Background Note on Energy Efficiency and Buildings

Brussels, 17 January 2017

MEETING OF THE COMMISSION FOR THE ENVIRONMENT, CLIMATE CHANGE AND ENERGY

– 1 February 2017 –

ITEM 7

BACKGROUND MEMO

ROUNDTABLE ON THE ENERGY UNION – WINTER PACKAGE

"Energy Efficiency and Buildings"

 Proposal for a revised energy efficiency Directive, COM(2016) 761 final  Proposal for a revised energy performance of buildings Directive, COM(2016) 765 final

Rapporteur: Mr Erik Lievers (NL/ALDE)

COR-2016-06776-00-01-TCD-TRA (EN) 1/55 1. Current state of play in the policies concerned

The Clean Energy for All Europeans package should be seen in the context of the EU leading the way towards a smarter and cleaner energy for all, to implement the Paris objectives, support economic growth, trigger investment and technological leadership, create new employment opportunities and improve citizen's welfare.

One of the key principles guiding this package is:

PUTTING ENERGY EFFICIENCY FIRST

 The European Union considers increasing energy efficiency to be an effective way of reducing its

dependence on fossil fuels, reducing the amount of CO2 emissions, saving on energy costs and promoting economic growth, as the cheapest energy is the one that we do not consume/produce;  Energy efficiency should be considered as a source of energy in itself because it is endless and it is available everywhere;  Energy efficiency is crucial for achieving EU climate and energy targets, in line with the objectives endorsed in the Paris Agreement adopted at COP21;  Energy efficiency is also the most cost-effective way of achieving Energy Union objectives. ______

Proposal for a revised energy efficiency Directive – COM(2016) 761

The Commission has:

 reviewed the EU's energy efficiency target and proposed a new binding target of 30% by 2030 (upgrade from 27% agreed in 2014) in order to align energy efficiency targets with the EU 2030 climate and energy framework;  proposed to extend beyond 2020 the energy saving obligations requiring energy suppliers and distributors to save 1.5% of energy per year, in order to attract private investment and support the emergence of new market actors.

Proposal for a revised energy performance of buildings Directive – COM(2016) 765

The Commission has updated the Energy Performance of Buildings Directive so it is:

 Smart, by encouraging the use of ICT and modern technologies;  Simple, by streamlining or deleting inefficient provisions;  Supportive of building renovation.

In addition, the Commission is launching a smart finance for smart buildings initiative to unlock private financing for energy efficiency and renewables in buildings on a greater scale. The Buildings Sector accounts for 40% of Europe's energy consumption. Two-thirds of the EU's buildings were built before energy performance standards existed, and their renovation rate is only around 1% per year. Changes introduced by both Directives will speed up the renovation rate of existing buildings with a view to decarbonising the building stock by mid-century.

In principle, this is not a massive review – the structure of the Energy efficiency directive (EED) remains the same. The update is not expected to lead to much additional budgetary or administrative cost consequences for public authorities in the Member States as they already have measures and structures in place. It aims to identify the optimal and cost-effective level of energy savings for 2030, thus providing Member States and investors with more predictability and certainty. It will revise appropriate elements of the EED for the period 2020-2030 so that it could continue to address the problems encountered and deliver necessary energy efficiency progress in conjunction with other pieces of legislation such as EPBD.

General observations and potential challenges

- financing (for buildings) will be key to the implementation of both directives after 2020 in contrast with the current period where product policy (energy labelling) played a major role; - energy efficiency projects are rather small for the EIB to fund. Regions need to aggregate the smaller projects; - up to now the 2012 Energy Efficiency Directive and the 2010 Buildings Directive still remain to be fully implemented by the Member States - assessment of the implementation of the EED can at this stage offer only a partial view, given its relatively recent entry into force and deadline for transposition; - low fossil fuel prices could slow down decarbonisation and energy efficiency policies; - thanks to modern technology, buildings' energy demands can be cut by 80%. But in order for that to happen, there needs to be an effective regulatory and legislative framework in place; - there is a major gap in consumer information on the benefits which can be reaped from energy efficiency and energy savings; - current legislative proposals are put forward by the European Commission at a time when the review of the EU ETS is far from being finalised. The proposal to require an increase of energy savings at 1.5% annually beyond 2020 makes it a tool that can potentially withdraw investments from the economy and impact the functioning of the EU ETS. There is thus a risk there might be instruments simultaneously in place whose effect would cancel each other's out.

2. Relevance of the proposal for LRAs and CoR's position

As this is a review of existing directives, a preliminary analysis of the CoR's previous position has been necessary. Subsequently, certain areas warrant the CoR's attention when updating both directives:

1) EED - the importance of respecting the powers of different levels of governance and the subsidiarity principle when applying energy efficiency measures; - a number of shortcomings contained in the previous proposal, e.g.: i. the limited range of areas in which the measures will apply;

COR-2016-06776-00-01-TCD-TRA (EN) 3/55 ii. the minor role assigned to regional and local actors; iii. the absence/insufficient number of measures to raise public awareness beyond those taken to promote real-time consumer information on energy consumption; - the CoR rejected the proposal that the public sector should be required to renovate 3% of its buildings annually and purchase high-energy-performance products, services and buildings.

2) EPBD - the potential of those methods which combine industrial activity with energy production (waste heat recovery, cooling, energy generation, co- and polygeneration, etc.); - the importance of the work undertaken by the local and regional energy agencies across the EU. These institutions are strategic partners for Europe's energy policy and the EU should give greater support to and take greater account of their action; - the importance of providing swifter access to the Structural Funds for energy efficiency investment in buildings; - the permanent application of reduced VAT rates in the housing sector, including in the case of renovation work; - the European Commission's efforts, in partnership with the EIB and EBRD, to develop financial instruments geared towards improving energy efficiency. One of the most important issues when creating such financial instruments is to make them accessible to local and regional authorities with a view to supporting them in their role as key actors in the implementation of the Directive on the Energy Performance of Buildings.

Consequently, the rapporteur may already formulate the following initial points:

- to use the full potential, Europe needs an ambitious and binding EU legislative framework; cities and regions associated e.g. with the Covenant of Mayors for Climate & Energy have proven they can exceed the level of ambition of their respective national objectives by setting higher targets for their own climate action; - the CoR could advocate the establishment of a more ambitious legally binding target of XX%; - the CoR is pleased to read in the umbrella Communication on "Clean Energy for all Europeans" that the European Commission champions cities and regions as the places where "a major part of the transformation will actually happen" and that cities and regions have been subject to particular attention by the Commission; the CoR could therefore invite the Commission to elaborate on this particular attention more specifically, e.g. by formulating how the Commission intends to support cities and regions in the clean energy transition; - the CoR welcomes the promise to increase the budget for Project Development Assistance (PDA) facilities such as ELENA by one third early next year and the launch of a platform disclosing the technical and financial performance of energy efficiency projects in buildings in order to provide investors with evidence of the real risks and benefits of the relevant projects; - CoR could take note of the fact that, as a result of the expected implementation of the proposed directive, additional measures to tighten the EU Emission Trading Scheme (ETS) cap will need to be considered in order to maintain the incentives inherent in the EU ETS in case of falling carbon price, and calls on the Commission to carefully monitor these links; - the CoR could invite the Commission to use the current reviews of the Energy Efficiency Directive and the Energy Performance in Buildings Directive to ensure access to finance is made easier - heating and cooling of buildings continues to be the largest sources of energy consumption in Europe.

N.B.: Given that the Energy Union is on the 2017 Subsidiarity Work Programme a targeted subsidiarity expert group consultation is envisaged.

3. Possible questions/issues to debate

Regarding economic benefits: What benefits are there in increased energy savings for the EU economy? Do the proposals for a directive reflect the real situation in the EU economy and individual Member States?

Regarding targets: - A 27% target clashes with today’s energy efficiency progress. It would mean slowing down current levels of energy efficiency improvements. - 30% (current proposal) would only ensure continuing business as usual, missing a huge opportunity to unleash the tremendous potential of energy efficiency products and services. - A 40% binding target (European Parliament's proposal) is perhaps needed to secure the cost- effective potential in Europe across sectors and to maximise benefits for the economy, consumers and the environment.

What then should the energy efficiency target for 2030 be? Should the CoR support the objective of a 30% increase in energy efficiency by 2030? Or an even more ambitious one? What impact would these objectives have on the EU energy sector and the industry?

Regarding the local and regional dimension What impact would this objective have on European local and regional authorities? Is the issue of exchange of data between LRAs and utilities companies – e.g. at district level – being addressed? How does the EC envisage involving multiple players including on the one hand Member States', local and city authorities and on the other hand businesses, social partners and investors? The EC claims that cities, regions, business, social partners and other stakeholders need to get actively involved in the discussions on energy transition.

General questions What is the cause of the progress that Europe is making in energy efficiency? Behavioural change? Voluntary upgrades? Product policy in general? Will this trend continue? New investments in energy efficiency represent new opportunities for ESCOs. What is the role of ESCOs in energy efficiency/buildings' renovation and is the question of their financial independence addressed? ______

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