, independent of the existence of infrastructure. Many less developed regions have a good renewable energy resource potential. Promotion of renewables is a major element in regional policy.

2.4.5.2. There are opportunities for job creation and development of the SME sector.

2.4.5.3. Tourism offers good opportunities for increased use of renewable sources of energy. Regions with a tourist industry need, in particular, to be environmentally preserved. Overall, increased use of renewable sources of energy can be an interesting alternative to conventional energy production in touristic areas.

2.5. The problems to be faced: A series of obstacles hinder a more widespread use of renewables

2.5.1. The limited market penetration of renewable sources of energy can to a large extent be attributed to the lack of political will to remove the barriers to more widespread use of renewables.

2.5.2. Cost barriers

2.5.2.1. A key obstacle to a higher market penetration of renewables lies in the cost related to deployment of these energy sources. Optimal introduction of renewable energy sources may be dependent on internalizing the costs of externalities for non-renewable energy sources. Studies show that renewables would have a much bigger share of the market, even given the current state of technologies if, for example, fossil fuels were priced in a way to reflect full costs of externalities, notably the cost related to environmental protection.

2.5.3. Technical and non-technical barriers

2.5.3.1. The attitude of financiers is negative. Among the main financial barriers in common to most renewable projects are the long pay-back periods at the current price level. Without clear indications of the long-term scenario, equity investors and financial institutions are unable to take a long-term view of the projects. The perceived risks (both technical and market related) by financial institutions, investors, purchasers of equipment, consumers etc. are often over-estimated.

2.5.3.2. Information, awareness and experience related to renewables is not evenly distributed throughout the EU.

2.5.3.3. National power production companies, and in particular monopolies, often have negative attitudes towards renewables.

2.5.3.4. Connection to centralized electricity grids poses technical and economic problems. A problem related to certain grid-connected renewables, notably wind and solar, has to do with diurnal and seasonal supply variability.

2.5.3.5. In the transport sector, biofuels require an appropriate infrastructure.

2.5.3.6. Technical requirements related to non-grid-connected renewable energy sources create obstacles. Building regulations often do not take account of the special requirements for renewable energy installations. Quality standards on the technical performance of consumer products, such as solar, thermal, water heating, will enhance public confidence which is essential for mass marketing. The lack of technical harmonization creates serious barriers to trade in renewable technologies.

2.5.3.7. As renewable energy projects are often located in areas close to resources where energy projects are not common, projects may meet resistance from local residents based on environmental concerns.

2.6. The ESC's Opinion on the Commission's thesis

2.6.1. The ESC welcomes the green paper and supports its assertion that, 'the current overall energy mix is incompatible with the long-term requirements for sustainable development`. While broadly supportive of the Commission's thesis, the ESC has a number of specific comments as follows.

2.6.2. While Europe is to a large extent the world's leader in renewable energy technologies, there is evidence of considerable investment and market-oriented research in the USA, Japan and Israel. US companies are heavily targeting the third world. We agree with the Commission that the EU should remain the world's leader in renewable energy technology but we do not believe that it will maintain this position without a programme such as is envisaged in the green paper. In particular, programmes to support exports of renewable energy technology will be vital.

2.6.3. Although the TERES II scenarios run until 2020, the green paper's horizon stops at 2010. While we understand the difficulty of forecasting the economic prospects of renewable energy, it seems to us that the action programme envisaged by the Commission needs to be judged against the longer term scenario. Assuming a major contribution by the mid-21st century, then most of the measures proposed in the green paper can be justified to improve the penetration of these technologies in the short term.

2.6.4. Renewables should help promote sustainable development. Every type of energy production and utilization has an impact on the environment. The effect that different kinds of renewables have on the environment varies enormously in both nature and extent. To advance sustainable development, a specific environmental balance sheet must be drawn up for each renewable energy technology. In assessing the environmental impact of each renewable technology, it is important to consider the wider greenhouse gas effect. Priority can then be given to promoting renewables whose ecological balance sheet is particularly favourable and which are accordingly capable of providing a cleaner energy option to fossil fuels.

2.6.5. The ESC feels that the internalization of external costs is a complex exercise. A general tax increase on energy is not needed. The accelerated penetration of renewables does need a system of financial incentives. In general, we would expect these to be national actions, so long as these do not distort the internal market, but consideration needs to be given to coordination within the Union so that stable and predictable market conditions are created for energy product and service companies, their investors and customers.

2.6.6. Connection to centralized electricity grids poses technical and economic problems.

2.6.6.1. At the moment these do not matter because the low incidence of grid connected energy from renewable sources means that it can easily be accommodated within the normal margin of error. It would not be possible to accommodate high variable volumes within today's grid scheduling practices. This means that there will have to be both development of advanced electricity storage technologies and a focus on applications for renewable energy in stand-alone environments. Advanced storage technologies are vital for the development of renewable energy sources and we would expect to see these supported by the 5th Framework Programme.

2.6.6.2. In hot, developing countries, wind and photovoltaic energy sources are already economically viable and can be used independent of the grid which has to be built to deliver fossil-generated electricity. For the reasons stated above, commercial renewable energy is still some way from economic exploitation in developed countries with existing grids. This suggests that, in the short to medium term, a priority should also be given to promoting the market for renewables in developing countries.

2.6.7. To balance the developing country focus suggested in point 2.6.6.2 above, the most effective action in the developed world in the short to medium term must surely be to promote energy efficiency. Virtually all energy efficiency measures are more cost-effective than virtually any renewable energy source in the present state of the technology. We need to focus on demand side management at the same time as looking for new energy sources. Budgetary support for efficiency measures should be balanced with other energy investment to reflect the relative reduction of fossil fuel use achievable in the short and medium term. For this reason we welcome the emphasis on rational energy management amongst the priorities proposed for the 5th Framework Programme.

2.6.8. Another reason for giving added impetus to energy saving is the time that it will still take to make renewable energy cost-effective. Although a number of renewable energy sources are close to the costs of fossil-generated electricity, we must expect fossil fuel generation to become more efficient and so fossil fuel electricity prices will continue to fall. Fossil fuel price reductions are being achieved by technology, new fuels (gas) and organizational cost reduction following the introduction of competition in the supply industry. This will present renewable energy prices with a moving target for some time to come and it may be that the planned R& D programme to improve renewable energy technology will have its work cut out to keep up with improvements in fossil fuel efficiencies.

2.6.9. The green paper does not sufficiently focus on the consumer.

2.6.9.1. In particular where local and potentially non-grid-connected energy sources are concerned, the challenge is to create public awareness of what is possible and public confidence in the reliability and availability of renewable energy. Installing and running domestic roof-top solar PVs, swimming pool heaters etc. should be as straightforward as fitting a domestic refrigerator. Pricing, financing and financial incentives must be sufficient to pull in a first wave of retail customers. The market will grow under its own steam once enough individuals have bought into it. This should happen if renewable energy programmes are focused on domestic and business customers.

2.6.9.2. In the same way that, in a number of EC countries, energy saving agencies have been created to promote energy saving in the market place, so action should be taken to promote demand for renewable energies. We would expect renewable energy agencies to educate the public and also the key intermediary trades and professions such as plumbers, electricians, builders and architects who have such a pivotal role to play.

2.6.9.3. Another way to build demand is through programmes of public procurement.

2.6.10. One final observation on the Commission's thesis is that it does not recognize the problems of scale in renewable energy. As volumes grow, the problems grow exponentially. Examples are the impact of variable electricity volumes on the grid, the impact of intensive farming of energy crops over vast acreages, and the impact of windfarms on the environment.

3. The Commission's strategy

3.1. Elements of the strategy

The Commission's strategy has four elements:

3.1.1. First, a clear, ambitious and yet realistic targeted increase in the contribution of renewables to the Community energy balance.

3.1.2. Second, it is proposed to strengthen Member State cooperation on renewables.

3.1.3. Third, it is suggested that the Community reinforces its policies affecting development of renewable sources of energy.

3.1.4. The fourth element of the strategy is a proposal for strengthening assessment and monitoring of the progress towards achieving the targets.

3.2. Targets

3.2.1. The Commission believes that a target for the contribution from renewable energy sources can be a good policy tool and can provide a guideline for action. The question arises as to whether a new Community indicative target should be set for 2010, and if so at what level? Some Member States already have their own targets.

It is the opinion of the ESC that an indicative target at the EU level would be helpful.

However, many renewables are an alternative way of generating electricity, which is a form of energy of limited application in transport, especially air transport, and those industrial processes requiring large amounts of high temperature heat. There is therefore an upper limit to the targets which can be set.

While it is possible to derive targets for Member States, this would be meaningless because (a) Member States would not be bound by them; and (b) Member States' renewable energy profiles vary so much.

As explained below, we would advocate the setting of targets for the various renewable energy technologies. This would be meaningful because (a) the progress of each technology, (b) the effectiveness of EU and Member State support, (c) the security of supply, (d) the international competitiveness and (e), where necessary, the success of technology exports could be measured. The ESC agrees with the Commission that, 'failure to increase the share of renewable energy sources will have negative effects on other important policy objectives, in particular security of supply, economic and social cohesion and economic competitiveness`.

3.2.2. The Commission is seeking views as to whether to set an indicative target for the contribution by renewable sources of energy to gross inland energy consumption beyond the current target for the year 2005, on the assumption that an ambitious but realistic objective for 2010 would provide a useful stimulus for policy and would focus minds of decision makers. It is the opinion of the ESC that such a target would be helpful.

3.2.3. The Commission believes that at this critical stage in the development of renewables, a significant pro-active policy is required to achieve measurable results. A doubling of the share of renewables by 2010, which would mean a contribution of renewable sources of energy in gross inland energy consumption of about 12 % could be an ambitious but realistic objective. This is a minimum requirement if the contribution of nuclear generation declines as expected over the period until 2020.

3.2.3.1. Since the current share of renewables of 6 % includes large scale hydro, for which the potential for further exploitation in the European Union is limited, a doubling of the current level of energy output from other sources would require significant increases in the use of other renewables.

3.2.3.2. Table 1 shows the development of the various technologies within the TERES II Best Practice Scenario. This shows the expected outcome of a scenario based on Best Practice Policies and achieving a 12,51 % penetration of renewables overall.

3.2.3.3. Table 2 compares the extrapolation to 2010 of the current policies scenario with the Best Practice Scenario. In the current policies scenario, Member States would continue their support for renewables at present levels but none of the additional actions envisaged in the green paper would be undertaken. From the two outcomes detailed in Table 2, it is clear that Best Practice would not make a lot of difference to a number of established technologies such as large hydro. Technologies marked with (*) look as if they would be successful under present policies but more successful under Best Practice. Those technologies marked (**) do not seem to be viable under present policies and need the support of Best Practice to make a sustained breakthrough. The Best Practice outcome in 2020 is also shown because this underlines the further development potential of certain technologies, especially wind, PV, tide, wood crops, solar thermal and ethanol/biodiesel.

3.2.3.4. Technologies without (*) or (**) seem to have reasonable momentum under present policies. While the penetration of these might still be improved, it seems appropriate to focus on the technologies which need Best Practice support. It is also pertinent to note that the 'waste` technologies - landfill gas, municipal waste, industrial waste, agricultural waste and forest residues - are directly affected by existing environmental legislation.

TABLE 1 Best Practice Scenario - TERES II

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3.2.3.5. Achievement of the Commission's proposals for a 12 % penetration target in 2010 clearly depends on the success of leading edge technologies at the country level. Rather than target countries, we would target technologies. As it happens, all the key technologies identified in Table 2 depend on a small number of countries to achieve their forecast goals. Hence, it would not seem to be unreasonable to identify the countries which are forecast to be the leaders in the key technologies in 2010 as shown in Table 3.

3.2.3.6. In the opinion of the ESC, a 12 % target may be challenging but it is achievable if the growth of the various individual technologies can be successfully encouraged. A further examination of Table 3 would seem to suggest that there is scope to increase the commitment of some Member States to these new technologies e.g. the UK for wind or Greece for solar thermal.

3.2.4. In addition to views on an objective for overall renewable energy penetration, the Commission is interested in views on the establishment of sub-objectives for the individual renewable sources as well as sub-objectives concerning the contribution of the various sectors, such as electricity and heat production. It should in any case be clear that any eventual proposals for targets would be objectives to be aimed at and not legally enforceable.

In the opinion of the ESC, it would be worthwhile establishing sub-objectives, particularly in view of the points made in point 3.2.3 above.

TABLE 2 Key Technologies - TERES II

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3.3. Strengthening cooperation between the Member States

3.3.1. The Commission believes that achievement of a significant increase in the share of renewables requires the full commitment of Member States at national, regional and local level. The question arises what should be the terms of reference for harmonizing national initiatives.

3.3.2. In the opinion of the ESC, this question is dealt with by the Proposal for a Council Decision concerning the Organization of Cooperation around Agreed Community Energy Objectives. The ESC has presented a separate opinion on this proposal, which is supportive of the Commission's intention.

3.3.3. The ESC emphasizes the need for cross-country cooperation. The main benefits are: (a) the establishment of an EU-wide market for each technology, (b) the harmonization of standards and regulations between both Member States and prospective Member States and, (c) the establishment of common infrastructures e.g. for new fuels and power sources for road transport.

3.4. Reinforcing Community policies

3.4.1. The internal market

3.4.1.1. The creation of an internal energy market is a key priority of the Community. The Commission has identified a series of measures which may be considered in this context.

3.4.1.2. Renewable energy credits

Consideration could be given to the idea that a certain percentage of a Member State's electricity requirements will have to be met by renewables, enforced on each individual retail electric supplier, with individual obligations tradeable through a system of 'renewable energy credits`.

The ESC believes this proposal has merit so long as each Member State is free to adopt this idea in a way which takes into account its particular circumstances and its own targets for renewables.

3.4.1.3. Internalization of cost and fiscal harmonization

3.4.1.3.1. In the Commission's view, fiscal harmonization can play a major role in ensuring a correct functioning of the internal market and it is of crucial importance for a more rapid introduction of renewables.

3.4.1.3.2. In the opinion of the ESC, it would not be appropriate to increase carbon taxes on transport fuels since the taxation element in fuel pricing is already overwhelming. Indeed the greater the tax element becomes relative to the crude oil price, the greater the risk that producer countries will be motivated to increase prices. Instead we believe that the focus should be on fuel efficiency, alternative power systems and future transport strategies.

3.4.1.3.3. As far as gas and electricity costs for power, heat and light are concerned, there is no need to introduce carbon taxes to support the development of renewable energy technologies. The ESC is in favour of fiscal incentives for producers and/or consumers to promote the wider use of renewable energy. We believe that it would not be necessary to raise taxes on most of the greater part of the energy produced to create the possibility of giving tax breaks to the small percentage of energy coming from renewables. Our analysis of the key technologies in point 3.2.3 above shows that the volumes involved are de minimis for the technologies which need most support. Accordingly, any fiscal incentives or other aids made available for these technologies would not have a material effect on the market as a whole. Again, the cost of such incentives would be small and would not involve large balancing tax increases elsewhere. Furthermore, because general energy tax increases would not be needed, the overall costs to the economy would be controlled. The key new technologies (*and **above) will not in 2010 represent 12 % of all energy used but rather 2 % or 3 %.

3.4.1.3.4. The ESC would also observe that the liberalization of the internal energy market means that it is no longer possible to conceal the true costs of different energy sources. The full external costs of nuclear fuel are being internalized in many countries, because of the need to pay for decommissioning. The implications for renewables of this trend is that the costs of promoting them should not be subsidized in the price of other fuels, but openly supported instead.

3.4.1.4. State aid

In recent years, the Commission has dealt with an increasing number of State aid cases in the field of renewables. As foreseen in the White Paper: An energy policy for the European Union, the Commission will, during the process of revision of the present guidelines, consider whether some adaptation is needed for renewables and their contribution to energy policy objectives.

In the opinion of the ESC, State aids in various forms are acceptable so long as they foster the growth of renewable energy and do not lead to distortions in the renewable energy market itself. For the time being, support to renewables will only create minor distortions in the internal energy market. These will be de minimis and, for the sake of progress on renewables, they should be tolerated. In particular, the Committee would favour incentives to encourage investment in renewable technologies.

3.4.1.5. Standardization

European-wide standards on renewables serve the double purpose of facilitating the introduction of new technologies to the internal market and to boost confidence in these technologies. This second aspect is of particular importance in this instance. Standards concerning renewables are under preparation. In the opinion of the ESC, standardization needs to be moved ahead urgently. The Commission is encouraged to undertake pro-active consultation with the industry. International standards are particularly important for the development of export trade in renewable technologies and the European Union must seize the initiative.

3.4.1.6. Consumer demand

The Commission has identified a series of measures to allow renewable energy sources to play an appropriate role in the internal energy market. The Committee is broadly supportive of these measures. They are mainly producer oriented. It is the ESC's opinion that the green paper does not pay sufficient attention to the consumer. We recommend that Member States either establish or reinforce consumer agencies and facilitate consumer investment in renewable energy (see point 2.6.9 above).

Public utilities have an important part to play both in encouraging rational energy use as well as developing and acquiring renewable energy supplies. Public procurement also has a contribution to make.

3.4.2. Financial support for actions for the promotion of renewables

3.4.2.1. With a view specifically to promote renewable sources of energy the Council in 1993 adopted the Altener programme. An independent evaluation concludes that the programme is funded at too low a level to meet Community objectives for renewable energy development. Accordingly the Commission proposes the adoption of Altener II for the further promotion of renewable energy sources.

3.4.2.2. Strengthened actions under Altener II could create a competitive market for the renewables industry and thereby reduce costs and create jobs in the sector. The TERES II Report has underlined the need for further technological development if renewables are to achieve significant market penetration. Action at Community level would be targeted at certain well-defined areas such as photovoltaic roofs and cladding, solar thermal heating for sport, tourism and health facilities, active and passive solar architecture, production of bio-methane from municipal biodegradable solid waste, stand-alone facilities etc. with the Community support as low as possible to avoid market distortion and calculated to take into account the external cost avoided.

The ESC will give its opinion on the Altener II programme in due course and would expect it to be supportive.

3.4.2.3. It is proposed that renewable projects should benefit more from funding by the European Investment Bank (EIB), the European Bank for Reconstruction and Development (EBRD) and other international financial institutions.

In addition to this proposal which the ESC supports, there are opportunities for public and private partnerships, and private finance in public procurement which the Commission should pursue.

There is also a need for export finance to be made available for renewable equipment and systems which are manufactured in EU Member States (see point 3.4.6 below).

3.4.3. Research, development and demonstration (RD& D)

The Joule-Thermie programme, which covers both traditional R& D and demonstration in the field of non-nuclear energy, intends to devote a significant part of its budget i.e. 45 % to support activities aimed at developing and promoting renewables. The ESC notes this commitment and would like to see more renewable equipment and systems manufactured in Member States rather than imported.

3.4.3.1. The FAIR programme indicates that non-food development of agriculture and forestry biomass have a part to play in the development of rural areas.

Given the targets of Altener I for a 5 % penetration of biofuels in transport by the year 2005 and the green paper's 12 % target, it is likely that 15-20 million hectares of agricultural land will be needed to produce energy crops.

3.4.3.2. There are large differences in the commitment of Member States to the support of technological development of renewable sources of energy. It is proposed that the Community programmes in this area are reinforced. It is, as part of the strategy, important to establish clear objectives for the 5th framework programme.

3.4.3.2.1. In the communication from the Commission 'Inventing Tomorrow` () which is a forerunner for the 5th Framework Programme for Research and Technological Development, one of the proposed priority topics in point III.1.1 is the promotion of competitive and sustainable growth. This includes the following proposal:

'In the energy domain, priority should be given to the development and demonstration of safe, acceptable energy systems which comply with standards and environmental constraints and are competitive in terms of production costs and the global economy. Research might also cover the rational management of energy in everyday life, as well as the various options as regards the production and storage of energy with a view to the medium and long term.`

3.4.3.2.2. The ESC believes that energy efficiency and renewable energy sources must be priorities for the 5th Framework Programme. It is important to focus on consumer incentives for energy efficiency and installation of renewable energy systems.

3.4.3.2.3. The ESC does not believe that the EU can be a world leader in renewable energy technologies unless a strong support policy is developed. It believes that an EU renewable energy laboratory or agency should be formed along the lines of the USA's National Renewable Energy Laboratory, and of the EU Environment Agency.

3.4.3.3. The ESC expects that telematic applications and services be developed alongside the development of renewable energy technologies. We would be surprised if separate RD& D projects were needed in the area of Information Society Applications separately from the development of renewable energy technologies and industries.

3.4.3.4. The Commission will reconsider the funding allocated for research in the various energy sectors, including the current breakdown of funding between nuclear and non-nuclear research.

In the opinion of the ESC it could be a strategic mistake to downgrade research into nuclear energy. As things stand at the moment, nuclear power will be phased out when existing installations reach the end of their useful life because there is no commitment to replacement capacity in most countries. In the longer term, therefore, it is perfectly possible that the Member States will opt to continue to make use of nuclear energy for peaceful purposes or, at a later date, to bring into operation a new generation of nuclear reactors. For this reason, R& D work to improve the safety and efficiency of nuclear technologies must be maintained.

3.4.3.5. While recognizing the research work which is essential for the development of technologically less mature renewables, the Commission is convinced that the key to more market penetration lies in the market introduction phase. In the opinion of the ESC, this is a most important issue. The Commission should give consideration to ways in which 'green` consumer demand for renewable energy at an affordable price can be encouraged.

3.4.4. Regional policy

3.4.4.1. There is no doubt that renewable sources of energy have great economic and social potential in remote regions and islands. This is particularly true where national grid connection is neither economic nor feasible. Successful introduction of renewable energy requires regional development policies to include renewable energy projects and that competent agencies be available to take charge of the activity. These activities include both the organization of local generation and grid distribution and the installation of stand-alone equipment. Public utilities would be best equipped to perform these tasks.

3.4.4.2. SMEs on the equipment side of the renewable energy industry have the same problems as SMEs in other technology-based industries. Since the green paper has shown that the key technologies will have difficulty in making a breakthrough under 'Present Policies`, these firms depend on a 'Best Practice` environment to thrive.

3.4.4.3. While in general there is no shortage of venture capital for high technology companies, investors need to know that there is an assured market for all renewable energy technologies. Member State governments' intentions must be made clear to the investment community.

3.4.4.4. Since so much needs to be done to create favourable market conditions for the new energy technologies, it is important for sectoral trade associations to be well-financed and well-staffed to participate in the public debate. The industries represented by these associations are small and immature and there is scope for public support.

3.4.4.5. Since tourism involves seasonal peak loads and demand in remote regions, there are significant opportunities for renewable energy. The more remote regional aspect has already been discussed in point 3.4.4.1 above. The peak load aspect provides a classic opportunity for rational planning by public utilities. It ought to be possible in many tourist centres to use renewable energy to obviate the need for new base load fossil fuel generation capacity. The renewable energy opportunities which public utilities would need to pursue include both grid-connected and autonomous installations.

3.4.5. Agriculture and forestry

3.4.5.1. In the agriculture and forestry sectors, the production of energy crops represents a considerable potential for additional income for farmers and for the reduction of CO2 emissions as a result of crop growth. This also represents additional employment possibilities in rural areas.

3.4.5.2. The agricultural sector will make a major contribution towards meeting the 12 % target. Production of crops which can serve energy purposes as whole-crop or as a part of a crop will be necessary to fulfil the renewable energy and carbon emission abatement targets. Specific programmes to stimulate energy production from agricultural land will influence the economy of rural areas in the EU in a positive way and generate new jobs in agriculture, transport and affiliated industries.

3.4.5.3. The ESC would point out that arable products may consist of three principal components: food (starch, protein and sugar), feed (protein, fibre) and components which cannot be used for either food or feed (straw). Some agricultural products serve only as animal feed, such as grass and feed maize. Other agricultural products are not used as either food or feed e.g. cotton and hemp.

>TABLE>

The food components are used as bio-fuels in road transport i.e. A (1) products. It is generally the non-food feed components A (3) that are used in electricity/heat and power stations although there is potential to use category C products.

3.4.5.4. There is no strategy for energy crop production. The willingness of farmers to invest in energy crop production will be related to (a) the price they can obtain for food crops, (b) the 'set aside` remuneration and (c) the price they can obtain for energy crops.

3.4.5.5. On the basis of the table in point 3.4.5.3 above, it is clear that strategy development for the agricultural sector should be related to the distinction between transport fuels and electricity/heat generation. The latter should be perfectly manageable. There is scope for steady growth. In the area of transport fuels there is likely to be conflict with food and feed priorities. Variances in the food/feed market caused by the vagaries of world-wide agricultural production could make the long term planning for bio-fuel production extremely difficult.

3.4.5.6. The ESC believes that an urgent area for R,D& D is energy application from the food, feed and cellulose components of agricultural crops. A strategy should be developed which encompasses future energy, food and feed demands and the need to maintain optimal flexibility in the agricultural sector and the whole agricultural industry.

3.4.5.7. Biofuels depend on food and feed crops to permit long term planning for biofuels, it will be necessary to dedicate agricultural land for this purpose and to create an appropriate financial framework. Wood crops will require intensive cultivation to achieve conversion goals. There may be resistance to converting historic woodlands and forests for wood crops and agricultural land will already be under pressure from the dual claims of food and biofuels.

3.4.5.8. The Committee takes the view that guaranteed subsidies for energy crop production on land used for cultivating foodstuffs (under set-aside programmes) are only worthwhile if suitable supporting measures are introduced to ensure that this does not lead to the establishment of enterprises which are not competitive from the outset and are no longer economically viable once the subsidies cease.

3.4.6. External relations policy

3.4.6.1. The ESC is of the opinion that EU external relations policy has a huge part to play in both encouraging the development of an indigenous renewable energies industry and the amelioration of the environmental crisis which is otherwise expected to be provoked in due course by third world energy policies. Accordingly the ESC feels that the Commission should give renewable energy matters a much higher priority in its external negotiations.

3.4.6.2. Because certain regions of central and eastern Europe are well endowed with renewable sources and in view of the fact that renewables, especially in rural areas, can strengthen regional development, the Commission recognizes that renewable sources of energy require increased attention in EU relations with these countries.

The ESC feels that, with the enlargement of the EU towards the east in prospect, the Commission should also focus heavily on the opportunities in the east for rational planning and higher energy intensity.

3.4.6.3. In the process of establishing a framework for cooperation between EU and non-EU Mediterranean countries, there is a case for assessing the contribution that renewables can make to the energy needs of the region. The potential, especially for wind and solar, is not currently exploited to the maximum.

There is a case for more coordination, demonstration and publicity to develop the potential for renewable energy sources in EU and non-EU Mediterranean countries. Such a marketing drive could be coordinated by a EU Renewable Energy Agency (see point 3.4.3.3.2 above). The advantages would be to promote technology exchange and to develop business opportunities.

3.4.6.4. In developing countries, renewables can play a key role in accelerating economic and sustainable growth. Renewable energy technologies are well suited in remote areas of developing countries which are often not connected to the grid. Some of these have a potential for tourism and the potential for 'green` tourism is to be encouraged. Furthermore the meteorological conditions in many developing countries favour renewable sources of energy, in particular, solar energy applications.

These opportunities are important for the European renewable energy industry. The geography of the European Union represents a finite limit to the business opportunities for renewable energy companies in Member State markets. For these companies to flourish, it is essential that the Commission is energetic in creating commercial opportunities overseas. Export credits are just one of the available instruments.

3.4.6.5. In the future, increased energy consumption in the developing countries will be a major factor accounting for the deterioration of the global atmospheric condition. The use of renewable energy technologies could reduce these adverse effects.

Renewables represent a vast potential for economic cooperation of mutual interest to the EU and to third countries. The EU can gain direct and indirect commercial benefits and the third world countries can benefit from accelerated sustainable development. A clearly defined and ambitious renewable energy strategy will be indispensable and allow the EU industry to compete successfully in the global marketplace.

3.4.6.6. Given the small markets available in the EU for the advanced technology energy sources, it is essential to develop overseas markets in parallel with the internal market. For this and other reasons mentioned above, the promotion of EU energy technology exports should have the highest priority in commercial policy.

The ESC believes that this strategy should be a major element in the white paper which will follow this period of consultation.

3.5. Assessment and monitoring

3.5.1. The Commission suggests that it improves the coordination and data collection already established by the Community's statistical authorities (Eurostat). One proposal is that the Commission explores the possibility of creating a database to register:

- more detailed basic statistics on renewable energy, including those obtained from field studies and quantitative monitoring;

- progress made towards Community strategy and objectives;

- Community support given to renewables;

- actions undertaken at national level in addition to the notifications made to the Commission under State aid rules;

- policies affecting renewables, and,

- progress towards increasing the share of renewables.

3.5.2. Because the ESC supports the Commission's proposal for targets and objectives it supports the Commission's proposal for assessment and monitoring.

4. Summary and Conclusion

4.1. Summary

4.1.1. The Economic and Social Committee recommends support for renewable energies as a means of ensuring sustainable development.

4.1.2. Programmes to support exports of renewable technologies are vital if Europe is to retain its leading position.

4.1.3. Most of the measures proposed in the green paper can be justified to improve the penetration of renewable technologies in the near term and up until the mid-21st century.

4.1.4. An environmental balance sheet must be drawn up for each renewable energy technology to evaluate its environmental impacts.

4.1.5. A general tax increase on conventional sources of energy is not needed.

4.1.6. Financial incentives are needed to accelerate the penetration of renewables, with coordination within the Union so that stable and predictable market conditions are created for energy product and service companies, their investors and customers.

4.1.7. Attention should be given to the technical and economic problems posed by connection to centralized electricity grids of high and variable volumes of renewable energy. In particular, the development of storage technology is critical.

4.1.8. Priority should be given to promoting the market for renewables in developing countries.

4.1.9. In the short to medium term, a parallel aim should be to promote energy efficiency, which should be a priority for the 5th Framework Programme.

4.1.10. There is a need for an R& D programme planned to improve the efficiency and price of renewable energy technology because we expect fossil fuel prices will continue to fall due to advances in technology, new fuels (gas) and organizational cost reduction following the introduction of competition in the supply industry.

4.1.11. Action should be taken to promote consumer demand for renewable energies including establishment of renewable energy agencies to educate the public and the key intermediary trades and professions such as plumbers, electricians, builders and architects.

4.1.12. Policy should recognize that public utilities have an important part to play both in encouraging rational energy use as well as developing and acquiring renewable energy supplies.

4.1.13. Programmes of public procurement should be used to promote demand for renewable energy.

4.1.14. An indicative EU target of about 12 % for the contribution by renewable sources to gross inland energy consumption should be set.

4.1.15. We advocate the setting of sub-targets for the various renewable energy technologies.

4.1.16. The achievement of a significant increase in the share of renewables requires the full commitment of Member States at national, regional and local level.

4.1.17. Renewable energy credits: a certain percentage of a Member State's electricity requirements could be met by renewables, via tradeable targets for each retail electricity supplier. Member States should be free to adopt this proposal according to their particular circumstances.

4.1.18. Internalization of cost and fiscal harmonization: it would not be appropriate to increase carbon taxes on transport fuels since the taxation element in fuel pricing is already overwhelming and taxes are a matter for subsidiarity. The focus should be on fuel efficiency, alternative power systems and future transport strategies.

4.1.19. Fiscal incentives: the ESC is in favour of fiscal incentives for producers and/or consumer, until the key technologies have achieved the necessary momentum.

4.1.20. State aid: should not lead to distortions in the renewable energy market but is otherwise accepted as necessary.

4.1.21. Standardization: needs to be moved ahead urgently to ensure quality and reliability. The Commission is encouraged to undertake pro-active consultation with the industry.

4.1.22. There is a need to promote further technological development if renewables are to achieve significant market penetration.

4.1.23. Renewable projects should benefit from funding from the European Investment Bank (EIB), the European Bank for Reconstruction and Development (EBRD) and other international financial institutions. There are opportunities for public/private partnerships, and private finance in public procurement.

4.1.24. There is a need for export finance.

4.1.25. The ESC notes the commitment of the Joule-Thermie programme to devote 45 % of its budget to support and promote renewables. Where possible, EU technology should be supported.

4.1.26. Any strategy must establish clear energy objectives for the 5th Framework Programme.

4.1.27. An EU renewable energy laboratory, institution or agency should be formed along the lines of the USA's National Renewable Energy Laboratory and of the EU Environment Agency.

4.1.28. The ESC would expect that telematic applications and services be developed alongside the development of renewable energy technologies.

4.1.29. Successful introduction of renewable energy requires regional development policies and direction from competent regional agencies.

4.1.30. Since investors need to know that there is an assured market for all renewable energy technologies, Member State governments' intentions over the medium term must be made clear to the investment community.

4.1.31. There is scope for public support for sectoral trade associations.

4.1.32. Incentives should be given to encourage provision of non-base load capacity provided by renewable energy to supply peak loads in tourism and remote regions.

4.1.33. Incentives should be given to programmes to stimulate energy crops from agricultural land which will influence the economy of rural areas in the EU in a positive way and generate new jobs in agriculture, transport and affiliated industries.

4.1.34. Strategy development for the agricultural sector should be related to the distinction between transport fuels and electricity/heat generation.

4.1.35. An urgent area for RD& D is energy generation from the food, feed and cellulose components of agricultural crops.

4.1.36. The interface with the Common Agricultural Policy in this area should be examined since the impact of intensive energy crop cultivation will be profound.

4.1.37. The Commission should give renewable energy matters a much higher priority in its external relations negotiations to offset the potential environmental crisis which is expected to be provoked by the escalation of third world energy demand.

4.1.38. Development of renewable sources of energy in central and eastern Europe require increased attention in the EU's relations with these countries, complementing the action of the Phare and Tacis programmes.

4.1.39. The EU should focus heavily on the opportunities in the Middle and Far East for rational planning and higher energy intensity.

4.1.40. A framework for cooperation between EU- and non-EU Mediterranean countries on renewable energy should be developed, completing the action of the MEDA programme.

4.1.41. EU renewable energy technology exports should have the highest priority in commercial policy.

4.1.42. The ESC supports the Commission's proposals for assessment and monitoring of the renewable energy sector.

4.1.43. The Commission must recognize that the inherent problems of many renewable technologies increase exponentially with scale.

4.2. Conclusion

It is clear that there are only two non-fossil fuel alternatives at present which can help EU Member States to achieve their international obligations on CO2 emissions and sustainable development; these are nuclear power and renewable energy technologies. Since nuclear generating capacity in the EU is likely to decline during the first two decades of the 21st century, it is important that the use of renewables advances. It does not seem possible that renewable energy technologies could replace nuclear capacity in this time scale, because the potential of these technologies is restricted and because there are important limitations when use of these technologies is significantly scaled up. Nevertheless, everything that can be done should be done, both for energy supply within present and prospective EU Member States and for the development of renewable technology exports.

The Commission's Green Paper on Renewable Energy Sources has provided a valuable stimulus to a necessary debate. The ESC is pleased to have made its contribution and hopes to see its views reflected in the white paper. What is certain is that 'Present Policies` are not sufficient to promote these important technologies. We hope that a version of 'Best Practice Policies` will be defined in the white paper and that it will, in turn, be accepted by the Member States.

Brussels, 24 April 1997.

The President of the Economic and Social Committee

Tom JENKINS

() OJ No C 39, 31. 12. 1994.

() OJ No C 256, 2. 10. 1995.

() COM (96) 332 final.