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Do voluntary agreements © nirutft – stock.adobe.com on industrial energy efficiency still have a future?

Side-event at the eceee Industrial Efficiency conference, Berlin – 11-13 June Energy Efficiency

Many European countries have concluded voluntary or long-term agreements with industry to improve the sector’s energy efficiency. While some of these countries have relied on voluntary agreements for more than 20 years, others have either stopped or have never implemented one. So, can such agreements continue to stimulate energy efficiency in industry in the next decade? This question was addressed in a joint Tractebel – IPEEC – UNIDO workshop.

Tractebel ENGIE, together with IPEEC and UNIDO, organised a dedicated workshop Introducing Voluntary on voluntary agreements in the framework of the 2018 eceee Industrial Efficiency Agreements (VAs) conference. Two core questions were addressed: • Voluntary agreements are contracts • Have voluntary agreements come to their end or do they continue to deliver? between a government and local industry, creating a specific benefit • If so, how should they be designed today to achieve a maximum contribution to the to those companies who decide to Paris Agreement? implement a more efficient energy Experts from , Denmark, Finland, Germany, Ireland, Sweden and met practice over a compulsory baseline and exchanged practices, views and lessons-learnt. energy practice Voluntary agreements have not Voluntary agreements continue to Germany: Energy Efficiency come to their end. deliver, even after a few decades Networks of being in place. • The conclusion on the first core Latest evaluation results of consecutive Energy Efficiency Networks set question is that voluntary agreements Danish voluntary agreements provide targets and organise monitoring still have a future; in Europe as well good evidence of this; economically locally at the level of a network of as in other continents. The renewal viable energy efficiency potential about ten companies. of the voluntary agreements in continues to manifest, even in companies Belgium, Luxembourg and Finland; that have participated in the voluntary Thematic workshops are organised their reintroduction in Denmark and agreements from the start. regularly fostering the exchange Germany; and the interest shown Inversely, as one Danish company of knowledge and lessons learnt by the and Ukraine pointed out, during the interruption amongst the participants. indicate that voluntary agreements can of the Danish voluntary agreements The German experience still be a core element in implementing scheme (2013-2015), the momentum to shows that these networks energy efficiency policy in industry. catalyse the implementation keep energy efficiency on the company’s of energy efficiency measures • In fact, no other policy instrument top management agenda noticably and can be considered as seems to engage industry quite so slowed down. a good practice for a voluntary much as voluntary agreements do. The agreement. combination of energy auditing, to make participating companies aware Mr. Durand, Fraunhofer ISI of their energy efficiency potential, and the obligation to improve the companies’ energy efficiency, either by Evolution of voluntary agreements imposing energy efficiency targets or in Europe obliging the implementation of energy Starting from 1992 saving measures, is very effective Precursor in mobilising the industry sector on Considered energy efficiency. 1st Generation 2nd Generation Stopped When renewing or introducing a before generalising them to the whole voluntary agreement scheme on of industry. Subsequent guidance Some lessons learnt in Denmark industrial energy efficiency, how documents on relevant energy saving should it be best designed for measures or best energy practices can maximum delivery? help reduce the transaction cost for It is important to clearly set existing and incoming players. out requirements to companies This was the topic of the second core and provide instruction as to A new trend is also the organisation question of the workshop. Literature on which energy saving projects to of knowledge sharing networks on European voluntary agreements reveals implement. energy efficiency, allowing participants some common success factors of which to meet and exchange information and The voluntary agreement scheme three are key: best practices. Such networks have must, at the same time, provide • ambitious enough targets; always been a key feature of the Irish a strong economic incentive to • high enough incentives for participation and Swiss voluntary agreements; they participants in order to make the and penalties for non-compliance; have gradually been introduced in scheme attractive. • a strong enough motivation for both Luxembourg and Germany, and other government and the industry to enter A well-managed voluntary countries show interest in this approach. into such an agreement. agreement scheme requires a Goverments must be able to verify dedicated team at the managing The first key aspect deals with the whether participating companies fulfil authority for continued follow-up, agreement’s ambition to save energy. their obligations as achieving the agreed control, and development. Some voluntary agreements include energy efficiency improvement targets is A scheme should be regularly well-defined targets on energy efficiency an important outcome of this. Therefore, evaluated in order to improve and improvement or on greenhouse gas a competent, powerful administration, develop it. emission reduction as a main element. with stringent monitoring, reporting These targets need to be both achievable and verification procedures, needs to The authority should take the and ambitious; in other words, they be in place for the voluntary agreement lead in identifying and developing need to stimulate an energy practice schemes to truly deliver. new approaches, findings, and in participating companies beyond technologies. These should be business-as-usual. These target-based promoted continuously to the agreements should also be organised companies. in such a way that the overall targets INTERNATIONAL ENERGY Keep a close dialogue with translate into clear commitments for AGENCY COMMENT industrial companies and each of the individual participanting “Efficiency can enable economic industrial experts to understand companies. growth, reduce emissions and new agendas, challenges, and ways Other voluntary agreements put the improve energy security. The right to integrate energy efficiency emphasis on requiring a commitment efficiency policies could enable the activities within their practices. to implement energy saving measures. to achieve more than 40% Surveys and data platforms are These implementation-based of the emissions cuts needed to crucial to identify energy saving agreements can benefit from indicative reach its climate goals without potentials and manage priority of overall targets to keep all involved new technology.” new focus areas. stakeholders focused on the ultimate Fatih Birol, objective of the agreement: improving Executive Director, IEA overall energy efficiency of industry. Ms. Ellegaard-Vejen, The split between target-based and Danish Energy Agency implementation-based agreements in Europe is about half-half and engaged countries tend to stay with their original choice. However both approaches can deliver.

The delivery of voluntary agreements can be enhanced by adding the implementation of an energy management system as an obligation for participants. Indeed, such an obligation has gradually been added to many European voluntary agreements. In this way, voluntary agreements offer the possibility to test best energy practices amongst industry vanguards VoluntaryTrack agreements acceleraterecord investments of infood energy efficiency and beverage sector Flanders – Belgium: evolution of energy efficiency index (2002-2016) 1.05 Auditing Covenant 1 1.4% annual improvement of energy efficiency index 0.95

0.9 Benchmarking Covenant Energy 0.85 1.8% annual improvement Governance of energy efficiency index Agreements 0.8

0.75 Baseline energy efficiency improvement 0.7 in absence of policy: 0.8% annually

0.65

0.6 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

ETS non-ETS ETS (2) non-ETS (2)

Source: Commissies Benchmarking Convenant; Audit Convenant; EnergieBeleidsOvereenkomsten

THE SECOND KEY ASPECT DEALS WITH THE BENEFITS FOR PAR- IPCC REPORT

TICIPATING COMPANIES. “Reaping energy efficiency po- Incentives should be attractive enough to both encourage participation in the tentials hinges critically on ad- voluntary agreement and make being weaned from these benefits, in the case of vanced management practices non-compliance, a significant enough disadvantage. in industrial facilities such as energy management systems, as Most countries offer financial benefits to participants, as a carrot, but also use the well as targeted policies to ac- threat of enforcing stricter regulation, as a stick. Most countries offer energy tax celerate adoption of best availa- reduction related to energy consumption as a benefit. One can argue that prefer- ble technology” ring benefits related to energy savings, such as privileged investment subsidies, can help improve the cost-efficiency of voluntary agreements. Global Warming of 1.5 °C report

Voluntary agreementsTrack foster record decarbonisation of in thefood whole value and chain beverage sector Energy efficiency improvements and renewable energy in Dutch food and beverage sector (2005 – 2016) 35% 30% 25% 20% 15% 10% 5% Versus energy consumption 0%

Improvement in: Process Production chain Product chain Generation of Purchase of renewable energy

Source: Rijksdienst voor Ondernemend Nederland (NL) THE THIRD KEY ASPECT DEALS WITH THE MO- Finland TIVATION OF GOVERNMENTS AND COMPANIES voluntary agreements deliver a triple-win TO ENTER INTO SUCH AGREEMENTS.

As these agreements are voluntary, not mandatory; indus- GOVERNMENTS win because voluntary agreements trial companies are free to participate or not. The reward to help them to better comply with EU directives and stim- participants for their participation should therefore be com- ulate a good relationship with the industry sector. mensurate with their effort to fulfil the obligations under the agreement and the resulting energy efficiency improve- COMPANIES win through the benefits of participa- ments should be in balance with the incentivising subsidies tion, the freedom to decide how to comply, and access offered to participants in order for such agreements to con- to a platform for common action and networks to ex- stitute an effective and cost-efficient policy instrument for change ideas. the government.

This is a delicate balancing act. Negotiations between in- INDUSTRIAL ASSOCIATIONS win because vol- dustry sectors’ representatives and the government can untary agreements are a practical and concrete way to take quite some time before a final accord on the voluntary contribute to the Paris Agreement. agreement is reached.

Yet, while it calls for patience, concluding such an agreement Mr. Väisänen, Finnish Energy Authority is usually a lighter and faster process than imposing better energy practices by law. © pressmaster – stock.adobe.com

Ultimately, a voluntary agreement is an agreement between Existing voluntary agreements should therefore be studied different parties; the agreement stands as long as the agree- further and more in depth to provide stronger evidence of ing parties remain comfortable with its terms. Evidence and their added value, particularly under new near future sce- workshop discussions showed that, without question, vol- narios – including achieving the climate goal set out under untary agreements still can, and must continue to, deliver, the Paris Agreement. This deeper understanding would be even in a context of stricter EU legislation raising the bar for instructive and useful for countries supporting such schemes baseline energy practice or limiting energy tax reductions. as well as for countries considering the implementation of their first voluntary agreement schemes. However, more thorough evaluation of costs and benefits for industry and government will be needed to ensure the agreements continue to be mutually beneficial. Unfortunate- ly, only a minority of voluntary agreements are currently performing as well as they could with regards to costs and benefits analysis. © jittawit.21 – stock.adobe.com© jittawit.21

Voluntary agreements need to be well designed in order to be effective. Tractebel is an ideal partner to support public authorities in this challenge based on a good under- standing of the operation of this policy instrument.

Tractebel has a good view on the energy savings potential in industry and has experience in realising energy efficiency pro- jects, managing project pipelines, as well as implementing energy management schemes. Tractebel can help in estimating the energy saving potential of the target group ex-ante, as a basis for ambitious and achievable targets; can conduct market research to assess the availability of energy services; and can help develop procedures for a smooth and effective agreement operation.

About Tractebel ENGIE

The Tractebel BU (business unit) is a leading global player in energy, water and infrastructure engineering which provides expertise and innovative solutions in order to design and plan for a changing world. Backed by more than 125 years of operational and technical excellence, as well as the passion and the expertise of our 4,400 employees who make up our international teams, our unique solutions bring added value to clients in public as well as private markets all over the globe. Headquartered in , Belgium, and with offices in more than thirty countries and projects in over 140, our Tractebel BU strives to provide every client with unparalleled innovation, security and quality.

Want to know more?

Contact Erwin CORNELIS Senior Expert - Energy Efficiency, Renewable & Storage Policy [email protected] Phone +32 476 72 22 26

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