Energy efficiency in Europe: A fuel waiting to take off

Energy efficiency is a key component of any 21st century energy policy, and is crucial to meet climate change targets, particularly those agreed at the COP21 summit in Paris last December. Currently, however, the EU is unlikely to meet its 2020 target of improving energy efficiency by 20% (primary energy savings are projected to reach only 17.6% by 2020), and needs to be even more ambitious if we are to reach a low-carbon economy by 2050.

Farrukh Khan, Deloitte Central Europe Energy & Resouces Leader, points out that “the potential is really significant, but remains to a large extent untapped. The International Energy Agency (IEA), for instance, estimated in 2012 that two-thirds of the economically profitable investments to improve energy efficiency will remain untapped in the period to 2035.”

Deloitte’s study – Energy efficiency in Europe, The levers to deliver the potential - aims to highlight this untapped opportunity. The study highlights six main courses of action which can impact consumer behaviour and capture the potential behind energy efficiency:

• Define and implement appropriate indicators and targets: So far, EU Member States can choose whether to set their national target based on either primary energy consumption (PEC), final energy consumption (FEC), primary or final energy savings, or energy intensity. However, if the policy is to be fully efficient and coherent, the main binding target for energy demand policies at EU and national level should be expressed as Primary Energy Consumption (PEC). The use of PEC would make it possible to cover both the reduction in energy consumption and the move to a more efficient and less carbon-emitting energy mix.
• In parallel, in a period of major budget constraints, avoided greenhouse gas emissions should be promoted as an indicator in order to prioritise energy efficiency measures, as this indicator makes it possible to assess the wider impacts of energy efficiency policies on overall energy and climate strategy.
• Promote product standards and labelling: Energy standards and labels, such as those promoted by the Ecodesign and Energy Labelling Directives, have proven to be successful tools to reduce energy consumption (175 Mtoe of savings per year by 2020, i.e. 11.6% of the EU-28’s PEC in 2014, or savings of EUR 465/year on household energy bills). Further progress is possible, for instance, via even more relevant, up-to date and easily understandable energy information, such as annual operational costs in euros and average energy costs per kWh.
• Unleash the energy efficiency potential of buildings, which account for 39% of the EU's total final energy consumption (2014). 75% of the EU’s building stock is still energy-inefficient and the rate of building renovation remains very low. Ambitious measures should be promoted to overcome current barriers, such as: on-bill repayments or taxes (that enable the tenant not to pay for the investment in energy efficiency measures upfront, but on a regular basis), Energy Performance Certificates (EPC) for buildings, etc.
• Mobilise retail consumers: Information and communications technologies (ICT) are developing exponentially and giving birth to innovative ways to measure, monitor and control energy consumption. Raising the awareness of end-users (e.g. via digital tools), and gathering and communicating the relevant data (e.g. through smart meters) could play an important role in reaching the EU energy efficiency target.
• Send the right price signals: The current CO2 price set by the EU Emissions Trading System (ETS) (which was as low as EUR 5 /tCO2eq. in April 2016) is too low and global energy prices are not high enough to incentivise investments in energy efficiency. Additional action (such as further reform of the EU ETS, implementation of carbon taxes…) needs to be taken in order to send the right price signals and to target more emissions than those currently covered by the EU ETS.
• Facilitate financing of energy efficiency measures: The European Commission estimates that EUR 100 billion needs to be invested annually to achieve Europe’s 2020 energy efficiency targets. Innovative financing mechanisms need to be put in place and promoted, such as: energy performance contracting schemes (EPCs) offered by Energy Service Companies (ESCOs) and green bonds (whose issuance increased 16-fold between 2012 and 2015 from USD 2.6 billion to USD 41.8 billion worldwide), etc.

“By using these levers in combination,” Farrukh Khan, Deloitte Central Europe Energy & Resouces Leader stresses, “the EU can not only save energy, but make a major contribution to the three pillars of its energy policy: security of supply (reduced import dependence), sustainability (fewer emissions) and competitiveness (affordable energy).”