High ambition and regulatory pitfalls - new EU obligations for energy efficiency and renewable energy

The negotiations on the EU’s Clean Energy Package are getting close to being completed in a number of respects. In the quite heated trilogues in early summer agreement was reached on the directives concerning both energy efficiency and renewable energy. However, the directives must also be efficiently implemented by Member States. What does this mean for Finland in practice? What are the key challenges?

Besides the directives, in June an understanding was reached on the governance model for the EU Energy Union. This should make sure that the targets set on the EU level are met consistently and on schedule.

The tasks left to the Austrian Presidency are the technical (juridical and linguistic) fine-tuning and formal endorsement, first at the European Parliament and then at the Council of the European Union. During the autumn we will proceed to the decisive negotiations between the Parliament, Council and Commission on the electricity market rules. This is the last major issue of the Clean Energy Package that is still open.

Pressures created by the Paris Agreement

Along the way the legislative process has been more and more strongly influenced by the need and aspiration to take stricter action to combat climate change, as set out in the Paris Climate Change Agreement. This is quite understandable. Yet, I would have preferred a more comprehensive approach to energy and climate policy, the instruments used and how these can be optimised (Column 15 August 2018: How to optimise EU’s energy and climate action).

Now the most important policy objective – reducing greenhouse gas emissions – is not being realised in the most cost-effiective way. For consistency, priority should be given to the emission reduction target and emissions trading should have a bigger role.

The EU cannot be blamed for lack of ambition, however. In both directives the EU target to 2030 was significantly raised. Instead of the proposed 27% energy efficiency will be improved by 32.5% and the share of renewable energy in energy end-use will rise to 32% instead of 27%. These shares can be raised further in 2023. European Commissioner for Climate Action and Energy Miguel Arias Cañete has pointed out that these alone allow to raise the emission reduction target to 2030 from 40% to as high as 45%.

This also creates the conditions for more ambitious long-term targets. The Commission launched the consultation concerning the EU Strategy for Low-Emission Mobility in July and will issue a proposal on this in November. The aim for the EU could be to achieve carbon-neutrality by 2050. According to the governance model for the EU Energy Union, Member States will draft low-emission strategies of their own. In Finland the long-term strategy work is coordinated by the Ministry of Economic Affairs and Employment. Among the key issues here is the role of low-carbon technology.

Directives do not optimise emission reduction actions

From the Finnish perspective the obligations set by the Energy Efficiency Directive are quite drastic. In particular, the annual energy savings obligation of 0.8% in Article 7 is challenging. The final formulation of the Article was badly organised and based on insufficient analyses.

The rigid obligation that in the new directive is linked to energy end-use causes problems in terms of the cost-efficiency of actions. It is also problematic for countries with advancing energy-intensive industry. There are complications in the very idea of measuring energy efficiency on the basis of total energy use in the national economy. At worst this may slow down investments that would reduce emissions but not energy use, such as the power-to-gas business.

The binding EU target to raise the share of renewable energy by 12 percentage points during the next decade is well in line with Finland’s national target to raise this share to 50%.

However, even this EU target is not optimal in terms of reducing emissions. The key issue is to reduce the use of fossil fuels. Perhaps the EU targets concerning energy sources – if this is what we need and want in the future – should be targeted to reducing the most harmful fossil energy sources. In fact, the plans to ban the use of coal in many Member States reflect this thinking.

From the Finnish perspective what was positive is that the sustainability criteria for the use of bioenergy are now specified in more detail. We had hoped for higher ambition with regard to renewable transport fuels. The 14% target for 2030 involves too much flexibility. The target for advanced biofuels is justified, but the target level of 3.5% (with double counting) is quite low.

Implementation far from simple

Now that most of the work done by the European Parliament and Commission may be considered done, it is up to Member States to worry about implementing the directives in a proper and efficient manner. In many respects problems are caused by the too detailed set of rules, in part open to varying interpretations. The implementation also involves broader adjustments to the steering instruments, support schemes and tasks performed by public authorities. This requires extensive preparation and analyses.

In terms of schedules it seems that the Energy Efficiency Directive should be implemented by the middle of the year 2020 and the Renewable Energy Directive by 30 June 2021.

However, the EU targets must already be taken account when preparing the national integrated energy and climate plan under the governance model. The draft plan is to be submitted during the current year and the final version by the end of 2019. Finland aims for a much tighter schedule, partly due to the parliamentary elections next spring and Finland’s EU Presidency, which starts in July 2019.

Riku Huttunen, Director General of the Energy Department at the Ministry of Economic Affairs and Employment