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Energy Performance of Buildings Directive Revisions: What to Know.

The following is a guest blog by Anthony Gilbert, specialist in real estate and real estate marketing, and owner of The RealFX Group. Improving the energy efficiency of Europe’s buildings is a key element of a successful low-carbon transition. An important focus of the work of INNOPATHS is an examination of the barriers to achieving this objective, and how to overcome them. The blog focusses on the recent revisions to the EU’s Energy Performance of Buildings Directive (EPBD), which currently sits at the heart of European policy to encourage energy efficiency in buildings.


The EU has recently changed its Energy Performance of Buildings code to encourage the efficiency of older buildings in the union. This move is just one of eight different proposals that seek to reduce the amount of energy used in EU structures. Right now, the building sector accounts for 40% of all energy use in the EU. With 75% of all buildings in Europe described as energy inefficient, these new proposals seek to renovate buildings in an effort to lower energy consumption by up to 6% and COemissions by up to 5%.

Primary Objectives 

These revisions state that smart technology is to be implemented whenever possible to inefficient buildings. Ultimately, this translates to more automation and better control systems. The larger goal for the EU is to hit 0% emissions by the year 2050. Professionals are instructed to use readiness indicators to determine how easy it will be to integrate the new technology into the building.

Ideally, they’ll be able to piece the resulting data together to determine the best renovation strategies for future structures. The EU is trying to capitalize on just how adaptable technology can be. They see these methods as a chance to stabilize the electricity and to drive the union away from the use of fossil fuels and carbon emissions.

The Role of Member States 

The directives of these revisions are deliberately vague to account for the many anomalies and incongruities of renovation and retrofitting. Member States are given the freedom to accomplish these objectives as they see fit. Each neighborhood is allowed to decide the best way to implement the changes based on not only the physical infrastructure but also the environmental obstacles that may stand in the way of ideal working conditions. The larger EU bureaucracy will only interfere if they feel that Member States are not honoring the revisions or otherwise failing to promote sustainability. As they begin promoting more renovations, homeowners and tenants should start to see their energy bills fall.

A Rise in Jobs

The rate of renovation in the EU is currently between .4 – 1.2%, so there’s a lot of room for growth when it comes to installing smarter energy systems. The construction industry in Europe puts 18 million people to work and is responsible for 9% of Europe’s GDP. These new directives give experts in renovations and retrofits more opportunities to put their knowledge to good work, and it gives novices a chance to learn on the job and transform themselves into the energy protectors of tomorrow. These types of radical turnarounds tend to boost jobs in related sectors. The rise in competition usually results in better products and services, which is truly a win-win for both people and the planet.

Improved Lifestyles

Building inefficiency doesn’t just hurt the environment, it can also hurt the people who reside in the buildings. Humidity, dust, and pollutants can hang in the air of a building that lacks the necessary components to circulate it. Vulnerable groups like children and the elderly are particularly susceptible to illness after repeated exposure. The smarter a building is, the more breathable the air will be and the more comfortable the residents will feel. Ultimately, the EU wants everyone to start taking their energy consumption seriously. By starting with the buildings people live and work in, they hope to spur a larger movement that makes it easy to hit their greenhouse gas goals.

Future Goals 

The EU fully understands that is has a long way to go if they’re hoping to stamp out energy inefficiency in a sector as large as the building industry. However, these revisions are truly a step in the right direction. By encouraging Member States to put their energy into smarter building, they inadvertently create demand for green building. As homeowners, building owners, and tenants start to see their health improve and their energy bills become much more affordable, it will create a new standard of living. Leaders believe that this strategy will help them achieve global leadership in promoting renewable energy.

Every country is responsible for promoting their own version of energy efficiency, but the EU seems to have the right idea by dreaming big. Benefits like job creation, better health, and lower utility bills are developments that everyone can support, regardless of their personal views about our responsibility to preserve the planet for future generations.

Anthony Gilbert is the owner of The RealFX Group. Anthony specializes in real estate and real estate marketing, and likes to follow and promote advancements in accessible and efficient technology for homeowners.

Professor Benjamin Sovacool and Jessica Jewell write piece for The Conversation

On Thursday 8 March 2018, Professor Benjamin Sovacool and Jessical Jewell’s study ‘Fossil fuel subsidies need to go – but what about the poorer people who rely on cheap energy?’ was published in The Conversation.

Professor Benjamin Sovacool is Professor of Energy Policy at the Science Policy Research Unit (SPRU) at the School of Business, Management, and Economics, part of the University of Sussex.  There he serves as Director of the Sussex Energy Group and Director of the Centre on Innovation and Energy Demand.

Drawing from a review he did for Ecological Economics, Benjamin has teamed up with Jessica Jewell from the International Institute for Applied Systems Analysis to write a piece about energy subsidies for The Conversation.

Read full publication here

 

Latest papers published by INNOPATHS

INNOPATHS is a four year EU funded research project that aims to work with key economic and societal actors to generate new, state-of-the-art low-carbon pathways for the European Union. Below is a round-up of the latest research to come from INNOPATHS.

Anadón, L.D., Baker, E., Bosetti, V. (2017) Integrating uncertainty into public energy research and development decisions, Nature 2, Article number: 17071 Free access

Geddes, A., Schmidt, T., Steffen, B. (2018) The multiple roles of state investment banks in low-carbon energy finance: An analysis of Australia, the UK and Germany, Energy Policy 115, 158–170 Free access

Steffen, B. (2018). The importance of project finance for renewable energy projects, Energy Economics 69, 280-294 post-print manuscript

Verdolini, E, Anadon, LD, Baker, ED, Bosetti, V, Reis, L. (2018) The future of energy technologies: an overview of expert elicitations.’ Review of Environmental Economics and Policy Free access

Is climate policy a constraint or an opportunity for job creation?

  1. Context

Do climate policies represent a constraint or an opportunity for job creation and employment growth? Two theses are recurrently put forward in the political debate. The first emphasizes the cost increase, especially the pass-through on energy prices for polluting industries, which would threaten international competitiveness and thus employment. The other stresses positive long-term effects that, besides reducing emissions, will boost innovation and thus long-term competitiveness.

A rigorous evaluation of climate policies, such as carbon taxes, must of course account for the expected decrease in pollutant emissions and energy consumption. However, to be complete, this evaluation must study broader indirect effects on industrial competitiveness and employment – the very ones that are likely to have a primary impact on the well-being of people involved in carbon intensive productions (Smith, 2015).

The concern of an immediate loss of competitiveness is felt particularly in France. This concern comes first and foremost from the fact that the recent Energy Transition Law caused a strong increase in the carbon tax (€ 22 in 2016, € 56 in 2020, € 100 in 2030). This is the argument that industrial lobbies claim to curb overly ambitious environmental policies, especially in a context of non-binding international agreements, such as those initiated by COP21. Also, unions are worried that unilateral policy may lead to the relocation of more polluting activities and thus jobs to countries that implement a less ambitious carbon pricing schedule, or an opportunistic strategy of non-intervention. The main argument of the US administration against international agreements on climate change has always been that, in absence of a well-designed enforcement mechanism, ‘carbon leakage’ —a lose-lose outcome in terms of job losses and higher emissions—becomes a real possibility. For instance, a border carbon tax adjustment has been proposed as an amendment to the World Trade Organization rules to make the enforcement of international agreements on climate change credible.

An alternative view on the effect of climate policies emphasizes the positive consequences for innovation and the creation of a comparative advantage in new sectors where demand is expected to increase rapidly. These green innovative activities would use relatively more skilled labor than polluting activities, and this could have a large multiplier effect on employment for local communities. To turn climate policies into an opportunity, governments could also consider using the revenues from the carbon tax to reduce the tax burden on labor. A drop in taxation on labor could lead to a substitution effect leading to net job creation.

The purpose of this policy brief is to provide a preliminary empirical answer to the question of whether climate policies are an impediment or, on the contrary, an opportunity for employment growth. In doing so, we compare the performance of France, a country for which we have detailed micro-data to test the effects of climate policies, with those of its main economic partners, Spain, Italy and especially Germany.

 

  1. Employment dynamics and energy prices in energy-intensive industries

With regards to the situation of France compared with that of the three major European countries, Germany, Spain and Italy, it is first necessary to look at the extent to which climate policies have changed in these four countries.

Admittedly, climate policies are multidimensional and therefore their effective stringency is difficult to compare. However, it is possible to use differences in energy prices for gas and electricity (the two main energy sources for these four countries) to proxy the effect of carbon pricing. Indeed, while the European Emission Trading System (EU ETS) sets, in principle, a single carbon price, national-level instruments have been introduced to subsidize renewable energies in all four countries. This has thus created a certain heterogeneity in policy stringency across these countries. In France, for example, the Social Contribution of Electricity Generation (CSPE) was introduced to finance EDF’s purchases of electricity produced with renewable energies. The impact of the CSPE has increased over time in a very clear way: 0.003 euro per kw/h in 2003, or 5% of the price of electricity for a medium-sized industrial consumer in 2003, compared with 0.019 euro per kw/h in 2015, or 31.6% of the price of electricity for a medium-sized industrial consumer in 2015.

Let’s first look at the evolution of electricity prices (Figure 1) and gas prices (Figure 2) for an average industrial consumer, in the four countries, between 2000 and 2015.[1] In all countries both prices are rising sharply. In France, the price of electricity increases slightly less than in other countries and the price level remains below the average price in other countries. Since the gas market is global, the price variation across countries is much lower than in the case of electricity. There is therefore a stronger tendency for price convergence for gas than for electricity. It should also be noted that the impact of the price of natural gas (and the highly correlated oil price) is much higher in Italy, Germany and Spain than in France, where electricity is produced mainly by means of nuclear power. Thus, France’s effective exposure to energy price shocks, either because of climate policies or because of rising gas and oil prices, is lower than in the other three countries.

Now let’s look at how employment has evolved in the industries most exposed to rising energy prices. Using the average energy intensity across countries, we define two groups of industries: one with high exposure and the other with medium exposure to price changes.[2] Since in France the price of energy has increased relatively less than in other countries, a smaller impact on employment should be expected. Figure 3 and 4 show exactly the opposite for the period 2000-2011. In fact, while employment in polluting sectors declined in all four countries, the decline is more pronounced in France than in Italy and Germany. Moreover, the level of activity in highly polluting sectors (Figure 3) and moderately polluting (Figure 4) is significantly lower in France (7% of total employment in 2011) than in Italy (13.1 % of total employment in 2011) or in Germany (10% of total employment in 2011). Obviously, these are only correlations and such a result may be ascribed to other structural factors, such as the degree of specialization in these industries or the innovativeness in clean technologies.

 

3. Electricity prices and employment in French firms

Because employment in polluting industries reacts more to energy prices in France than in other countries, we examine in greater details what happened to French companies using firm-level data. This allows us to formally test whether these job losses can be ascribed to the increase in energy prices rather than to other structural factors. A recent INNOPATHS study (Marin and Vona, 2017) estimates the elasticity of employment of French manufacturing firms following a change in the price of energy.[3]

Table 1 shows the main results of this analysis, which uses the historical experience of price increases in the 2000s to extrapolate the effects of the carbon tax provided for in the energy transition law. They are, in a way, not surprising. Rising energy prices (measured as a weighted average of the prices of different energy sources) effectively reduce employment in French manufacturing. The effects are significant: a 10% increase in prices reduces employment by 2.6%. Unsurprisingly, these effects are stronger in the more energy-intensive industries (3.4% job loss) and more exposed to international competition (3.1% job loss). To put these results in context, it should be noted that, according to this calculation, a carbon tax of € 56 per tonne of CO2 will lead to an average increase in energy prices of 20% and, therefore, these elasticities should be doubled. However, unreported results also show that these employment effects are upper bounds, at least for multi-plant firms that can use their internal labour market to mitigate the negative effect of the shock.

This negative employment effect should also be weighed against positive effects in terms of a decrease in the energy demand and reduction of emissions. Table 2 shows that these effects go in the right direction. A 10% increase in energy prices reduces demand by more than 6%, and reduces greenhouse gas emissions by more than 11%. These quite considerable effects offset the social cost generated by the decrease in jobs. However, further research is required to understand the extent to which this decrease in emissions is just a reflection of an increase in emissions embedded in the country’s import. Such analysis as well as an analysis distinguishing between short-term and long-term effects would clearly allow us to shed more light on the net benefits of a carbon tax.

Overall, these large job losses raise the more general question of the change in comparative advantage induced by climate policies in international markets. At a first glance, it seems clear that, unlike Germany, France has not been able to turn the challenge of the energy transition into an opportunity to develop a new comparative advantage. To corroborate this conclusion, the next section will turn back to aggregate data on green exports and the size of the green economy in these two countries.

 

4. The energy transition: an opportunity for creating green jobs

Previous results only consider effects on energy-intensive industries. Keeping constant the industry structure, they do not consider the positive effects of job creation in the new green sectors. The destruction of jobs in energy-intensive industries can be more than offset by job creation in green industries. From this perspective, the energy transition may contribute to reignite sluggish economic growth. The scale of this counterbalancing effects remains difficult to establish: green industries follow different growth patterns from energy-intensive industries as they are usually more exposed to trade and are upstream in the value chain.

With particular reference to the situation in Europe, the available data allows for a comparison only between Germany and France and for a time span limited to the financial crisis period (2008-2014). We compare these two countries on four dimensions: employment in the green sector (Figure 5), green sector exports (Figure 6), value-added in the green industry (Figure 7), and investment in green technologies (Figure 8). It appears that the number of green jobs is roughly the same in both countries, albeit with faster growth in Germany, but also that exports of green products are 3.8 times higher in Germany than in France. Green value added is almost twice as high in Germany, and investments in green technologies almost 3 times higher. Germany is therefore more competitive than France in green industries, probably because its capacity for industrial development and therefore growth of activity and employment, in this sector as in the others, is higher. A possible answer to this divergence between France and Germany comes from a recent study on the drivers of green employment in US regions (Vona et al., 2017). According to this study, green jobs require more qualifications than jobs removed from polluting industries, mainly in terms of technical skills and engineering. Local technological expertise, as measured by the number of patent applicants in the region and by the presence of a national research lab, is also positively associated with the creation of green employment. Given the well-established comparative advantage of Germany in engineering services and machinery industries, the evidence on US regions can contribute to explain the difference between Germany and France in the capacity to turn climate policies into an opportunity. In Germany, the capital goods industry plays a key role in the design of green production processes. Recent work, based on patents, shows that Germany has a comparative advantage today and future much stronger than France in three of the four key green technologies: wind turbines, batteries and photovoltaic panels (Zachmann, 2016). 5. Concluding remarks It is very likely that the energy transition will negatively affect industrial competitiveness in the short term and therefore employment in a proportion that is greater if the companies concerned already suffer from a competitiveness deficit, like in France. This evidence argues for a phased and gradual transition, which must take into account both the time required to build a comparative advantage in the green sector, and the immediate negative effects on the polluting sectors in an already negative economic situation. The use of border carbon tax adjustment, as suggested by, among the others, Helm et al. (2012), represents a way to slow down the carbon and job leakage, giving more time to the affected industries in developed countries to adjust. On the other hand, it is no less obvious that such a transition may bring with it the creation of skilled jobs and growth. As the evidence of US regions tell us, these offsetting effects on job creation are more likely to occur if climate policies are combined with industrial policies and R&D investments on low carbon technologies. 

 

References

Greenstone, M. (2002), ‘The Impacts of Environmental Regulations on Industrial Activity: Evidence from the 1970 and 1977 Clean Air Act Amendments and the Census of Manufactures.’ Journal of Political Economy 110(6), 1175-1219.

Helm, D., Hepburn, C., Ruta, G., (2012), ‘Trade, climate change, and the political game theory of border carbon adjustments.’ Oxford Review of Economic Policy 28(2), 368-394.

Kahn, M., and Mansur, E. (2013) ‘Do local energy prices and regulation affect the geographic concentration of employment?.’ Journal of Public Economics 101, 105–114.

Marin, G., Vona, F., (2017), ‘The Impact of Energy Prices on Environmental and Socio-Economic Performance: Evidence for France Manufacturing Establishments.’ OFCE working paper.

Martin, R., Muûls, M., de Preux, L., Wagner, U., (2014), ‘Industry Compensation under Relocation Risk: A Firm-Level Analysis of the EU Emissions Trading Scheme.’ American Economic Review 104(8), 2482-2508.

Smith, V. K. (2015). ‘Should benefit–cost methods take account of high unemployment? Symposium introduction.’ Review of Environmental Economics and Policy 9(2), 165-178.

Vona, F., Marin, G., Consoli, D., (2017), ‘Measures, Drivers and Effects of Green Employment: evidence from US metropolitan and non-metropolitan areas, 2006-2014.’ SPRU working paper.

Walker, W. (2013), ‘The Transitional Costs of Sectoral Reallocation: Evidence From the Clean Air Act and the Workforce.’ Quarterly Journal of Economics 128(4), 1787-1835.

Zachmann, G. (2016), ‘An approach to identify the sources of low-carbon growth for Europe,’ Bruegel policy contribution n.16.

 

Tables and Figures

Table 1. Effects on employment of 10% increase of energy prices

Sector D% Employment
All Manufacturing Sectors -2.6%
Energy Intensive Sectors -3.4%
Non-energy Intensive Sectors -0.9%
Sectors exposed also to international competition -3.1%
Sectors not exposed to international competition -1.6%

Sources. Marin and Vona (2017).

 

Table 2. Effects on Energy Demand and CO2 Emissions

Sector D% of Energy Demand D% CO2 Emissions
All Manufacturing Sectors -6.4% -11.2%
Energy Intensive Sectors -6.6% -11.5%
Non-energy Intensive Sectors -5.3% -10.9%
Sectors exposed also to international competition -7.9% -11.4%
Sectors not exposed to international competition -5.4% -11%

Sources. Marin and Vona (2017).

 

Figure 1: Electricity Prices, industrial consumers

Figure 2: Gas Prices, industrial consumers

Figure 3: Share Employment High Energy Intensive

Figure 4: Share Employment Mid Energy Intensive

Figure 5: Green Employment

Figure 6: Green Value Added

Figure 7: Green Exports

 

Figure 8: Investments In Cleaner Tech

[1] Source Eurostat, http://ec.europa.eu/eurostat/data/database.

[2] Source EU-KLEMS, http://euklems.net/. The groups are rather standard in the literature and coincide with the more energy intensive industries. Highly polluting industries are: Chemistry, Metals, Manufacturing of other non-metallic mineral products, Coke and Oil Refining, Mining. Moderately polluting industries are: Food and Beverages, Leather and Footwear, Rubber and Plastics, Textile, Wood and Wood Products, Other Manufacturing Sectors including Recycling.

[3] This study is based on data from establishments in the manufacturing sectors in France during the period 1997-2011. Three databases are merged: the DADS database (to have a measure of employment, by type of qualification, in each establishment), the FICUS database (to build a measure of enterprise productivity, unreported in this note but available in the paper) and the ECAI database (to obtain measurements of the energy mix used and energy prices paid by a sample of French establishments in the manufacturing industry). The national price of different energy sources is used, weighted by the initial energy mix of the establishments, as an instrumental variable to isolate exogenous changes in energy prices unrelated to quantity-discounts. Our estimates are conditioned to a rich set of control including sector- and region-specific trends and establishment fixed effects. We also take into account the effects of European policy to set a carbon price, the ETS (Emission Trading Scheme). The employment effects of ETS are low, consistent with the low effective severity of this policy which has provided generous exemptions for more energy-intensive industries exposed to international competition (see: Martin et al. 2014).

 

Surprises and change

The first serious efforts to develop new and renewable energy into viable energy options started in the aftermath of the oil crises in the late 1970’s. The then Carter administration launched multi-billion R&D programmes in the USA to start an alternative energy revolution. Likewise, the first deployment programmes of wind energy were initiated in the USA, which brought some 1 GW of Danish wind power to the Californian market with a hope of producing cheap electricity. At the same time, the first global energy scenarios1 were designed at IIASA near Vienna predicting a turn to an oil-free, mainly nuclear-based energy economy, flavored with solar energy.

In retrospect, many of these early efforts in clean energy were disappointments and didn’t meet the quick promise of turning the world energy economy around. Neither have we been able to foresee the many ‘surprises’ and disruptions that followed during the next 40 years, which together have pushed the new and renewable energy technologies to a market breakthrough.

There is not a single mastermind or grand policy plan behind the success of clean energies, but rather a sequence of interlinked incidences with amplifying effects and making use of enabling drivers such as advances in science and the U.N. climate accords. Not to mention the pioneering markets in Germany with strong policy links which provided generous subsidies to new energy technologies, which in turn induced huge learning effects and cost reductions.

One of the biggest surprises during the last decades was the transformation of China towards an innovation-driven economy. China played a crucial role in bringing down the cost of photovoltaics and wind power. During the last ten years, the price of PV has dropped by more than 90% thanks to the efficient, low-cost, and large-scale Chinese innovation system integrated into manufacturing. In addition, the scale of economies played a role. The Chinese scaled up production facilities tenfold from those typical in the USA and Europe. Remarkably, no major breakthrough in the core PV technology preceded this dramatic cost plunge. This ‘surprise’ came from outside the traditional research and technology development realm, which is often thought to deliver the disruptions.

A similar ‘surprise’ was the victory of the Danish wind power industry, which beat the billion-dollar U.S. wind programme in delivering competitive windmills to the market 40 years ago. The Danish success has been attributed to the effective networking amongst market actors, developers, and researchers, and their openness to share experiences whilst competing.

Some ‘surprises’ may have unpredictable consequences. For example, the U.S. shale gas boom took off in a quite short time period 10 years ago and brought very cheap gas into the U.S. market, displacing coal in power production. These changes were so large that they had a global impact; e.g. cheap coal started to filter into Europe. Unfortunately, the Emission Trading System (EU ETS) was incapable of preventing this and coal use has increased in many EU countries, contradicting the EU climate policy. Ironically, the strong price-driven fuel shift from coal to gas in the USA lead to relative CO2 emission reductions of about the same size as those in the European Union with strong climate and support-driven policies.

Above examples should not be misunderstood as a laissez-faire attitude, but as a cautious remark that future development is not linear. Neither is ‘surprise’ the only factor that created a change, but there are other important factors, many with a socio-economic and political dimension.

Actually the success of PV, wind, and shale gas described above is not just about a mere ‘surprise’, but a result of successful commercialization strategies, in which technology development and deployment measures were optimally applied. Policies played a role in the big picture as well, particularly in accelerating development and providing a framework for penetration. The dialogue between science and policy is also of importance. Scientists have valuable knowledge and insight, and could advise policy makers about future opportunities and threats, and urge actions, when necessary. The recent communication2 on the sustainability of forest bioenergy (policies) by leading European scientists serves as an example of such advice.

In a world of ‘surprises’, it is no wonder that the predictions on the future of new energy technologies include major uncertainties. Once a new technology starts to become cost-competitive and takes off, the future predictions tend to be too pessimistic, while when still being far from the breakthrough point, they are often too optimistic.  A prevailing positive development may also be stopped by a sudden unexpected ‘surprise’. This was the case with nuclear power caused by the Three Mile Island, Chernobyl, and Fukushima accidents, and the consequent rise of public opposition to nuclear and deterioration of its economics, which turned the hailed nuclear renaissance into a disaster, also reflected by recent scenarios3.

Technology disruptions and ‘surprises’ are vital for technology evolution. Therefore, understanding the nature of disruptions deserves attention. The present clean energy transition will trig a range of new innovations, e.g. in transport, in integration of renewable energy, and through digital economy. Consumers are much stronger involved in the change than previously, which emphasizes social innovations linked to digitalization, circular, and sharing economy, among others.

Perhaps the next ‘surprise’ originates from bottom-up movements and not from a specific technology per se, but from using a range of technologies and expertise together to make a systemic change. What kind of a surprise could Artificial Intelligence generate, not to speak about the distant possibility that one day AI >Human I?

Enabling ‘surprises’, not preventing them, may be important for a CO2-free future, meaning that nourishing a multitude of agents and ideas, which may lead to disruption, would be welcome. The inertia of energy economy is known to be large; it involves huge investments and conservative players. Here, governments may help by unlocking the lock-in to the past energy and avoiding path dependencies. Giving due attention to enablers, drivers, and pushers, which accelerate a change, is worthwhile. Understanding technology limitations is also useful, but we shouldn’t undermine the human ingenuity to overcome such obstacles.

 

  1. Jeanne Anderer, Alan McDonald, Nebojsa Nakicenovic, Wolf Hafele (Ed.). Energy in a Finite World, Paths to Sustainable Future, Ballinger Publishing, 1981.
  2. EASAC – the European Academies’ Science Advisory Council Multi-functionality and sustainability in the European Union’s forests. EASAC policy report 32, April 2017.
  3. International Energy Agency (IEA). World Energy Outlook 2017, November 2017.

Peter D. Lund is professor at Aalto University in Finland. He chaired the Advisory Group on Energy of the EU in 2002-2006. He is past chair of the EASAC Energy Panel. He also holds several visiting positions in China.

Can energy efficiency be market-based?

Energy efficiency is widely recognised as the “first fuel” of decarbonised energy systems of the future, and is an unquestionable pillar of the EU’s ‘Energy Union’. It is one of the most cost-effective options to accelerate the transition to a low carbon economy and may enable achievement of other socioeconomic goals, such as boosting economic growth and employment, and reducing energy poverty. However, nowadays the current paradigm of European approach is aimed at removing market barriers and to make energy efficiency progress based on market instruments creating win-win opportunities for both supply and demand sides. Will this happen in the near future? Can we make energy efficiency a real energy resource in a competitive energy market?

The Role of Market-Based Instruments (MBI)

Historically, the adoption of energy efficiency technologies and practices has often required public subsidies. Out of the public eye, the number of energy efficiency obligation schemes around the world (including white certificate programmes) is growing. A similar trend can be observed for the second type of MBIs – auctions (including tendering programmes), where bids are collected for funds to deliver specific energy savings. According to a recent IEA report, the number of MBIs has quadrupled over the last decade, while the value of investments triggered by MBIs has increased six-fold over the same time. As a result, global energy consumption was approximately 0.4% lower than it would have been otherwise. The IEA further expects that by 2025, energy savings induced by auctions will double to more than the current energy consumption of Poland.

Speaking about Poland

The Energy Efficiency Obligation imposed by Article 7 of the Energy Efficiency Directive requires that Member States ensure that energy suppliers and distributors achieve energy savings of 1.5% per year. In Poland, the obligation has been implemented in the form of a white certificate scheme. Polish experiences with white certificates can serve as an example showing that learning a lesson and a proper (re)design of the obligation schemes by the government may bring promising results. The first version of the scheme was introduced in 2011 and turned out to be complicated, unclear and costly. After major changes introduced in 2016, the application as well as measurement and verification procedures were significantly simplified. As a result, it is expected that the market value of white certificates in Poland in the years 2016-2020 will be approximately 1 billion euro, leading to an electricity price increase of 1.3% in 2020.

But is it more cost-efficient than grants?

At first glance, the answer to this question is positive. However, according to IEA, there is not enough evidence which would prove that efficiency outcomes delivered by MBIs are always more cost-effective than energy savings reached through other means, such as grants. Still, existing data show that savings can be made at a low cost. These observations suggest that not only further research, but also longer timeframes of obligation schemes’ operation are needed to profoundly address this question and design future energy efficiency policies in an effective and efficient manner.

Future outlook: pink glasses of MBIs’ designers

Policy-makers are acknowledging the potential of MBIs. In November 2016, the European Commission announced its “Clean Energy for All Europeans” proposals, which set a 30% energy efficiency target for 2030, to be achieved largely through strengthening and extending existing policy mechanisms, including Energy Efficiency Obligation Schemes (EEOS). Hailed as a great success by the EC, Article 7 is being amended to extend the obligation period beyond 2020 to 2030. The EC expects EEOS to generate the highest amount of savings by 2020 of a single measure notified under Article 7 (86.1 Mtoe), with much smaller savings reached thanks to fiscal incentives (49.0 Mtoe), energy and CO2 tax measures (34.4 Mtoe) and regulations and voluntary agreements (27.1 Mtoe). Recently, the targets proposed by the Commission have been pushed even further by the European Parliament’s energy and industry committee (ITRE). On 28 November 2017, ITRE supported a 40% binding overall target for 2030, with binding national targets, as well as strong rules on annual energy savings. In sharing experiences and expertise with a smart MBI design across countries, interaction between policy makers and researchers will be essential in ensuring these targets are successfully achieved.

Written by Ewa Stefaniak, Maksymilian Kochański, and Katarzyna Korczak
Warsaw University of Technology

Professor Paul Ekins presents at COP23 side event in Bonn

On 11 November, Professor Paul Ekins, Project Co-ordinator of INNOPATHS, was invited to speak at a COP23 side event session titled ‘Low Carbon Europe 2050 – The vision and beyond’.

The EU is set to reduce GHG emissions by 80-95% by 2050 and plans to bring a new long-term climate strategy on the table in 2018. Professor Ekins’ talk was part of a session which covered insights from ongoing H2020 and other research on low carbon transitions, ranging from the essential elements and scenarios to exploring future strategies and governance frameworks.

Three other short introductory presentations were given by Jürgen Kropp (PIK) on EUCalc as an analytical tool and experiences from policy interaction, Lars J. Nilsson (Lund University) on low-carbon Europe, and Guido Knoche (UBA) on the role of science and research. These introductory presentations led to an interactive scholarly debate between a panel and the audience on ways forward and the role of science in shaping policy and governance frameworks.

The panel discussed mitigation options and pathways, key opportunities, barriers and lock-ins, policy and governance implications seen from research, and the roles and responsibilities in science-policy interaction and co-design.

The event was organised by the German Federal Environment Agency and Lund University and co-organised by University College London, Potsdam Institute for Climate Impact Research, Ecologic Institute, Fraunhofer Institute for System and Innovation Analysis.

For an overview of the event, please click here.

INNOPATHS workshop on the ‘Dynamics of low-carbon energy finance’

On 21 September, Utrecht University School of Economics (U.S.E.) hosted the workshop “Dynamics of low-carbon energy finance” as part of the EU commission sponsored Horizon 2020 project INNOPATHS.

In three consecutive sessions, 18 participants from the financial sector, international organisations and academia discussed the financial implications of a low-carbon transition of the European Economy until 2050.

Future energy scenarios and corresponding technology mixes have differential implications for the sources of finance. Especially energy efficiency projects pose challenges to banks and other institutional investors. But also renewable power projects still face technology operation risks and political risks. In addition to debt-providers, the energy transition requires risk-bearing capacity. In this regard state investment banks that prove the investment case are crucial for financing innovative energy technologies.

Read the summary here

 

We must accelerate transitions for sustainability and climate change, experts say

We must move faster towards a low-carbon world if we are to limit global warming to 2oC this century, experts have warned.

Changes in electricity, heat, buildings, industry and transport are needed rapidly and must happen all together, according to research from our partners at the Universities of Sussex. The new study, published in the journal Science, was co-authored by INNOPATHS’ Benjamin K. Sovacool.

To provide a reasonable (66%) chance of limiting global temperature increases to below 2oC, the International Energy Agency and International Renewable Energy Agency suggest that global energy-related carbon emissions must peak by 2020 and fall by more than 70% in the next 35 years. This implies a tripling of the annual rate of energy efficiency improvement, retrofitting the entire building stock, generating 95% of electricity from low-carbon sources by 2050 and shifting almost entirely towards electric cars.

This elemental challenge necessitates “deep decarbonisation” of electricity, transport, heat, industrial, forestry and agricultural systems across the world.  But despite the recent rapid growth in renewable electricity generation, the rate of progress towards this wider goal remains slow.

Moreover, many energy and climate researchers remain wedded to disciplinary approaches that focus on a single piece of the low-carbon transition puzzle. A case in point is a recent Science Policy Forum proposing a ‘carbon law’ that will guarantee that zero-emissions are reached. This model-based prescription emphasizes a single policy instrument, but neglects the wider political, cultural, business, and social drivers of low carbon transitions.

A new, interdisciplinary study published in Science presents a ‘sociotechnical’ framework that explains how these different drivers can interlink and mutually reinforce one another and how the pace of the low carbon transition can be accelerated.

Professor Benjamin K. Sovacool from the University of Sussex, a co-author on the study, says:

“Current rates of change are simply not enough. We need to accelerate transitions, deepen their speed and broaden their reach. Otherwise there can be no hope of reaching a 2 degree target, let alone 1.5 degrees. This piece reveals that the acceleration of transitions across the sociotechnical systems of electricity, heat, buildings, manufacturing, and transport requires new conceptual approaches, analytical foci, and research methods.”

The Policy Forum provides four key lessons for how to accelerate sustainability transitions.

Lesson 1: Focus on socio-technical systems rather than individual elements

Rapid and deep decarbonization requires a transformation of ‘sociotechnical systems’ – the interlinked mix of technologies, infrastructures, organizations, markets, regulations and user practices that together deliver societal functions such as personal mobility.  Previous systems have developed over many decades, and the alignment and co-evolution of their elements makes them resistant to change.

Accelerated low-carbon transitions therefore depend on both techno-economic improvements, and social, political and cultural processes, including the development of positive or negative discourses. Professor Steve Sorrell from the University of Sussex, a coauthor of the study, states: “In this policy forum we describe how transformational changes in energy and transport systems occur, and how they may be accelerated. Traditional policy approaches emphasizing a single technology will not be enough.”

Lesson 2: Align multiple innovations and systems

Socio-technical transitions gain momentum when multiple innovations are linked together, improving the functionality of each and acting in combination to reconfigure systems.  The shale gas revolution, for instance, accelerated when seismic imaging, horizontal drilling, and hydraulic fracturing were combined.   Likewise, accelerated low-carbon transitions in electricity depend not only on the momentum of renewable energy innovations like wind, solar-PV and bio-energy, but also on complementary innovations including energy storage and demand response.  These need aligned and then linked so that innovations are harmonized.

Prof. EU INNOPATHS consortium researching low-carbon transitions for Europe, comments: “One of the great strengths of this study is the equal emphasis it accords to technological, social, business and policy innovation, in all of which governments as well as the private sector have a key role to play.

“European countries will become low-carbon societies not only when the required low-carbon technologies have been developed but when new business models and more sustainable consumer aspirations are driving their deployment at scale. Public policy has an enormous role to play at every step in the creation of these changed conditions.”

Lesson 3: Offer societal and business support

Public support is crucial for effective transition policies. Low-carbon transitions in mobility, agro-food, heat and buildings will also involve millions of citizens who need to modify their purchase decisions, user practices, beliefs, cultural conventions and skills. To motivate citizens, financial incentives and information about climate change threats need to be complemented by positive discourses about the economic, social and cultural benefits of low-carbon innovations.

Furthermore, business support is essential because the development and deployment of low-carbon innovations depends upon the technical skills, organizational capabilities and financial resources of the private sector. Green industries and supply chains can solidify political coalitions supporting ambitious climate policies and provide a counterweight to incumbents.  Technological progress can drive climate policy by providing solutions or altering economic interests. Shale gas and solar-PV developments, for instance, altered the US and Chinese positions in the international climate negotiations.

Lesson 4: Phase out existing systems

Socio-technical transitions can be accelerated by actively phasing out existing technologies, supply chains, and systems that lock-in emissions for decades. Professor Sovacool comments that: “All too often, analysists and even policymakers focus on new incentives, on the phasing in of low-carbon technologies. This study reminds us that phasing out existing systems can be just as important as stimulating novel innovations.”

For instance, the UK transition to smokeless solid fuels and gas was accelerated by the 1956 Clean Air Act, which allowed cities to create smokeless zones where coal use was banned. Another example is the 2009 European Commission decision to phase-out incandescent light bulbs, which accelerated the shift to compact fluorescents and LEDs. French and UK governments have announced plans to phase-out petrol and diesel cars by 2040. Moreover, the UK intends to phase out unabated coal-fired power generation by 2025 (if feasible alternatives are available).

Phasing out existing systems accelerates transitions by creating space for niche-innovations and removing barriers to their diffusion. The phase-out of carbon-intensive systems is also essential to prevent the bulk of fossil fuel reserves from being burned, which would obliterate the 2oC target. This phase-out will be challenging since it threatens the largest and most powerful global industries (e.g. oil, automobiles, electric utilities, agro-food, steel), which will fight to protect their vested economic and political interests.

Conclusion 

Deep decarbonization requires complementing model-based analysis with socio-technical research. While the former analyzes technically feasible least-cost pathways, the latter addresses innovation processes, business strategies, social acceptance, cultural discourses and political struggles, which are difficult to model but crucial in real-world transitions. As Professor Geels notes, an enduring lesson is that “to accelerate low-carbon transitions, policymakers should not only stimulate techno-economic developments, but also build political coalitions, enhance business involvement, and engage civil society.”

Additionally, the research underscores the non-technical, or social, elements of transitions.  Dr. Tim Schwanen from the University of Oxford, a coauthor, states that “the approach described in this Policy Forum demonstrates the importance of heeding insights from across the social sciences in thinking about low-carbon transitions.”

While full integration of both approaches is not possible, productive bridging strategies may enable policy strategies that are both cost-effective and socio-politically feasible.

Further links

This article was originally posted on the University of Sussex website.

Click here to read the full paper in Science

Job vacancy: Postdoctoral Research Associate in Energy Policy

The University of Cambridge invite applications for a postdoctoral Research Associate in Energy Policy to support the INNOPATHS project.  The Research Associate will work on the theme of energy technology, economics, and policy. The appointment is fixed-term and will be for 12 months in the first instance with the possibility of extension until 31 August 2019.

Directed by Prof. Laura Diaz Anadon, the Research Associate will conduct research on the role of different policies promoting different types of technology innovation outcomes in energy, the role of technology spillovers, and managing technology and other uncertainties. The role will involve taking initiative in shaping this research, and working with and coordinating different INNOPATHS project partners.

Closing date: 11 September 2017

Further information available here