Cost/benefit analysis of the introduction of market-oriented instruments for realizing final energy savings in Germany

Transcription

1 Project number 36/10 Cost/benefit analysis of the introduction of market-oriented instruments for realizing final energy savings in Germany Final report to the Federal Ministry of Economics and Technology (Bundesministerium für Wirtschaft und Technologie, BMWi) EXECUTIVE SUMMARY Karlsruhe, Freiburg, Berlin, March 2012

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3 Participating institutes and contributors Project management Fraunhofer Institute for Systems and Innovation Research (Fraunhofer ISI) Breslauer Str. 48, Karlsruhe Contact: Barbara Schlomann Phone: ++49 (0) , Fax ++49 (0) Contributors: Barbara Schlomann, Dr. Wolfgang Eichhammer, Dr. Clemens Rohde, Judit Kockat Project partners Ecofys Germany GmbH Berlin branch Stralauer Platz 34, Berlin Contact: Daniel Becker Phone: ++49 (0) , Fax: ++49 (0) Contributor: Daniel Becker Öko-Institut e.v. Merzhauser Str.173, Freiburg Contact: Veit Bürger Phone: ++49 (0) Fax: ++49 (0) Contributor: Veit Bürger

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5 I Table of contents Page 1 Background and objectives Design proposal for the evaluated instruments Specification of the saving target and the degree of implementation Assessment and analysis of the instruments in respect of cost and benefit effects Overall assessment of the instruments Setting up a model region for a white certificate scheme in Germany Literature... 46

6 II Table of figures Page Figure 2-1: Basic operating principle of an energy energy efficiency obligation scheme... 4 Figure 4-1: Total costs dependent on the energy-saving target achieved Figure 6-7: Distribution of the costs of the different instrument options across the participating actors List of tables Page Table 2-1: Design proposal for an energy efficiency obligation scheme (with trading)... 5 Table 2-2: Design and market effect of existing energy efficiency obligation schemes in Great Britain (GB), Italy (IT), France (FR) and Denmark (DK)... 7 Table 2-3: Design proposal for an institutionalized energy-efficiency fund... 8 Table 3-1: Summary of the energy-saving potentials up to 2020 by consumption sectors and application areas Table 3-2: Energy-saving potentials up to 2020 and the energy-saving target derived from it in three variants Table 4-1: Suitability of the energy-saving measures for the different instruments (overall evaluation across all criteria) Table 4-2: Energy-saving potentials that can be addressed well and very well by sector and instrument type Table 4-3: Achievable energy-saving potentials by suitability of the instruments* Table 4-4: Degree of target achievement of the energy-saving targets by the instrument options through suitable and very suitable measures Table 4-5: Cost categories considered in the cost evaluation Table 4-6: Total annual costs of the individual instruments Table 4-7: Overview of the costs of the various instruments for the well and very well addressable measures... 26

7 1 1 Background and objectives The range of instruments available for national energy-efficiency policy should be reviewed in the context of the national and international climate and energy-efficiency objectives that Germany is subject to. At national level Germany has set itself the goal to reduce its greenhouse emissions by 40% until 2020 compared to the base year This objective was confirmed in the Federal Government s Energy Concept of September 28, 2010 (BMWi 2010). The Energy Concept also sets out further ambitious energy saving objectives. By 2020 primary energy consumption and the energy demand for heating in buildings are to be reduced by 20% and electricity consumption by 10% compared to With the Federal Government's white paper on the change in energy policy published on June 6, 2011 and the corresponding resolutions of the Federal Cabinet and the resolutions of the German upper chamber, the Bundesrat, of July 8, 2011, these objectives were confirmed and key decisions on accelerating the change in energy policy were taken (BMU 2011). In order to achieve these ambitious objectives it is necessary to fully exploit additional energy-efficiency potentials that, as numerous studies have shown,1 are certainly available in Germany and in the other EU countries. Alongside an expansion and improvement of the existing set of instruments of energy-efficiency policy, the further distribution of new instruments such as an energy-efficiency fund or an energy efficiency obligation scheme with or without certificate trading (frequently also known as white certificates or energy saving quota ) is increasingly being discussed. The EU Directive on energy end-use efficiency and energy services (Directive 2006/32/EC; ESD) names both energy efficiency obligations and an energy-saving fund as potential new instruments for achieving energy savings in the Member States. To date the United Kingdom, Italy, France, Denmark and the region of Flanders have introduced energy efficiency obligation schemes and an introduction is planned in Poland. However, the schemes appear in very different forms. Furthermore, energy-saving funds have been long established in the United Kingdom and Denmark. Article 6 of the EU Commission s proposal for a new Energy-Efficiency Directive of June 22, 2011 requires Member States to introduce energy-efficiency obligation schemes. Under such a scheme, final energy suppliers or the distribution network operators would be obliged to annual energy savings of 1.5% of the previous year s energy sales by volume (without transport). Article 6 further allows a certain degree of flexibility when designing the 1 See for example Fraunhofer ISI/FfE 2003; Wuppertal Institut 2006; Prognos 2007; McKinsey 2007, 2009; Öko-Institut et al. 2009; Fraunhofer ISI et al. 2009; Prognos/Öko-Institut 2009; Ifeu et al. 2009; Ecofys/Fraunhofer ISI 2010; Pehnt et al. 2011; Fraunhofer ISI et al. 2012

8 2 scheme. In addition, Paragraph 9 gives Member States the option to meet the target using other instruments and measures as an alternative to the savings quota. In Germany the saving quota instrument was included in the government s Energy Concept in the form of announcing a white certificates pilot project in conjunction with associations within the energy industry. Given that achieving the saving objectives set in the Energy Concept will require additional political measures and thus a growing funding framework, the saving quota instrument is increasingly being discussed in Germany from the perspective of being able to provide budget-independent funding of energy-saving measures. Further, an energy and climate fund was set up as a consequence of the Energy Concept (BMF 2010), which among other things is used to finance an energy-efficiency fund that supports efficiency measures for consumer, SMEs and industry as well as local authorities. The previous discussion at national and at EU level has shown that there are still many open questions in respect of the effect (cost/benefit) of a potential introduction of new instruments of energy-efficiency policy. This is valid for the macroeconomic perspective as well as for the perspective of the affected actors. Another question that is of particular importance for Germany is how existing instruments and measures as well as those proposed by the Energy Concept can be effectively combined with potential new instruments. This affects especially in the buildings sector but also other areas of consumption. Within this context, this research project performs a cost-benefit analysis on the introduction of an energy efficiency obligation scheme (with and without certificate trading) and of an energy-efficiency fund in Germany. Further analysis is made concerning how the expansion and improvement of the existing range of energy-efficiency policy instruments is to be evaluated. The following quantitative and qualitative criteria is taken into account for the comparative evaluation of these instrument options: energy saving effects and costs, market conformity and competitive compatibility, effects on the market for energy services, follow-on effects such as energy price and rebound effects, distribution and structural effects, interactions with other instruments, political enforceability and acceptance as well as refinancability. Further, a proposal for the performance of a pilot project for white certificates in Germany as announced in the Energy Concept of September 2010 will be developed in the course of the project.

9 3 2 Design proposal for the evaluated instruments Below a design proposal is presented for each of the following, evaluated instruments. energy efficiency obligation scheme with and without certificate trading energy-efficiency fund and, as a further option, expansion and improvement of the existing set of instruments The proposal acknowledges the central design features for each instrument and is based on a comprehensive evaluation of potential design options. In particular, experience of existing schemes in other Member States of the European Union is taken into account. The resulting recommendations are made exclusively with respect to the following comparative analysis, which is based on certain specifications and the comparability of the instruments investigated. However, these recommendations shall not prejudice the design of the scheme from the perspective of the contracting entity or the experts. Instead, it is more of a potential, coherent and comparable design variant that is intended to serve as the basis for the following comparative analysis and for evaluation of the instruments. Energy efficiency obligation scheme Figure 2-1 shows the basic operating principle of an energy efficiency obligation scheme. It is an obligation of a particular group of actors to demonstrate a certain amount of energy savings within a specific period. Obligated companies can fulfill their saving obligations in two ways: through initiating their own energy-saving measures in their field of activity or by purchasing standardized savings titles (white certificates) from third parties. This is essentially an energy-saving obligation (saving quota) that is managed via a system of white certificates.

10 4 Figure 2-1: Basic operating principle of an energy energy efficiency obligation scheme Table 2-1 summarizes the fundamental elements of the recommended design for an energy efficiency obligation scheme (with certificate trading) that forms the basis of the following cost-benefit analysis. A broad scope with few restrictions in terms of fuel sources subject to quotas, sectors and types of measure is recommended. This offers the potentially obligated companies broad variety of cost-effective energy-saving measures to adopt. To avoid double accounting, however, it is recommended that efficiency measures in processes that are directly subject to ETS are excluded. Transport is also removed in the first instance,2 but will be integrated into the scheme in a later phase. The choice of the baseline is of particular importance. Only energy savings that exceed the standard defined by the baseline are legitimate for the generation of saving titles. If a non-ambitious standard had been used as a basis (i.e. the average of current stock), many savings would be accounted for under the obligation but represent a pure deadweight effect. Measures that had been taken anyway would then be entitled to initiate the issuance of certificates. Thus, the market average is generally recommended as the baseline, since it is usually known or predefined by a standard (EnEV, ecodesign). 2 The proposal for a energy efficiency obligation scheme in the draft for a new EU Energy- Efficiency Directive (Article 6) also excludes transport in its setting of targets (although measures in the transport sector can be accounted for in the fulfillment of targets), but EU-ETS is not.

11 5 Table 2-1: Design proposal for an energy efficiency obligation scheme (with trading) Design elements (1) Reference of the savings target (2) Differentiation of the saving target (3) Fuel sources subject to quotas (4) Selection of obligated actors (5) Specification of the scope (6) Admissibility of types of measure (7) Promotion of innovation (8) Principles for selecting the baseline (9) Selection of the accounting period (10) Length of the obligation period (11) Mechanisms for increasing flexibility Design proposal Reference final energy, saved final energy quantities weighted with primary-energy factors. No explicit differentiation of the saving target by fuel source (consequently no differentiation in the energy-saving certificates); however, weighting should be done by applying primary energy factors (see above). No specification required from an analytical perspective. All suppliers of the fuel sources are subject to the quota unless they fall below a threshold value yet to be set; if required different approaches(e.g. for electricity, natural gas, district heating: consumer suppliers, heating oil: distributors). Broad scope, all energy savings within the approved final energy consumption sectors can be accounted for (with the exception of transport); efficiency measures for processes that are directly subject to ETS are excluded. No restriction to measures that can be standardized, but also admission of heterogeneous (non-standardizable) measures. Measures in the information/ motivation sector cannot be accounted for. No differentiation in the accounting of measures. General orientation toward the market average Buildings: EnEV Devices: product-specific minimum requirements (if implementation measure available) Processes: process-specific benchmarks oriented at the best 10% (analogous to the allocation rules for emissions trading) One-off accounting: for all measures the anticipated saving are discounted across the entire life cycle of a measure and allocated to the year of their implementation 4 years; validity period of the certificates is limited to the respective obligation period Buy-out permissible; banking (i.e. transfer of saving titles to the following obligation period) permissible but restricted to 20% of the savings for each obligated company. (12) Allocation of costs No specification necessary from an analytical perspective (13) Compliance check Federal Agency for Energy Efficiency (BfEE) (no specification necessary from an analytical perspective). (14) Permissible actors No restrictions (15) Basic requirements for certificates (16) ETS interface No link Electronic document within a national registration scheme (operated under state supervision); national register without interface to foreign registers.

12 6 In the development of this design proposal, experience with the existing energy efficiency obligation schemes in the United Kingdom, Italy, France and Denmark was comprehensively taken into account.3 The analysis of the existing schemes shows in particular that the respective design of the energy efficiency obligation scheme has a decisive influence on the areas of application and the type and quality of the energysaving measures that are performed in the scope of the scheme. The UK scheme is restricted to the domestic sector and savings across the entire duration of the measure are accounted for. The focus of the British scheme is thus on renovations in the sector of residential buildings. Because of the insufficient funding options in the British scheme the customer refinances the scheme via full reallocation through the energy costs primarily very cost-effective measures were implemented (43% cavity wall insulation and 57% loft insulation), while saving potentials with a longer-term effect, such as exterior wall insulation in the buildings sector, were not addressed. Likewise in the French scheme, where the savings achieved across the full duration are also accounted for, the focus of the measures performed was again in the buildings sector and here in particular in replacing heating systems. As these measures were additionally supported by considerable tax concessions provided by the state, it is, however, unclear what percentage of the savings can be credited to the energy efficiency obligation scheme. In the Italian scheme savings are only recognized over a restricted period of usually five tears (building renovation: eight years, combined heat and power: ten years). Accordingly, cost-effective light bulb replacements or installation of water flow restrictors dominated the measures performed. As in France, there is parallel financing for energy-saving measures, so that in Italy, too, the precise crediting of the saving effect to several instruments is unclear. In Denmark currently only the savings in the first year of the measure were accounted for and thus short term measures were favored. Due to the requirement of defined 3 For a comprehensive overview of these schemes and their comparison see e.g. Lees 2012, Bertoldi et al. 2010, Bertoldi/Rezessy 2009 and the presentations of several workshops that have taken place since 2011 on the instrument of the saving quota: a workshop organized by the Joint Research Center (JRC) on January 27/ in Varese ( a joint workshop of the European Commission and the European Council for an Energy Efficient Economy (eceee) on September in Brussels ( and a further workshop organized by several partners (including IEA, RAP, DG Energy) on January 18/ in Brussels (

13 7 share of measures in the industry and tertiary sector more than 50% of the energy saving measures in Denmark were conducted in the industry sector (mainly cost effective measures with short duration such as the application of efficient cross-cutting technologies). Table 2-2 provides a comprehensive overview of the potential design of an energy efficiency obligation scheme in terms of relevant features and shows resulting market effects found in the four analyzed countries. Table 2-2: Design and market effect of existing energy efficiency obligation schemes in Great Britain (GB), Italy (IT), France (FR) and Denmark (DK) Design features Reference primary energy Reference final energy Accounting over lifetime No consideration of the technical lifetime Wide scope Limited scope Definition of standardized measures Other measures Impact tendency Preference of measures in the power industrie (GB, IT) Preference of measures in the fuel (FR, DK) Incentive for measures in the building sector(gb, FR) Preference of short term measures (IT, DK) Higher intensity of trade (IT) Lower intensity of trade (GB, FR) Low transaction cost (GB) Danger of heading for less efficient potentials (FR, IT) Higher transaction cost (IT) Theoretical enhancement of meeting the quota (DK) Energy-efficiency funds To guarantee direct comparability of the instruments for the following analysis, the design of the other instruments investigated is conducted in the same way as the saving quota; i.e. the same sectoral restriction and the same degree of ambition is assumed. The energy-efficiency fund is conceived as an institutionalized fund that possesses an administrative organizational structure.4 As opposed to that, the energy-efficiency fund proposed in the Federal Government s Energy Concept is managed by the BMWi. The responsible agency is only provided with additional funding from the special fund Energy and Climate Fund (ECF) for 4 Comparable with the funds in Denmark ( and the UK (

14 8 measures to promote energy efficiency.5 The funding provided for this to date is under 100m for 2011 and 2012 and an increase to a maximum of 300m by 2015 is considerably less than the institutionalized funds in the UK and Denmark and also clearly below what was assumed in existing proposals for the creation of an energy-efficiency fund in Germany.6 The current energy-efficiency fund should therefore rather be considered as additional funding in the scope of an expansion of the existing range of instruments. Table 2-3 summarizes the key elements of the design proposal for an institutionalized energy-efficiency fund. It represents the basis for the following cost-benefit analysis of the instrument and the comparison with an energy efficiency obligation scheme. Table 2-3: Design proposal for an institutionalized energy-efficiency fund Design elements (1) Reference of the savings target (2) Differentiation of the saving target (3) Selection of fuel sources Design proposal Reference final energy, saved final energy quantities weighted with primary-energy factors. In the case of the energy-efficiency fund the differentiation arises through the selection of the programs that are supported by the fund and their financial structure. No specification required from an analytical perspective. (4) Selection of sectors All consumer sectors; transport is initially excluded analogous to the saving quota. (5) Target groups of the fund (6) Selection of programs and measures No restriction of the actors (except transport). Orientation towards several selection criteria will probably be necessary (measurability, cost-benefit ratio, additionality), these should be transparent for all potential addressees. As a rule, supporting measures that go beyond a specific, clearly defined standard, (analogous to the baseline for the saving quota) only. (7) Organizational form No specification required from an analytical perspective. (8) Monitoring Supporting internal monitoring and external evaluation by independent experts in intervals of several years. 5 Act on the Creation of a Special Fund Energy and Climate Fund (ECF) dated December and the Act amending the ECF dated June See e.g. Öko-Institut et al and Irrek/Thomas 2006; that assumes a required annual funding volume of around billion.

15 9 Expansion and improvement of existing instruments The option of an expansion and improvement of existing instruments will be examined as a further instrument besides the energy efficiency obligation scheme with and without certificate trading and an institutionalized energy-efficiency fund. However, this does not include a detailed analysis of the effectiveness of all existing instruments of the energy-efficiency policy and it does not include the development of improvement proposals. Instead, merely a comprehensive comparison is made of the way in which these instruments work as compared to an energy efficiency obligation scheme or an institutionalized energy-efficiency fund. For reasons of comparability, the same sectoral restriction and the same level of ambition is assumed for the selection of the alternative instruments as for the design of the energy efficiency obligation scheme and the efficiency fund. That is to say, instruments for the transport sector are not considered in the first instance here, either, and only instruments whose savings effect goes beyond the baseline selected for the individual sectors (buildings: measures exceeding the EnEV 2009; devices: product-specific minimum requirements regarding ecodesign; industry: process-specific benchmarks) are taken into account. The instrument option expansion and improvement of the existing instruments is made up of a mix of improved and tighter regulations (incl. improvement of compliance), expansion of financing in the form of low-interest loans, direct grants or tax incentives as well as additional advisory programs (audits, efficiency networks). It is evaluated using the same criteria as for the other instrument options examined, namely energy efficiency obligation scheme and energy-efficiency fund.

16 10 3 Specification of the saving target and the degree of implementation The assumption underlying the following analysis is that a comparable energy saving is to be achieved with all examined instrument options is set as the target year. When specifying the target, three differently ambitious levels of implementation (minimum, medium and maximum implementation) should be taken into account. Methodological approach in specifying targets In terms of the specification of the energy-saving target by 2020 using the instruments examined, different variants were examined in the first instance: an orientation toward various superordinate energy saving targets that already apply to Germany: toward the target of doubling energy productivity between 1990 and 2020, the objective of the national sustainability strategy decided in as a maximum target; toward the energy-efficiency targets of the Federal Government s Energy Concept as a medium target (20% reduction of primary energy and 10% reduction of electricity consumption in 2020 as compared to 2008) as well as the target of the ESD of a reduction of the final energy consumption (without EU-ETS) by 2016 by 9% as a minimum target. An orientation toward the 1.5% energy-saving value in the draft of the new EU Energy-Efficiency Directive (defined there as 1.5% of the energy sales volume without transport), which is set as a high saving target: according to calculations on the basis of the average annual final energy consumption (without transport but incl. ETS) of the years 2007 to 2010 according to the national energy balance sheet (AGEB 2011), an energy saving value of 1.5% would mean an annual saving of around 26 TWh; a medium and low implementation level could then be defined as an energy-saving target of 1.0% to 0.5%, which would correspond to annual savings of 18 TWh and 9 TWh respectively. An orientation toward the targets of existing energy efficiency obligation schemes in other countries, which, however, is comparable to the orientation toward the 1.5% energy-saving value in the draft of the new EU Energy-Efficiency Directive. This is because it is derived from the experience of countries who have already introduced such a scheme. The impact assessment on the Draft Directive explains that the targets of the individual countries with energy-saving obligations in the past moved by 0.8% per year. This would support the above estimate of interpreting the 1.5% value as a high saving target. 7 Nachhaltigkeitsstrategie/Nationale-Nachhaltigkeitsstrategie.html? site=nachhaltigkeit. Energy productivity is defined there as the gross domestic product adjusted for price related to primary energy consumption (Federal Government 2012)

17 11 A derivation from the macroeconomically profitable energy-saving potentials in the included consumption sectors that lie in the validity area of the instruments (i.e. all end-consumer sectors without transport): these were established for Germany in this study because the technical energy-saving measures behind the potentials in the different sectors and their costs form an important foundation for the quantitative evaluation of the instruments examined here (see chapter 4). However, these potentials can also be used to specify the energy-saving target in its three variants. The last variant of an orientation toward the existing energy-saving potentials was then actually used as the basis for determining the target, because the other options for specifying the target that were discussed are all oriented toward concrete political target formulations, which brings with it the following drawbacks: the orientation toward energy-saving targets that already exist for Germany combines various, differently ambitioned targets for the three levels of implementation. In practice it is problematic to incorporate target formulations from different contexts into the specification because one concrete target formulation (as currently the Federal Government's Energy Concept ) is usually foregrounded in each case. The 1.5% target from the draft of the new Energy-Efficiency Directive, in turn, was derived from considerations at the European level and thus has no direct connection to national circumstances and the savings potentials that exist in Germany for meeting those targets. The targets from existing energy-saving schemes in other countries are based on different accounting modes for the energy savings and have different baselines. They are therefore only comparable with one another up to a point and are not suited as a basis for designing instruments for Germany. Conversely, the specification of an energy-saving target that is oriented toward the existing energy-saving potentials in Germany is independent of concrete political target formulations and reflects the national conditions in the individual consumption sectors. A further benefit is the consistency between the calculated potentials and the energysaving targets determined on the basis of them and the technical energy-saving measures underlying them. Different levels of implementation of the energy-saving target can be taken into account by defining the entire macroeconomically profitable energysaving potential as a high energy-saving target and a lower exploitation of the total potential is assumed for the medium and low energy-saving target.

18 12 Calculating the energy-saving potentials The energy-saving potentials are calculated using bottom-up models of the Fraunhofer ISI for the sectors of buildings (residential and non-residential buildings), electrical household devices, electrical cross-cutting technologies in the commercial sector and industry (with and without ETS processes). These models are fundamentally set up to be dynamic, i.e. they take into account cost reductions through technological progress and broader market penetration through efficiency technologies. The framework data for the development of energy-relevant activity factors and the energy prices used for the calculations correspond to those from the energy scenarios for the Federal Government s Energy Concept (Prognos et al. 2010). The potentials were all calculated based on a reference development (baseline) that is in line with the (ambitious) requirements as were also made on the design of the instruments (see chapter 2). That is to say, only such potentials that exceed a specific standard such as EnEV or ecodesign as prescribed by the baseline are considered. However, an exception is made for any potential that could be exploited purely through improved enforcement of the EnEV in renovating existing buildings and that ought not to be taken into account pursuant to the delimitation undertaken here. However, this potential is included in the consideration because the deficiencies in the implementation of existing instruments cannot be ignored in the design of a suitable mix of instruments for achieving additional savings. Table 3-1 summarizes the energy-saving potentials taken into account for the consumption sectors by They are presented both as the average annual saving up to 2020 and also as the cumulative annual saving that can be achieved in They each contain the energy-saving potentials in the sectors buildings (residential and nonresidential buildings), electrical household devices, electrical cross-cutting technologies in the commercial sector and in the industrial sector. The energy-saving potentials in industry are set out with and without EU-ETS processes. In terms of designing an energy efficiency obligation scheme for Germany, it was recommended that processes that fall under the EU Emissions Trading Directive should not be included in the scheme s scope of validity (see chapter 2). However, as these processes are not excluded from the draft of the new EU Energy-Efficiency Directive, they are set out as a variant in Table 3-1. The transport sector is not considered in the potential calculations and thus not in the specification of targets as it has been taken out of the scope of validity of the instruments. The majority of the potentials can be found in the buildings sector, which includes both residential and non-residential buildings.

19 13 Table 3-1: Summary of the energy-saving potentials up to 2020 by consumption sectors and application areas Average annual saving up to 2020 TWh/a Cumulative annual saving in 2020 TWh/a Buildings without more rigorous enforcement of EnEV (ambitious baseline) Buildings incl. more rigorous enforcement of EnEV (ambitious baseline + better enforcement of EnEV) Household devices (ambitious baseline) Tertiary (without buildings) (ambitious baseline) Industry without EU-ETS (ambitious baseline) Industry with EU-ETS (ambitious baseline) Source: Model calculation by Fraunhofer ISI Derivation of the energy-saving target Table 3-2 shows the energy-saving potentials actually taken into account for the determination of the energy-saving target and the energy-saving target derived from it in three variants (high, medium, low). In most cases only those potentials that are calculated based on an ambitious baseline are considered and the potential of better enforcement of the EnEV is only taken into account in the buildings sector. In the industry sector the EU-ETS processes are not included in creditable energy-saving potentials, as recommended for the design of the instruments. The transport sector has also been taken out of the determination of the potentials and targets. The targets are again set out both as average annual saving up to 2020 and also as cumulative annual saving in The high energy-saving target points at a profitable energy-saving potential under defined economic framework conditions and assumptions on the cost-effectiveness (sector-specific discount rates, consideration of the energy savings that can be achieved across the whole duration). For the medium and low energy-saving potential an exploitation of 2/3 and 1/3 respectively was assumed. The medium target corresponds to the microeconomically profitable potentials up to 2020, the low energy-saving target merely exploits part of the microeconomically profitable potential.

20 14 Table 3-2: Energy-saving potentials up to 2020 and the energy-saving target derived from it in three variants Average annual saving up to 2020 TWh/a Cumulative annual saving in 2020 TWh/a Energy-saving potential (ambitious baseline + better enforcement of EnEV) Buildings Household devices Commercial (without buildings) Industry (without EU-ETS) Total potential considered (without transport and EU-ETS) Derived energy-saving target in three variants High (= total potential) Medium (= 2/3 of the total potential) Low (= 1/3 of the total potential) Source: Based on model calculations by Fraunhofer ISI If we compare the energy-saving targets specified via an assessment of potential with the energy saving that Germany would have to achieve annually under an energysaving obligation of 1.5% of the energy production of the previous year (namely some 26 TWh), as recommended in the draft of a new Energy-Efficiency Directive, this target specification would require exploitation of most of the economic potential under an ambitious baseline. As to how ambitious a target specification is to be estimated depends in particular on the degree of additionality of the energy-saving measures that an instrument is intended to achieve. With an ambitious baseline for the design of an energy efficiency obligation scheme or alternative instruments as proposed in this analysis and against which the energy-saving target calculated here is also measured, such a target value of 1.5% is to be considered ambitious for Germany and would require substantial input.8 If, on the other hand, no additionality were aimed at, the annual savings produced autonomously or on the basis of past political efforts must be applied as the minimum threshold. According to the ODYSSEE energy-efficiency indicators,9 these are around 1% per year, meaning that 1.5% saving per year would therefore be an easily achievable requirement. It should once again be stressed that the level of the target alone does not determine how ambitious the target is in the respective country, but 8 At the same time what also needs to be taken into account is that the proposal for a new Energy-Efficiency Directive also permits the recognition of savings in the transport sector, although this was taken out of the specification of the targets. 9

21 15 instead that the baseline for the individual measures should be set down in detail because this determines whether the target is ambitious or not.

22 16 4 Assessment and analysis of the instruments in respect of cost and benefit effects The evaluation and analysis of the instruments presented below is performed using eight evaluation criteria of which the first two are quantitative and the remaining ones qualitative. The following evaluation criteria are considered: Scope and quality of the energy-saving measures: this presents the suitability of the instruments for the various energy-saving measures indicating which energysaving measures are suitable to meet the defined targets through the individual instrument options or where potential limits lie in respect of meeting targets. Costs of the energy-saving measures: here the cost categories that apply to the various actors are differentiated and the cost paths of the individual instruments compared. Market conformity and competitiveness of the instrument options: these criteria are discussed and compared with an eye on obligated actors and energy service providers; in particular the conditions under which certificate trading could develop are examined. Market for energy services: here the possible effects of the new instruments on the market are examined. Follow-on effects of the instruments: follow-on effects such as distribution and structural effects as well as effects on the energy price trends that cannot be measured quantitatively are discussed. Interactions with existing instruments: each new instrument encounters an energypolicy landscape that is already characterized by other existing instruments; such interactions are considered in particular with an eye on emission trading, the Energy Saving Ordinance, the Ecodesign Directive and existing financial programs (such as that from KfW). Political enforceability: here the different points of view of the affected actors are considered and starting points derived for the enforceability of the instrument options in the political environment. Refinancability of the instruments: this examines the extent to which the instruments differ in terms of their funding; one focus is on the aspect of budgetindependence of the funding.

23 17 (1) Scope and quality of the saving measures The evaluation of the scope and quality of the instruments is based on the underlying assumption that the technical energy-saving measures implemented to meet the targets have different suitabilities for the instruments examined here. Table 4-1 shows how suitably the technical energy-saving measures can be addressed by the respective instrument options in a semi-quantitative evaluation scheme. Each energy-saving measure is individually evaluated using three criteria: Suitability of the instrument for removing barriers, that is to say, to what extent can the instrument address the specific barriers for the measure in question. Complexity of the measure or its suitability for standardization; this criterion results from experience in countries with energy efficiency obligation schemes whereby simple, standardizable measures are very suitable for implementation in the scope of an energy efficiency obligation scheme, whereas measures with a high level of complexity are not performed by actors, or only reluctantly. Complexity of the funding models required for the performance of an energy-saving measure. This evaluation matrix represents the key foundation for the following quantitative evaluation of the different instruments in respect of the scope the saving they are intended to achieve. In each case only those energy-saving measures that are evaluated as suitable (+) or very suitable (++) are taken into account. For information purposes, however, the exploitation of potential with the additional inclusion of energy-saving measures only evaluated as neutral (0) is presented. Some central points of the evaluation are presented below for the sectors and target applications under consideration. Buildings: In the buildings sector two types of energy-saving measures need to be evaluated differently. On the one hand these are measures where the impetus for renovation is to be provided by the instrument itself and that only take place at the quality level of the EnEV. In the case of measures that go beyond this it is assumed that the investment decision has essentially already been made and all that is required is a decision about the level of investment. The issue of barriers is much less marked for the second group than for measures where a fundamental decision still needs to be taken. Alongside this the more easily standardizable measures such as replacing heating systems or windows and renovation of the upper and lower building envelope need to be distinguished from measures applied to the façade because of their differing complexity. The energy-saving measures are largely comparable in terms of the complexity of funding as they are all linked to comparatively similarly high levels of investment and usually financed via creditbased capitalization. In that case the number of the actors is an important criterion

24 18 for differentiating the complexity of the funding models. In the case of one or a small number of actors, as is the case where financing is provided in the form of tax concessions or institutional sponsors, the overhead in terms of information, comparison and processing is considerably lower than is estimated for a saving quota with a thousand actors. The building stock that offers the highest energysaving potentials can best be addressed via the instruments incentives, tax incentives and new regulatory instruments. Table 4-1: Suitability of the energy-saving measures for the different instruments (overall evaluation across all criteria) Appropiate instrument Energy Efficiency Obligation Scheme Financial grants / subsidies, Funds Tax reduction / exemption New / tightened regulation Information / Advisory service Targeted end-use Buildings Refurbishment of building facade with best available technology (BAT) Refurbishment of roof/bottom with BAT o Refurbishment of windows with BAT Enhancement of the rate of refurbishment of building facade (at the level of the current building regulation) o Enhancement of the rate of refurbishment of windows (at the level of the current building regulation) - o o + - Enhancement of the rate of refurbishment of roof/bottom (at the level of the current building regulation) o New buildings with BAT o Change of heating system o Full compliance with existing regulations o Tertiary Electricity Cross-cutting technologies (Elevators, Lighting, Ventialtion and air-conditioning, process refrigertation, hot water) Various buiding technologies - - o -- + ICT offices / server rooms Street Lighting Heat pumps (Steuerung/Regelung) o o Residential Electricity Lighting, large household appliances, IT appliances Industry Cross cutting technologies - use of best available technology (BAT) Cross-cutting technologies - Optimized operation Process technologies - use of best available technology (BAT) - o - + o Process technologies - Optimized operation Process technologies - Waste heat recovery o o o + + Process technologies - Process innovation o Commercial (except buildings): The highest number of cross-cutting technologies (mainly electrical applications) can be grouped in the commercial sector (trades, retail and services) in terms of their suitability. Due to the standardizability and the high number of cases, technologies such as lifts, lighting, ventilation etc. are suitable for an energy efficiency obligation scheme. The information and communication technology sector is equally well suited for such a scheme, as is street lighting. In contrast, optimizations in the area of control/regulation of heat pumps through integ-

25 19 ration in building technology is more difficult to address via an energy efficiency obligation scheme. Financing instruments enable all measures to be supported equally well. Household electrical devices: Electrical devices in private households are equally very suitable for all instruments observed. Only the effect of informative instruments is to be ranked lower as these often act as accompanying measures. Due to the non-credit-based capitalization, the high number of actors is considerably less significant than in the buildings sector because a simple voucher model can be used, for example. In terms of regulations, energy-saving measures for electrical devices can be addressed well above all via the mandatory introduction of audits, energy management schemes and the setting of minimum standards. Industry: In industry a distinction must be made between the application areas of process and cross-cutting technologies. Measures that address the application of the best available technologies (BAT) for cross-cutting technologies are particularly suitable for an energy efficiency obligation scheme, while the optimization of management, and in particular the use of the best available technology in terms of the process technologies and innovations, are unsuitable for such a scheme due to the high investment costs, the long plant stand time and the difficulty in assessing the effect. For the financing instrument, on the other hand, all technical measures are classified as suitable, with the exception of the process innovations. Measures for optimized management, in contrast, are not suitable for direct financing; in this case information instruments such as energy management schemes are estimated to be more suitable. These can also suitably address measures for the use of the best available technologies, in particular for cross-cutting technologies (less so for process technologies). Similarly, the setting of ambitious minimum regulatory standards is similarly suitable. A regulatory approach for process technologies, in contrast, is evaluated as merely average due to the lack of standardizability and the high costs and long service lives. Under these premises the energy-saving potentials that can be achieved through technical energy-saving measures can be presented in all sectors and areas of application considered according to their suitability for the various instruments (Table 4-2). The buildings sector, which offers the highest energy-saving potentials, can be addressed well and very well in particular through financing programs and regulations. If neutral measures are also included, a saving quota can also address large parts. In the area of household devices and electricity consumption in the commercial sector, the regulatory instruments with the setting of standards, saving quotas or financial instruments are equally suitable for tapping into the potentials. This is because, unlike buildings, substitute acquisitions are made in the device sector whereby the investment decision is not a fundamental question. The same applies for industry, in particular in the area of cross-cutting technologies. The mandatory specification of audits or energy management schemes and the consistent setting of minimum standards can be beneficial in

26 20 this context. An energy efficiency obligation scheme can be effective in respect of the easily standardized measures, whereas the effect of a financing instrument is more beneficial for process-related measures. Table 4-2: Energy-saving potentials that can be addressed well and very well by sector and instrument type Energy Efficiency Financial grants / Tax reduction / Improvement of existing regulation New / tightened Information / Obligation Scheme subsidies, Funds exemption (esp. compliance) regulation Advisory service Buildings sum (TWh) 50,67 213,93 213,93 56,52 207,98 - Private Households sum (TWh) 27,03 27,03 27,03-27,03 27,03 Tertiary Sector sum (TWh) 20,30 20,30 19,42-20,30 20,77 Industry sum (TWh) 14,60 14,60 14,60-17,10 26,56 share of total Buildings potential 0,19 0,81 0,81 0,21 0,79 - share of total Private Households potential 1,00 1,00 1,00-1,00 1,00 share of total Tertiary Sector potential 0,94 0,94 0,90-0,94 0,96 Industry share of total potential 0,50 0,50 0,50-0,58 0,90 For information purposes: following Sums including the neutral potential. Energy Efficiency Financial grants / Tax reduction / Improvement of existing regulation New / tightened Information / Obligation Scheme subsidies, Funds exemption (esp. compliance) regulation Advisory service Buildings sum (TWh) 206,74 264,50 264,50 56,52 207,98 68,23 Private Households sum (TWh) 27,03 27,03 27,03-27,03 27,03 Tertiary Sector sum (TWh) 20,49 20,49 20,58-20,30 20,77 Industry sum (TWh) 15,22 17,10 15,22-17,10 29,36 Buildings share of total potential 78% 100% 100% 21% 79% 26% share of total Private Households potential 100% 100% 100% 0% 100% 100% share of total Tertiary Sector potential 95% 95% 95% 0% 94% 96% Industry share of total potential 52% 58% 52% 0% 58% 100% Legend: 99% > 75 % 50% 25 75% 20% < 25 % Table 4-3 displays the potentials that can be achieved using the various instruments across all application areas. Incentive measures can address a substantial potential (83% of the potential determined) with suitable or very suitable energy-saving measures (evaluation categories + and ++ ), and the effect of tax concessions is of a similar magnitude. In a similar scope to the incentives, new or tighter regulatory measures can address the existing potentials (80%). However, in this case legal and political issues regarding implementation have largely not been taken into account. The saving quota follows with 33%. Measures for information and consulting on their own, that is to say, without supporting additional instruments, only have a limited effect and are only suitable for exploiting around 22% of the potentials presented.

27 21 If the neutral energy-saving measures (evaluation category 0 ) are also included, we see that tax concessions and incentives can address up to 96% of the potentials, and a energy efficiency obligation scheme can address 79%. The exploitation rate rises to 42% for information and advice. However, it should also be noted that some energysaving measures are less well suited to the corresponding instrument in respect of removing barriers, standardizability or funding model. This situation needs to be taken into account during implementation. Table 4-3: Achievable energy-saving potentials by suitability of the instruments* Energy Efficiency Financial grants / Tax reduction / Improvement of existing regulation New / tightened Information / Obligation Scheme subsidies, Funds exemption (esp. compliance) regulation Advisory service ++ sum (TWh) sum (TWh) o sum (TWh) sum (TWh) sum (TWh) or + sum (TWh) or + sum (PJ) or + sum (PJ/a) share of total ++ or + potential 33% 81% 80% 17% 80% 22% For information purposes: sums taking into account the neutral potential Energy Efficiency Financial grants / Tax reduction / Improvement of existing regulation New / tightened Information / Obligation Scheme subsidies, Funds exemption (esp. compliance) regulation Advisory service ++,+ or o sum (TWh) ,+ or o sum (PJ) ,+ or o sum (PJ/a) share of total ++,+ or o potential * Energy-saving potentials with an ambitious baseline incl. potential through better enforcement of the EnEV The potential exploitation presented in Table 4-2 and Table 4-3 relates solely to the overall potential and thus to the specified energy-saving target in its high variant. The following determines the extent to which suitable or very suitable energy-saving measures can be used to meet the energy-saving target in all variants (high, medium, low) for the instruments examined here. Therefore, the technical energy-saving measures are first ranked, as before, by suitability and then additionally by an instrument-specific cost criterion (see also the following section on the cost categories to be taken into account). In terms of the energy efficiency obligation this criterion is the minimization of the specific costs for the obligated actor. These comprise the investment cost subsidies, the costs of evaluating measures, the administrative costs of the obligated actor and the program implementation costs. For financing, regulations and the informative programs the total costs of the measure are used (which are not the same for the instruments). For tax concessions the selected actor perspective is that of the investor who wants to minimize his investment and administrative costs.

28 22 The result of these calculations can be seen in Table This shows that, while both the incentive instrument and the tax concessions instrument also cover the high energy-saving target to a large extent with energy-saving measures that are suitable or very suitable for the instruments, none of the instruments considered on its own meets the high energy-saving target, at least not with suitable or very suitable energy-saving measures for the instrument. The high impact of a tightening and expansion of regulations represents more of a theoretical possibility as the required regulatory scope would be unrealistic. The medium energy-saving target could be met solely using the spectrum of financial instruments (funds, incentives or tax concessions). Whether this is in fact expedient, however, depends on the further evaluation criteria that are discussed in the following sections. The same applies to the low energy-saving target which, without taking further criteria into account, could in the first instance also be met by all instrument options considered here, with the exception of information and advice, in each case with suitable or very suitable energy-saving measures for the instrument. Table 4-4: Degree of target achievement of the energy-saving targets by the instrument options through suitable and very suitable measures. Energy Efficiency Financial grants / Obligation Scheme subsidies, Funds Tax reduction / exemption Improvement of existing regulation (esp. compliance) New / tightened regulation Information / Advisory service Low Target 99% 100% 100% 50% 100% 65% Medium Target 49% 100% 100% 25% 100% 33% High Target 33% 81% 80% 17% 80% 22% (2) Costs of the energy-saving measures The overall costs of the instruments are differentiated here using various cost categories which are in turn incurred by various actors. These comprise administrative costs for the set-up, operation and monitoring of the instruments, program costs, i.e. the costs of the programs actually performed, as well as the additional investment costs, i.e. the differential costs for the investment in an energy-efficiency technology as compared to standard technology. These cost categories are further differentiated depending on whether their scope is dependent on the type of the energy-saving measures performed, whether they are differentiated by instrument or whether they are dependent on the programs performed to initiate the energy-saving measures. See Table 4-5 for an overview of the cost categories considered for the cost evaluation.

29 23 Table 4-5: Cost categories considered in the cost evaluation Cost category per actor Description Measuredependent Instrumentdependent Programdependent Administrative costs State Set up and operation of the instrument specific scheme no yes no State/ other Verification of the savings reported yes no no Obligated actor e.g. set up of corresponding structures for the establishment and operation of the scheme in obligated companies or additional reporting/disclosure obligations e.g. under regulations Implementer of measures Administration through implemented energy efficiency investments (above all via internal staff and external consultancy costs Program costs Obligated actor Obligated actor/ other (Residual) investment costs Implementer of measures no yes no yes no no Funding (subsidies) that benefit the implementer of the efficiency measure yes no no Additional program implementation costs incurred in addition to the incentive costs during implementation of the programs (e.g. information, design etc.) no no yes Additional investment costs, i.e. the differential costs for the investment in an energy efficiency technology as compared to standard technology. yes no yes These costs for the various instruments are quantified on the following basis: The administrative costs are estimated based on experience with the energy efficiency obligation or an institutionalized efficiency fund already available in other countries or comparable instruments in Germany (e.g. the KfW grant programs). Program costs that are particularly relevant to financial instruments are quantified by assuming a plausible subsidized proportion of total additional investment costs on the basis of experience gained from other countries and programs in Germany. A distinction is made between the program costs that are incurred in granting investment subsidies and those that are required for implementing the programs (program implementation costs) but do not flow directly into efficiency measures. The additional investment costs as compared to a standard technology can be derived directly from the model calculations on the energy-saving potentials, albeit they are reduced accordingly by the financing through financial incentives. What is important for the consideration is that most of the cost categories considered are incurred during the deployment of any instrument option when comparable energy savings are to be achieved. The essential difference is in which actor incurs the costs in the first instance, whether and how they are foreseeably to be passed on (see also evaluation criterion 5 on the follow-on effects of the instruments) and whether the funds are from the public or private sector. The costs up to the submission of the respective target amount are calculated in the order imposed on the carrier of the measures irrespective of how suitable or unsuitable the instrument is for the performance of energysaving measures. Additional costs incurred for measures that are less suitable for the instrument were not taken into account. The suitability or unsuitability of the instrument

30 24 for energy-saving measures for meeting the respective target is highlighted in color in the following table of total costs. Table 4-6 and Figure 4-1 provide an overview of the total costs incurred for the instruments. The table specifies the values of the respective energy-saving targets and the cost path to the individual goal can be seen from the diagram. Table 4-6: Total annual costs of the individual instruments Energy Efficiency Financial grants / Obligation Scheme subsidies, Funds Improvement of Tax reduction / existing regulation exemption (esp. compliance) total costs in M New / tightened regulation Information / Advisory service Low Target sum (M ) (*) (*) Medium Target sum (M ) High Target sum (M ) 3000 (*) 3900 (*) 3800 (*) Legend: achievable with measures than can be addressed well or very well partly achievable with measures than can be addressed well or very well partly achievable with measures than can be addressed well or very well; even the lower target cannot be completely achieved Figure 4-1 adds up the costs of the measures based on the sorting by suitability and decision-making costs running from left to right. The cost development serves as a baseline, which results without taking into account the suitability, sorted solely by total costs (optimum exploitation of the cost potential curve). The financial instruments fit this trend most closely. As a result of the selected decision-making costs here, too, the measures with the lowest total costs are selected. However, measures with positive overall costs are used for the difference between the medium and high energy-saving target above all. In contrast, the saving quota produces a more linear path on its course to the overall target and measures with positive and negative costs alternate. This shows that financing in particular initially exploits the macroeconomically very profitable energy-saving potentials with a very positive depreciation. On the other hand, the course of the curve for the saving quota is not oriented toward the optimum macroeconomic development. The market mechanism underlying the saving quota for initially tapping into the more inexpensive energy-saving measures is limited to a purely commercial perspective in respect of the absolute costs for the obligated actor, and not the macroeconomic costs of the energy-saving potentials to be leveraged. In terms of the tax incentives, fewer economic measures from the buildings sector are addressed in the first instance, after which a course results that is oriented toward the total costs.

31 25 Figure 4-1: Total costs dependent on the energy-saving target achieved Total Costs of Savings (M ) Energy Efficiency Obligation Financial Grants/Subsidies, Funds Tax Reduction/Exemption Information/Advisory Service Baseline cumm. Annual Savings in 2020 (TWh) Table 4-7 shows the costs calculated using the above approach for the exploitation of the good and very good potentials. For the first two instruments the party implementing the measure passes on part of the investment costs to third parties if administrative and implementation costs are incurred. This is intended to overcome the monetary barriers that hamper the performance of these measures. This part does not apply in the case of the regulatory and informative instruments. However, there higher overheads for the monitoring of the compliance for regulatory instruments and expenditure for the informative programs need to be taken into account. For these instruments, too, the costs for the implementer of the measure are substantially higher due to the lack of subsidies. In the case of less economical measures in particular, such as those in the buildings sector, this can become a problematic effect, so that regulations may again have to be supplemented by financial measures. It should be taken into account that neither the same energy-saving measures nor the same absolute savings lie behind the costs represented because each instrument addresses different measures and the scope of the potentially induced measures is also different. What also needs to be considered is the fact that the introduction of a new scheme such as the energy efficiency obligation scheme or an institutionalized efficiency fund would in any event incur additional costs as compared to the previous range of instruments.

32 26 Table 4-7: Overview of the costs of the various instruments for the well and very well addressable measures Cost categories Well and very well addressable potential Administrative costs State Units [1] Energy efficiency obligation scheme Financial subsidies Tax reduction/ exemption Increased application of existing regulations New regulatory instruments Information and consultation TWh/a M /a 3.7 (w/o trading) 4.9 (w. trading) 0.90 (funds) 0 (other) n/a 6.00 at least 18 n/a Verification of savings (state, obligated company, M /a implementer of measures) Implementer of measures M /a Program costs Obligated actor (investment subsidies) M /a n/a n/a n/a Obligated actor/others (program implementation costs) M /a n/a n/a n/a 190 (Residual) investment costs Implementer of measures M /a Total costs Macroeconomic total costs (incl. prevented energy costs) M /a [1] All costs represented in this table are the costs incurred in the year. (3) Market conformity and competitiveness Of the instruments examined here the saving quota is the only approach that is directly applicable to companies of the energy industry by imposing a concrete obligation on the companies. The other two instrument options are subject to other effective mechanisms. A quantity control (here: saving quota) that is managed using certificates is generally classified as particularly market-conform and competitively capable as a result of the trading element. Whether this is actually the case was examined comprehensively with regard to the effects on suppliers of different sizes and orientation, on the competitiveness of different fuel sources and on certificate trading. The result of this analysis may be summarized as follows: In the competition between large and small companies the saving quota represents a comparatively larger cost burden for smaller companies because larger companies have better opportunities to absorb their administrative and program costs via scaling effects.

33 27 Obligated companies with a regional distribution structure have better implementation prerequisites than for instance new suppliers with a local anchoring and only a low level of customer proximity. No reliable statements as to whether a marked trade would arise under the German market conditions can be made for the saving quota instrument option with certificate trading. An allocation of the macroeconomic value of the search process for the most costeffective energy-saving potentials induced in the scope of the saving quota depends to a large extent on the criteria based on which the alternative instruments such as efficiency funds, regulations or financial programs are designed. If the latter are strongly oriented toward the cost-potential curve, the benefit of the search process is lost for the saving quota. (4) Effects on the market for energy services The introduction of a saving quota would also enable the goal of strengthening the market for energy efficiency and energy services (e.g. in the form of new actors) to be explicitly pursued. This effect is often supposed for the instrument. However, broadly structured financial programs and other instruments can stimulate energy services. The following evaluation takes into account the experience gained from other countries that have already introduced an energy efficiency obligation scheme. However, what needs to be considered is the fact that the situation in those countries cannot be directly compared with Germany because the number of obligated companies and thus potential market entrants in Germany would be a lot higher in Germany than in the other countries. Further, different definitions of the concept of energy services need to be considered. In the narrower sense this can be limited to services where the energy saving represents the strategic commercial objective; i.e. the customer is not sold energy in the form of electricity, gas etc., but instead a more complex service that may also include necessary investments in buildings and facilities technology (e.g. contracting, energy audits, energy management or energy monitoring). In the broader sense the definition includes all services that result in energy savings for the customers, e.g. also subcontractor services in insulating buildings or replacing boilers. In countries that have already introduced an energy efficiency obligation scheme, the broader definition is usually used. In Germany the definition in the current discussion is only common in the narrower sense. Nevertheless, subcontractor and consultancy services under the broader definition have long been established in Germany: a differentiated supplier spectrum has emerged in the course of regulatory measures and financial programs of recent decades.

34 28 As a result of the analysis it can initially be noted that an energy efficiency obligation scheme has an enlivening effect on the market for energy services in the broad sense above all where no or only a few actors have previously been active. In such contexts a saving obligation offers a cost-effective and comparatively simple-to-implement opportunity of implementing energy savings via market actors. A market for energy services in the broader sense is established. For Germany such a context is not a given, however, as the market for energy services (scope and diversity of suppliers and services offered, intensity of competition etc.) is already comparatively well-developed there, even if it is still a long way from a broad services market. The effect of a saving obligation becomes more complex where services are already established on the market. Above all market size and the qualitative configuration of the measures need to be considered as influencing factors. In an already differentiated service spectrum as per the broader definition, the introduction of a saving obligation would lead to a higher concentration of providers in a static market, which could lead to predatory competition. The development of new services under the narrower definition would not be anticipated. That is to say, this situation would not result in an improvement as compared with the status quo and if suppliers are crowded out could even constitute a deterioration. The basic requirement for preventing such a development is therefore to extend the market and develop new services. The development of new services pursuant to the narrower definition requires first of all the dismantling of specific barriers that exist in the market (e.g. through regulatory policies or risk minimization in the start-up phase etc.). This requires at least a combination of different instruments that, with a certain degree of political guidance, ensure that existing or new market actors focus on energy services in the narrower sense that were not previously available, or were only available to a limited extent. Such political guidance can be guaranteed in the scope of an energy-saving fund or through expanding existing instruments (e.g. funds for granting indemnity guarantees for minimizing risk in the start-up phase). To that extent these enable a qualitative added value in the form of the expansion of an already established market with additional services in the narrower sense to be achieved as compared to the status quo. In contrast, this is not possible with a saving quota as a singular instrument.

35 29 (5) Follow-on effects of the instruments Due to methodological restrictions not all follow-on effects of the instruments can be considered in quantitative terms. This mainly includes distribution effects of the instruments, their possible impact on the energy price and a possible impact of the energy cost savings due to implemented energy efficiency measures on energy consumption (known as rebound effect ). With regard to the distribution effects of the instruments, a distinction needs first to be made between the costs incurred directly by the various actors and the costs passed on. For energy efficiency obligation schemes, it can be assumed from experience from existing schemes in other countries that the obligated companies will pass on both the program costs as well as the administrative costs, usually via the energy price, to the end customer, if no regulation exists. This means that all end customers, and heavy users in particular, are initially burdened by higher energy prices, which fundamentally complies with the consumption principle. However, effectively the burden would largely fall on those demand segments that have the lowest elasticity in terms of demand (especially private households and smaller companies) in the first instance. Low-income households with a high proportion of energy costs as compared to total domestic expenditure will be more heavily burdened in relative terms than higherincome households. Further, these households will benefit least from the programs performed and thus from the saved energy costs as they are not able to produce the necessary investment costs unless the scheme is set up in such a way that these households are targeted in particular. In a financial scheme the distribution effects depend largely on the type of financing of the funding. With apportionment funding a passing on to the end customer can be assumed, as with a saving obligation; with funding from general state funds, costs are passed on to the tax payer. The distribution effects then also depend on which taxes are increased (income taxes or excise duties). For regulatory measures the large part of the costs falls on the investor obligated under the regulatory provisions. Figure 6-7 provides an overview of the distribution of the costs of the instruments across the participating actors.

36 30 Figure 6-2: Distribution of the costs of the different instrument options across the participating actors