REACHING THE TARGETS. Figure 16 Guidebook Overview Map: Reaching targets and objectives. Coalition for Energy Savings

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1 II REACHING THE TARGETS Part II details the main elements f the EED, prviding a backgrund fr each f the subject areas, the requirements f the EED and recmmendatins fr effective implementatin and mnitring. Because many subject areas are cvered by mre than ne article, each is treated separately here. Part II starts by reviewing Energy Efficiency Obligatins, then fllws with the public sectr and energy audits, and ends with a discussin f supply side efficiency and demand respnse. Figure 16 Guidebk Overview Map: Reaching targets and bjectives Calitin fr Energy Savings

2 II.1 Eligibility f measures fr the energy end-use savings target (Article 7, Annex V) II.1.1 Figure 17 Guidebk Overview Map: Eligibility f measures Summary Article 7 nt nly requires MSs t set an energy end-use savings target fr the perid , but als puts in place the criteria and cnditins fr eligible measures and hw savings can be cunted twards the target. Only if thse measurement and verificatin requirements as set ut in Article 7 and Annex V are strictly applied will MSs be able t cunt their energy savings twards the target defined in Article 7.1. Only new savings, that is, savings resulting frm additinal energy end-use efficiency measures during the perid that are abve the baseline, are eligible t be cunted twards meeting the energy end-use savings target. In additin savings must be the result f measures with the explicit aim t imprve energy efficiency. This can then als include pricing r transprt measures, even if, in the latter case, MSs make use f the pssibility t exclude that sectr when calculating and thus reducing the target, thugh this culd be challenged frm a plicy cherence perspective. Nte als that, because the 1.5% target is cumulative, the energy efficiency measure has t deliver savings up t 2020 therwise additinal measures will have t be put in place t replace the lst savings. Fr example, a lw flw shwerhead installed in 2014 with a lifetime f 5 years wuld stp delivering savings in 2019, s actin wuld have t be taken at that time t replace this prtin f the cumulative target. MSs will need a system t ensure that measures are nt claimed twice twards the energy end-use savings target by different delivery partners r when different plicy measures are cntributing t making the same measure happen. MSs shuld cnsider energy efficiency measures in terms f their lifetime energy savings as this will be the mst cst-effective technique t prgress n the pathway t the 2030 and 2050 targets. As lifetime savings are derived frm an annual energy saving multiplied by the lifetime Calitin fr Energy Savings 2

3 Member States Ntificatin Ntificatin Cmmissin with future savings frequently discunted at a scietal discunt rate, it is straightfrward t establish the annual energy savings in the perid t meet the energy end-use savings target. Existing prgrammes have shwn that taking a lng-term apprach, with regular reviews, wrks well. Fr mre details abut hw savings can be cunted twards the Article 7 end-use savings target, refer t Annex B. Review f exemptins and perid f 1.5% efficiency bligatin Review f natinal targets 1.5% savings target & list f eligible measures and calculatin methd Natinal targets 3% Public building renvatin starts Building renvatin strategies published Public prcurement, demand side & ther measures Transpsitin NEEAPs CHP, audits, metering & billing 30 Apr 5 Dec 30 Apr 5 Jun 30 Jun 30 Jun II.1.2 Figure 18 Relevant deadlines regarding measures in this part f the guide (in bld) Challenges Only savings beynd business as usual are eligible. The fllwing are challenges that may be encuntered with deciding which savings are eligible and hw they are cunted: A vague baseline (see als Annex B) Regulatry requirements are t be included in the baseline. This includes regulatins fr new buildings and majr renvatins resulting frm the Energy Perfrmance f Buildings Directive, which shuld in principle be benchmarked in accrdance with the cst-ptimal calculatin methdlgy as set ut in Cmmissin Delegated Regulatin (EU) N 244/2012. Only regulatins abve that level wuld be eligible t be cunted as savings. Hwever, plicy measures, including financial supprt, that increase the rate f new build r renvatin may be eligible t be cunted as delivering energy savings even if they are based n energy perfrmance requirements that simply meet the cst-ptimal level. In the field f energy efficient appliances and prducts, the Ecdesign Directive sets minimum energy perfrmance standards in a variety f applicatins. In all cases, nly energy efficiency imprvements encuraged beynd these minimum requirements may be cunted fr additinal and new energy savings unless higher standards exist already in the marketplace. Calitin fr Energy Savings 3

4 A scrapping scheme fr replacing prducts with mre efficient nes within market average might nly deliver eligible savings fr a shrt perid f time until replacement wuld have been necessary. In the case f shrt-lived prducts r efficiency requirements set by the EU, the eligible savings might becme negligible and will be significant nly if attached t prducts perfrming abve regulatry standards and the market average. Supprt schemes fr building efficiency imprvement measures will have free riders, r peple wh wuld have undertaken the wrk anyway. Thse have t be discunted by using a baseline fr nging efficiency imprvement wrks. Duble cunting. In France and Italy, fr example, sme energy efficiency measures are supprted by energy retailers and the end user is eligible fr a tax break. Fr EED purpses, the measure can nly be cunted nce. In general any pricing measure fr efficiency (an energy tax which prvides a general incentive fr cnsumers t take efficiency measures, fr example), can be expected t verlap in its effect with specific supprt prgrammes, like financial r fiscal incentives fr building refurbishment and prduct replacements. A simple adding up f deemed savings frm thse different measures is therefre nt crrect. A methd fr calculating the effect f verlapping r duble cunting f the impacts that results frm separate impact assessments f the tw measures is necessary. In this calculatin, there may als be sme psitive synergy effects t be taken int accunt. Nt all plicy measures are eligible. T cunt twards the target, savings must be the result f an efficiency bligatin scheme r ther plicy measures (Article 7.9), with the explicit aim t imprve energy efficiency accrding t the definitin set ut in Article 2.18: plicy measure means a regulatry, financial, fiscal, vluntary r infrmatin prvisin instrument frmally established and implemented in a Member State t create a supprtive framewrk, requirement r incentive fr market actrs t prvide and purchase energy services and t undertake ther energy efficiency imprvement measures Under this interpretatin, any energy r a carbn tax wuld nly qualify as a plicy measure if its explicit aim is t increase energy efficiency. It is als clear that general taxatin such as rad r netwrk charges, value added tax r taxes intrduced t supprt ther energy plicy bjectives (such as a feed-in tariff fr renewables) wuld nt cunt, any mre than wuld price fluctuatins f energy due t wrld market cnditins r business cycles. Increases and reductins in VAT, even when energy is included in their scpe, are nt cnsidered eligible measures, because f the fiscal design f VAT and fr the same reasns as ther exgenus price changes. Shrt lived and decreasing impact f pricing plicies, like taxatin. The size f any energy savings resulting frm pricing plicies designed t increase energy efficiency are gverned by the prduct f the percentage increase thrugh pricing measures, like energy r CO 2 taxatin, frm previus levels and the price elasticity. Amng the principles stated in the EED fr the use f price elasticities is that they shuld use recent and representative fficial data (Annex V.3(b)). Alne, this is inadequate guidance, as price elasticities can be measured in a variety f ways, and the range f results frm individual studies is large. Mst reliable evidence cmes frm expert reviews r meta-analyses that assess a range f different empirical studies. These are relatively few in number (see Annex B fr examples and literature). Elasticities are calculated n the basis f empirical price and cnsumptin data, within a framewrk ecnmetric r crrelatin analysis. The results are, in actual fact, t a large extent determined by hw the data sets reflect the availability and csts f technlgical r ther substitutes during the analysis perid. It is the substitutin f energy thrugh the implementatin f existing r newly develped technlgies and techniques that allw reductin f energy cnsumptin. The amunt f time that is Calitin fr Energy Savings 4

5 taken int accunt fr this substitutin t take place is als a crucial factr in determining the size f the elasticity r respnse. The key methdlgical issue is thus the chice between lng- and shrt-run price elasticities. In essence, shrt-run elasticities measure the effect f change f cnsumer behaviur n substitutin, using technlgy frm the existing stck f capital (vehicles, buildings, appliances, etc.). Lng-run elasticities allw fr the effect f cnsumer prices n the develpment f the capital stck as it changes and imprves ver time (as equipment suppliers react t the changing balance in capital and fuel csts). Lng-run elasticities are larger (mre negative) as they incrprate the shrt-run effect as well as allwing changes in the capital stck. Fr the purpses f the EED, there are tw reasns why lwer, shrt run elasticities shuld be used: 1. Significant changes in capital stck resulting frm plicy-induced price changes are unlikely t ccur within the timeframe f the EED ( ). Mst energy-using capital equipment has a relatively lng planning hrizn and lifetime. It takes years fr the equipment suppliers t develp imprved designs, re-tl manufacturing plants and rll ut new prducts thrugh the relevant supply chains. Within the bligatin perid, price-induced changes in the capital stck as a whle will therefre be small. 2. In mst cases, the efficiency f energy using capital plant and equipment is heavily affected by requirements f ther Eurpean Directives, in particular fr light vehicles (under EC Regulatin N 443/2009), buildings (under the Energy Perfrmance f Building Directive 2010/31/EU and cnsequential building regulatins in MSs) and appliances (under the Ecdesign Directive 2009/125/EC and the Labelling Directive 2010/30/EU). In practice, these regulatry requirements will drive new prduct efficiency rather than energy taxes. As it is highly likely that there will be frthcming EU directives which will further imprve the energy perfrmance f vehicles, buildings and appliances, this represents the capital stck imprvements mentined abve. Cnsequently, the use f lng-run price elasticities f demand wuld likely breach the prvisins f Annex V.2(a) and risk duble cunting f energy savings in breach f Article In additin, studies indicate that price elasticities are nt linear 1. This means that several incremental price changes ver a lnger perid f time cannt necessarily be added. Such small price changes as annual tax increases may have an accumulated effect that is still very lw because the changes are adapted t (absrbed) rather than substituted fr, while single large, highly visible price changes f the same ttal magnitude can have a mre prprtinate impact. This means that energy savings frm pricing plicies prir t 2014 are unlikely t prduce significant savings during the bligatin perid f under early actins. It als means that the savings wuld nt accumulate and wuld cntribute very little t the target f 10.5% savings in the year 2020, unless the pricing measure is increasing cnstantly, substantially and predictably in at least real price terms. If the pricing measure is kept at a cnstant price level, the savings effect is diminished. If during this perid, dispsable incme is als rising, the impact f the price increase becmes even less than the price elasticities wuld indicate. Fuel switching effects. At the end user level, a fairly cmmn fuel switch ccurs with heating systems, when, fr example, a gas biler is replaced with an electric system. In Eurpe, an average 2.5 kwh f primary fuels are necessary t deliver 1 kwh f electricity, meaning that nly an electric heating system that reduces end-use energy by a factr abve 2.5 wuld deliver eligible savings. 1 Rittenberg, L. and Tregarthen, T., The Price Elasticity f Demand, Principles f Micrecnmics, Web Bks Publishing, 2010, chapter 5.1. Calitin fr Energy Savings 5

6 Anther type f fuel switch ccurs when the high-efficiency cgeneratin and/r efficient district heating and cling (DHC) have a lwer primary energy factr than the previus slutin. This cnversin leads t verifiable reduced primary energy cnsumptin. Fr example, if the efficient cmbined heat and pwer (CHP) r DHC has a primary energy factr f arund 1 r lwer 2, this means that a cnversin frm electric heating with an assumed primary energy factr f 2.5 t efficient CHP r DHC can lead t a reduced primary energy cnsumptin f 1/2.5 r 60% r mre. This is a primary energy savings, and eligible under paragraph 2 f Article 7 as an energy efficiency imprvement measure in the transfrmatin sectr, prvided it des nt lead, tgether with ther eligible measures under paragraph 2, t a reductin f mre than 25% f the amunt f energy savings, as referred t in paragraphs 1 and 3 f Article 7, fr fulfilling the 1.5% annual target 3. By the same tken, primary energy savings resulting frm fuel switching which cntribute t transfrming nn-efficient DHC/CHP int efficient DHC/CHP shuld als be cnsidered as eligible measures under Article 7.2, if MSs decide t make use f exemptins under Article 7.2. In any case, nly prven and verified primary energy savings resulting frm fuel switching shuld be cnsidered as an eligible measure. II.1.3 Legal checks Legal checks 1. Ask fr access and give attentin t the methdlgy fr calculating the impact f efficiency measures fr the target achievement, which is due 5 December 2013 (see EED Annex V). 2. Check whether the methdlgy meets the fllwing minimum standards: Additinality: Only savings which wuld nt have happened anyway and are additinal t a baseline (see Article 7.1 wrding fr new savings and Annex V.2(a)) can cunt tward the target. This means that in particular the fllwing savings must be excluded: savings resulting frm EU standards fr prducts, such as cars, vans, bilers and electric mtrs, r buildings (see Article 7.9(d) and Annex V.2(a)); and savings frm taxatin measures which d nt exceed EU minimum levels and whse impact is nt verified using recent data n price elasticity (see Annex V.3 and the caveats listed abve regarding the calculatin and use f elasticities). New savings and materiality: nly savings frm plicy measures with the bjective f imprving energy efficiency (Article 2.18) realised during (Annex V.2(e)), which are material t new activities (Annex V.2(c)) and are nt cunted twice (see Annex V.2(d)) are eligible t cunt tward the target. Existing prgrammes that are expanded in scpe r level f activity may, hwever, be cnsidered t fulfil additinality criteria. 2 This is the case n average t be verified case by case. 3 T ensure cmparability and t differentiate between fuel switching effects and energy savings, refer t Annex IV f the EED fr relevant cnversin factrs. In this cntext, als t ensure system efficiency, the difference between energy, exergy and anergy shuld be brne in mind. "Exergy" is the part f an energy flw that yields high-grade energy r capacity t carry ut wrk, fr example t pwer mechanical prcesses. "Anergy" is what is left, r the lwvalue part f an energy flw. The bulk f waste heat frm pwer plants, fr instance, is anergy. Efficiency in energycnsuming structures calls fr minimum use f high-value energy (exergy) and maximum use f lw-value energy (anergy). Lw-value anergy surces can be used in a ratinal, envirnmentally sustainable way fr heating and cling, thus saving high-value exergy fr appliances and lighting. See Energy = Exergy+Anergy: a frmula fr energy-efficient buildings, OPEN Energy Technlgy Bulletin, Internatinal Energy Agency (IEA), Issue N. 35, Calitin fr Energy Savings 6

7 3. Ensure that the cnversin factrs (see Article 21 and EED Annex IV) are applied t ensure cmparability f savings and t prevent fake savings frm fuel switching. Calitin fr Energy Savings 7