Energy Efficiency and Climate Change Policies & Actions in the EU

Date April 7, 2010
Speaker Lars BRUCKNER(Chairman of the Environmental Committee, Japan Business Council in Europe (JBCE) / Senior Advisor, NEC Europe)
Moderator HIRATSUKA Nobuyuki(Director for Corporate System, Corporate Affairs Division, Industrial Policy Bureau, METI)
Materials

Summary

Lars BRUCKNERLars BRUCKNER
Climate change, in terms of effects and consequences, is a global topic with different dimensions, including political discussions, negotiations, legislation, etc. It is important that we understand the different dimensions, with a focus on the regional, national, and local dimensions. At the political level, it is important to understand that there are various links and interdependencies among the dimensions. This presentation will focus on the regional level in the EU.

There are different types of actions and policies. Research which looks into climate change itself, where cooperation with the UN, OECD, etc., can be seen; research into the regional and national as well as local effects and consequences of climate change; and research into possible answers to climate change, which are linked to the second type of policies and actions, the so-called adaptation measures. Thirdly, there are the so-called mitigation policies to reduce greenhouse gas emissions.

We also need to understand the key drivers behind actions and policies at the EU and national levels. Scientific evidence is one key driver. Another is whether we accept certain scientific evidence or not, whether for scientific reasons or political ones. Another set of drivers is the international stage, international cooperation, policies, and diplomacy. National and EU policies on climate change, international economic policies, etc., are also influenced by international (i.e. global) cooperation as well as by economy, industry, and competitiveness discussions in the EU. The third set is the political context in the EU as well as the national context. Here we see strong links and interdependencies.

EU and national political contexts are influenced by the international context. What is underestimated at the political level as well as at the academic level is that views and actions of policy makers and decision makers are equally important. It is not always the system that creates certain policy results. The views and actions of stakeholders, such as companies and industries as a whole, at the EU and national levels are also key to how policies are developed. In Europe, NGOs in general have become highly organized, professional stakeholders, specifically in regard to climate change policies.

EU policy-making and decision-making do not function without the influence of national governments. They can have a positive or negative influence on certain policy discussions and policy decisions. In the case of some climate change related policies, they have had a negative impact. Eco-taxation issues have been discussed academically and politically for more than two decades in Europe, but nothing has been achieved. Typically, in areas where national governments have different opinions, development is blocked.

The second key point of our discussions is that climate change is not an isolated topic. Climate change discussions are formed and influenced by various other important subjects both in the EU and national contexts. The key political topics include economic and industrial policies and competitiveness.

There are three pillars in the EU climate change mitigation policies and actions: reduction measures that directly deal with greenhouse gas emissions and CO2 emissions, measures that deal with renewable energy sources and technologies, and energy efficiency improvement measures.

These three categories are not new in Europe. However, it was not until the end of the last decade that these three sets of measures really came together clearly. It happened through the adoption of the so-called energy and climate package by the EU.

It is not only a package for climate change in the sense of environmental policies and targets, but also energy, economy, and competiveness. One of the key points of the EU Commission is that the energy and climate package “will put Europe firmly on the road toward becoming a low-carbon economy and it will increase energy security.”

Energy security has been another top agenda item for a long time. It has been key to EU policies since the 1970s due to the experience of the oil shocks and supply problems in Europe, specifically Russian supplies in recent years.

The energy and climate package has established legally binding targets to reduce greenhouse gas emissions by 20% in 2020 based on 1990 emissions levels and a 20% increase in the share of renewable energy compared to traditional energy sources by 2020. These targets will help achieve an overall 20% energy efficiency improvement by 2020 and are generally referred to as the 20-20-20 targets.

The core of the energy and climate package contains four pieces of legislation, three of which directly target CO2 or greenhouse gas emissions. The year 2000 saw the creation of the 1st European Climate Change Programme, which introduced the key policy in Europe regarding CO2 emissions, the EU Emissions Trading Scheme (ETS). It also introduced measures that specifically target the automobile sector, improving fuel efficiency to reduce CO2 emissions.

The second Programme, which started in 2005, primarily saw the strengthening of existing measures, of the ETS, and strengthening of result-oriented measures with regard to road transport emissions. A third topic popped up which was Carbon Capture and Storage (CCS), a relatively new topic on which we still have a lot to learn. The energy and climate package revised the ETS, imposing national emission limitation targets on sectors not covered by the ETS.

There are two different types of policies in the EU: one focusing on sectors covered by the ETS, including the chemical, steel, aluminum, etc.; and one focused on sectors which have a huge impact on CO2 emissions in Europe, but are not covered by the ETS, especially the transport and building sectors.

The third key point directly linked to CO2 emissions is the plan to establish a legal framework for CCS. National governments have a keen interest, from a climate change perspective as well as from a perspective on the development of new technologies in order to strengthen the EU economy, industry, and specifically, national industries. Renewable technologies as well as CCS technologies among others are considered key technologies that will enable Europe to become the most competitive industry in the future.

Looking at key sectors with regard to CO2 emissions, 21% of greenhouse gas emissions need to be reduced in ETS sectors. 10% need to be reduced by non-ETS sectors. These targets combined equal 14 % based on 2005 emission levels, which equals 20% of 1990 levels. The larger reduction efforts will take place in the ETS sectors, because it was determined that it is much easier, quicker and cheaper to achieve the targets in these sectors.

It is very important to understand that it is national governments that also make key decisions. With regard to non-ETS sectors, it is the national governments that are responsible for developing key measures that drive down emissions and drive up technologies and solutions.

The building sector in Europe accounts for about 36% of total CO2 emissions in the EU. The car sector alone is responsible for 12%. Therefore these have top priority among non-ETS sectors. They are also at the top of the list for energy efficiency improvement measures.

The car sector is key to the European industry and part of this industry is the Japanese industry. Therefore measures in Europe have a strong impact in the Japanese automotive industry, as well as those of the U.S. and South Korea. The late 1990s brought about a voluntary agreement by industry with the aim of reducing CO2 emissions drastically. The conclusions at the industry level were different from the conclusions at the political level with the car industry considering sufficient performance was achieved, while many EU member states considered it to be the opposite. The overall conclusion was to introduce new legislation last year for car CO2 emissions as well as labeling consumer specific information on the energy efficiency of cars.

The fourth legislation of the energy and climate package addresses renewable energy directly. The overall piece of legislation was adopted at the EU level, but the key to achieving the overall targets are national action plans, national targets and measures. This is a very political issue. On the one hand are the EU objectives and goals and on the other, those of national governments. It is tough to negotiate on sensitive issues with so many members. Discussions on renewable energy technologies are a part of this. National governments try to push their industries to become global market leaders. At the same time, there are huge differences in opinions on how energy is produced and consumed. The key point is that national governments are in charge, but they are driven by economic, employment, industrial policy, and technology policy objectives.

The Commission tries to clearly establish the context for renewable energy related action. They say focus is needed on energy security, and security of supply. The more we can develop renewable technologies, invest, and be successful in applying them, the less we will be dependent on oil and gas imports. The EU is really striving to develop a very competitive high-tech industry in Europe through renewable energy and energy technology related measures.

In 2007 the EU adopted the so-called Strategic Energy Technology Plan (SET). The objective of the plan was to drive technology forward in six fields, including wind, solar, CCS, bio-energy, nuclear fusion, and grids in general. This plan has not yet triggered much action, primarily because the EU does not have much money at the moment. In October 2009, the Commission established another plan to structure better investments into these new technologies.

The third pillar of climate policy related measures is energy efficiency improvement measures. The energy package itself does not detail measures. It refers to the 2006 energy efficiency action plan for 2007-2012, which is an integrated tool for energy improvement in the EU. This action plan introduced new energy efficiency measures and also tried to integrate previously established measures. The top priority in energy efficiency improvement, in terms of necessity and potential, are the building and transport sectors as well as the manufacturing sector.

The Energy Efficiency Action Plan, in line with the 20-20-20 targets, aims at achieving a 20% reduction in energy consumption by 2020. There are measures targeting buildings specifically, measures targeting products, building, and services, as well those for energy production and distribution. There are also measures striving to reduce the impact of energy consumption, including in aviation. Financing and investment is a key topic. At the political level, the question of how to stimulate behavioral change at the business, industrial, and consumer levels is a hot topic in the EU.

While some of the Commission's ideas are feasible and others are not, overall it has been identified that without European businesses and consumers changing their ideas, we will not achieve our goals. Part of the action plan is to step up international action, meaning returning to the international concept of cooperation and negotiations.

Energy efficiency improvement has an enormously positive impact on climate change itself. It also boosts industrial competitiveness and increases exports of new technologies. However, we do not know what will develop in the next 2-5 years. Some EU members are strong export-oriented companies. Germany is highly dependent on exports, something that is criticized in Europe in the context of economic difficulties.

Measures that have been or will be introduced include a key point in the electronics industry, the so-called eco-design requirements for energy using products (introduced in 2005), a revision and extension of the scope in 2009. We will also see a revision of the energy labeling performance directive this year.

Looking at the sectors targeted in the three categories of climate change-related measures, apart from the renewable energy sector, all sectors were basically identified as problems rather than solutions. Some of the equipment and products identified as key challenges are key to the Japanese industry being active in Europe.

It was only toward the end of this decade that the Commission started looking at the electronics sector more broadly and specifically the information and communication technology (ICT) sector as a potential solution with regard to energy consumption and their related problems. Some national governments developed some ideas in national action plans, but the Commission reacted late in this regard.

Two communications were published in 2008 and 2009, as well as a recommendation in October 2009, where the Commission set out their understanding of what the ICT industry can do in terms of finding solutions for reducing energy consumption throughout the European economy.

However, despite the fact that the ICT industry was identified as an enabler and solution, the problem did not go away. The Commission demands that the ICT sector achieve the 20-20 targets five years earlier than the rest of the industry. This demand was not welcomed by the ICT industry which is responsible for about 2% of CO2 emissions and 8% of the electrical power consumption in Europe, a much smaller impact compared to the building or road transport sectors.

The Commission's key demands are the decarbonization of ICT related processes, such as production, transport, and sales processes and the development of a tool to measure the improvement of energy efficiency, meaning standardization. Globally acceptable standards cannot be developed in a matter of months and this is another problem between the industry and the Commission. The Commission and industry must discuss what can and cannot be achieved. The ICT industry must also cooperate with the Commission on developing a verification framework for the sector and individual companies to meet and comply with these targets.

The Commission also wants the ICT industry to not only look at its processes, but to cooperate with the transport and logistic sector and the building and construction sector. It wants the ICT industry to resolve the issues of the two biggest polluters outside the ETS.

In response to this recommendation of October 2009, the ICT industry produced a roadmap which includes the plan for the establishment of a so-called ICT for Energy Efficiency Forum. This is a high level political endeavor addressing the specific demands of the European Commission in three working groups.

The industry realized that looking into the solutions was of commercial interest to the industry as well. Three working groups will start their work from April and they will look into developing a standard to measure improvement in energy efficiency and into cooperation with the key sectors on developing road maps for solutions and verifiable targets. Working Group 1 will work on methodologies for a standard; Working Group 2, on enabling energy efficiency in other sectors including the energy supply sector; and Working Group 3 will look at policy and technology timelines. This is important because new technologies do not necessarily mean the application of new technologies. There are many examples of new technologies that have never found access to the market and the Working Group will try to find ways of removing obstacles, such as legal infrastructure, power distribution infrastructure, etc.

The focus of the working groups in terms of objective targets and deliverables is the EU. On the other hand, we cannot ignore global developments. We need to understand the need for global work on standards. Therefore while some of the work will be focused specifically on Europe, the working groups will also take into account the global context.

It is clear that the EU in general and the ICT Energy Efficiency Forum are very interested in the experiences and activities in Japan at the government level and the industry level. For that reason we will take close cooperation between the relevant bodies and initiatives in Japan and the EU.

Questions and Answers

Q: The UK government posted a public comment on their website about “green claims,” which plays an important role for consumers' choices, listing examples of “poor green claims,” which misrepresent their environmental benefits. However, with the limited attention of consumers, too much information gets you nowhere. How much attention are public figures putting on climate change in relation with other considerations of environmental aspects? How do you react to this UK proposal?

Lars BRUCKNER
The issue of eco-claims is not problem specific to Europe. Companies often fail to show what they have already achieved, for example, in energy efficiency. On the other hand, there are examples where certain claims can be misleading. How to ensure that consumers can make an informed choice is a key discussion at the EU level now. However, it is still in the early stages of discussion. One of the key points is that we have the example of a revision of the energy labeling directive targeting household appliances. It was supposed to be finalized last year, but with the 27 members having different positions, it has been delayed. Since there is currently no clear guideline or legal framework on how to provide information, there is no easy solution to this problem.

HIRATSUKA Nobuyuki
The European Commission developed a sustainable consumption and production policy which is a kind of comprehensive approach. However, the measurement scheme has not been established. Therefore the measurement for the whole lifecycle is not easy, making it not very practical.

Secondly, in terms of the competitiveness policy of each member state, energy consumption issues are much more regional, but if policies targeting external financial issues or production sites are implemented, member states will lose competitiveness. Therefore, in political terms, the regulators do not want to cover everything.

Lars BRUCKNER
The measurement and labeling issue is a highly political one. It is impossible for companies to achieve anything while there is high level disagreement on how to solve the problem.

One additional issue is public procurement. The electronics industry feels that it is being targeted by national governments and the European Commission as a polluter. The electronics industry has claimed that it has developed much more eco-friendly products. But it has also demanded for years for governments and the European Commission to play a role in integrating into European and national procurement policies the need for governments to purchase energy efficient equipment.

Q: With the European and Japanese economies in severe situations, the impact of those measures on the GDP growth rate should not be excluded from policy assessment. How do you assess the impact of environmental measures on the GDP growth rate?

Lars BRUCKNER
At the moment, the focus on assessing this is at a very early stage, with very basic assumptions and estimates as to whether and how stimulus packages or subsidies can achieve competitiveness and improvement in GDP. We have not really come up precise data, unfortunately.

Q: What are the main reasons for not incorporating the two main non-ETS sectors, building and transport, into the ETS? What are the shortcomings or advantages from the industry's point of view? What would happen if they were incorporated into the ETS?

Lars BRUCKNER
If they were included into ETS they would be part of the cap-and-trade approach, as is now the case. One of the key reasons these sectors have not yet been included is that traditionally, the ETS primarily focuses on manufacturing, such as chemical, petrochemical, steel, and paper and pulp. The idea of incorporating building and transport has not yet developed. It was only recently that aviation was included, which is part of the transport industry. How incorporating other transport or building sectors will work in the future is yet to be seen. At the academic level, there are an increasing number of ideas on how to improve the ETS in terms of cap-and-trade, allocation, as well as sectors.

Q: The ICT industry has an important role in reducing CO2 emissions. What is the potential of the ICT industry in this role? Secondly, other sectors, mainly manufacturing, need to play a role as well. Increases in energy consumption are unavoidable in manufacturing eco-friendly products. How do you persuade policy-makers to allocate a fair share of emissions qualification to other industries?

Lars BRUCKNER
One of the points that the Commission has made is that they are aware of the potential in many different sectors to contribute to improved energy efficiency and reduction of CO2 emissions. However, they feel that industry sectors still do not cooperate or consult with each other enough. Many sectors claim how green they are and what they can possibly do, but unless they are forced by politicians or see immediate or short-term commercial benefit, they do not sit together and discuss solutions.

It took the Commission a long time to look beyond the negative impact of the ICT industry, as well as the chemical industry. It is the duty of these industries to push the European Commission and national governments to look beyond the problems and look into the enabling aspect. Manufacturing is identified as a key topic, but not yet in terms of a targeted approach for improving energy efficiency. Once this happens, we will have to look at the role of the chemical industry, process automation industry, the ICT industry, etc.

Q: If you look at the EU level of policy-making, what are your views in terms of the role played by the European Parliament in shaping these policies? How active or effective is the Directorate General (DG) for competition in reflecting their policy priorities in this package? In the field of technology, national governments take more of a lead than the European Commission does. Please share your views on specific governments' priorities. Additionally, what are your views on why the ICT sector has been singled out as a target for achieving environmental targets earlier than other sectors?

Lars BRUCKNER
While Commission communications can have and have had a strong impact on policy formulation, this is not always the case to the same degree. The role of the EU Parliament and national governments in general is fundamentally important. The Commission is a policy developer and proposer, whereas the European Parliament and the Member State governments in many policy fields are the key/joint policy decision makers. The Commission needs to have a basic understanding of what is supported by national governments, but this also holds true to some extent with regard to the European parliament. Again, the key role of the European Parliament kicks in once we enter the field of decision-making. There are different processes of decision making in Europe and one key procedure is the co-decision procedure, in which the Commission makes a proposal and then the national ministers, Council and European parliament negotiate and make a decision. The Climate and Energy Package was a good example of where the Council and Parliament played a key role. In the fields of climate change and energy, the level of procedure is important. There are examples where the European Parliament may show strong interest in certain issues, and can engage in consultation and discussion; they do not have the tools to have a direct impact. However, in the field of environmental and climate change policies the European Parliament has a key/influential role to play.

In terms of DG competitiveness, the Lisbon Agenda is the key agenda in terms of how to advance European society and the economy into this and perhaps the 22nd Century and focuses on knowledge, employment and technological advancement. Here, competitiveness plays a key role. Energy issues are highly political and complicated in general. DG competitiveness has a major interest in making the consumer benefit, but they can only benefit if there is true competition. Technology development is key under both the energy and climate package and the Lisbon Agenda. So DG competitiveness plays a major role at the moment.

Regarding specific priorities of different countries, for example, Germany is a highly export dependent country and the German government is strongly interested in looking at all the chances and possibilities of what is acceptable in the legal framework. They promote this to a much stronger degree than other countries that are primarily looking at other sectors, such as service and banking, for example. France is extremely keen on promoting their approach on energy and nuclear technology.

It is not the wish of the European Commission to punish a specific sector. The key point is that the Commission feels that, similar to those sectors covered by the ETS, things can be achieved more quickly and cheaply by pushing the industry. The problem is that the industry and Commission do not yet have a common understanding as to exactly what can or cannot be done more quickly.

*This summary was compiled by RIETI Editorial staff.