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The EU Energy Efficiency Directive in Review – a Cornerstone to Close Ambition Gaps

The EU’s bold carbon neutrality goal calls for responsive policies. To close ambition gaps in legislation needed to achieve carbon neutrality by 2050, the European Commission is currently reviewing the Energy Efficiency Directive (EED). Efficient use of energy is key to achieving such a target, and the review aims to provide insights into how to revise the EED to achieve a higher level of greenhouse gas reduction by 2030 and therefore contribute to other European Green Deal initiatives. In this blog, we’ll provide an overview of the current EED review process and discuss possible adaptations to further promote energy efficiency in the EU.

A short history of the EED

According to the International Energy Agency (IEA), 76% of the European greenhouse gas emission reductions required to keep temperature increases below 1.5°C must come from energy efficiency. For this reason, the Energy Efficiency Directive (EED) is one of the main pillars of climate policy in the European Union. It lays down a set of measures to step up Member States’ efforts to use energy more efficiently at all stages of the energy chain – from the transformation of energy, to distribution, to its final consumption. Some of the most relevant measures include:

  • Article 5 requires Member States to renovate 3% of their central government buildings
  • Article 6 sets an obligation on central governments to purchase energy efficient products, buildings, and vehicles
  • Article 7 sets an obligation on Member States to achieve new energy savings each year, such as 1.5% of the state’s annual energy sales, by putting in place an energy efficiency obligations scheme or other policy measures. Article 7 is responsible for about half of the energy savings the EED is expected to deliver.
  • Article 8 requires large companies in the EU to conduct energy audits on their sites every four years. As an alternative, energy management systems complying with ISO50001 can be applied.

Further articles contain requirements on the transformation of the energy system, smart metering roll-out and qualification and accreditation measures.

Celebrating its 9th anniversary in 2021, the directive already saw a round of amendments in 2018 as part of the 'Clean Energy for all Europeans package’. The 2018 amendments included an extension and increase in the headline energy efficiency target from 20% by 2020 to at least 32.5% by 2030, accompanied by a number of strengthening measures to deliver on this target.

With the European Green Deal plan in place, the Commission has committed to even stronger action on climate change, reducing GHG emissions by at least 55% by 2030. The review of the EED will likely result in strengthening its ambition once more and will ensure synergies with the other Green Deal initiatives, notably the review of the Renewable Energy Directive, the Renovation Wave and the EU Strategy on Energy System Integration.

A systemic shift in energy efficiency

Reducing Europe's overall energy consumption is the foundation for achieving the EU climate targets while ensuring a deep economic transformation that supports a circular, resilient and equitable post-COVID recovery. However, we need a paradigm shift in the EED to promote “Systemic Efficiency”, which is the only way to achieve the 55% target — energy efficiency alone will not be enough. Systemic efficiency requires ultra-efficient buildings, smart infrastructure, and renewable electrification, all with digital as the cornerstone.

The overall understanding of energy efficiency should be revised in line with the Energy System Integration Strategy to formalize the link between renewable electrification and energy efficiency. Schneider Electric recommends three key actions for the revised EED to contribute to accelerating systemic efficiency:

  1. Formalize a framework to increase the EU’s energy system efficiency: The revised EED should seek to fully optimize the energy system and establish a framework to promote system-level energy efficiency through renewable electrification.
  2. Set mandatory pathways and milestones for the decarbonization of non-residential buildings: All buildings (both new and existing) must be decarbonized by 2050 to remain within a 1.5-degree pathway. The only way to decarbonize buildings at this scale is through the combination of deep energy efficiency retrofits, electrification of all energy usage, and deployment of local generation and flexibility solutions in buildings to facilitate the progressive electrification of energy demand and tame energy costs. The top priority should be to set mandatory pathways for non-residential buildings (both public and private) to reduce their final energy consumption by 2030, 2040 and 2050.
  3. Reinforce the current obligations to accelerate energy savings: Annual energy savings obligations for member states should be increased to at least 2.5% per year, and to incentivize action on energy savings, the recommendations identified through the mandatory energy audits should be made compulsory.

Mandatory energy audits are a common missed opportunity

We’ve already discussed the implementation of energy audits according to EED Article 8 in a previous blog. Yet many companies still consider these audits an administrative burden rather than a useful tool for improving efficiency. For most companies, this additional cost is hard to justify as the audit reports themselves will not provide any future savings. As a result, they often simply file away the low-cost audit reports until the next compliance cycle four years later without delivering on the energy savings identified. From our client work, we know this is a clear missed opportunity – not only from an efficiency perspective but also from a cost-saving perspective. From the more than 400 client audits we conducted under EED/ESOS Phase 1 & 2, we not only identified average savings of about 20% but also showed that 60% of those energy conservation measures had paybacks of under two years. However, without an incentive to implement those energy conservation measures, the vast majority of those savings remain untapped.

To tackle this missed opportunity, many experts including Schneider Electric propose an adjustment of EED Article 8 through:

  • An obligation to implement the recommendations from energy audits. In particular, there should be a focus on measures with short pay-back periods, with possible additional incentives for companies that act on these recommendations. For example, financial incentives should be made available and conditional upon the implementation of identified measures.
  • Aiming the requirements at medium- to long-term energy/carbon reduction targets for companies. This will provide additional focus and a framework for companies to follow in order to drive the implementation of the recommendations and make sure the measures encompass both energy efficiency actions and renewable electricity deployment.

 Capitalizing on systemic energy efficiency changes

To deliver on its carbon neutral and climate action ambitions, the EU must tap the full cost-effective potential for energy savings. Research by the EU’s Directorate-General for Energy (DG Energy) shows that by 2030, the EU could cost-effectively reduce its energy consumption by 40%. It is very likely that the current EED review will strengthen the existing rules and apply binding targets to tackle the insufficient outcomes of the current legislation. Fueled by the momentum of the Green Deal and the €750 bn that the EU has dedicated to green recovery, new policies will be widely and rapidly adopted across other existing EU regulations including, the Renewable Energy Directive the Emissions Trading Directive, and others.

Companies in the EU are will be increasingly faced with strong pressure to adopt future regulations: there will simply be no time for long transition periods.

Organizations that already have ambitious climate targets and have successfully begun actions in the discussed transition areas will be in the best position to capitalize on the Green Deal. With our Climate Change Advisory Services, we are helping our clients to adopt a fully integrated approach that spans energy management, resource efficiency, renewable energy procurement, carbon offsetting, value chain decarbonization, and AI-driven data collection and disclosure.

Contact us to learn more about how changes in the EED could impact your company.