Stronger EED Target Governance

Executive summary

The European Commission published the Fit for 55 package on 14th July 2021 to align the EU’s main energy and climate rules with the EU’s new climate target for 2030. The package includes among others proposals for an overhaul of the EED, an expansion of carbon pricing with a new ETS for buildings and road transport, a new Social Climate Fund, and higher RES and ESR targets.

The full report is available here.

A leap for the credibility of EU energy efficiency policy:

The EED recast proposal increases the EU target ambition, makes the EU level target binding, and nearly doubles the national energy savings obligation. Potentially powerful target governance tools are introduced. They could increase compliance, enable enforcement and in effect secure the achievement of the EU target. At the heart sits a target allocation formula to foster a transparent and fair way to determine national contributions and a correction factor to avoid a gap between national contributions and the EU’s target. But the legislators still have a substantial task to make this work in practice. It requires an explicit sequence of first applying the formula based on objective criteria, second considering the subjective criteria and third using the correction factor to close any ambition gap. The criteria of the target allocation formula should be reviewed to foster acceptance by Member States and to strengthen the climate and social equity perspectives. In order to improve enforcement and fill target gaps during implementation, national contributions need to be fixed once they are set by Member States.

A step towards cost-effective energy savings levels:

The proposed EU 2030 energy efficiency-target levels of 9% below REF 2020 (36% below FEC REF 2007 and 39% below PEC REF 2007) are above the current targets of 32.5%, but remain below the potentials. Latest assessments show that economic energy savings would get the EU two times further: 17% below FEC REF 2020 and 18% below PEC REF 2020 (41% below FEC REF 2007 and 45% below PEC REF 2007). Furthermore, with increased carbon pricing and strengthened revenue recycling conditions, new economic energy savings potentials are created. Member States have to tap these potentials to mitigate negative social impacts of higher energy prices and to get on track towards climate neutrality.

A tailwind for a more ambitious EED implementation from climate policies:

Recycling ETS revenues for energy efficiency measures, including new ones from the proposed ETS for buildings and transport, will help to avoid negative social impacts. But more needs to be done in the ETS proposal to secure additional energy efficiency spending on top of existing programmes. Member States can put forward energy efficiency measures under the Social Climate Fund. The fund has the potential to drive the EED implementation by making payments conditional to achieving national energy efficiency contributions. The increased ESR targets will further drive the EED implementation. But this will not work for all Member States due to the wide spread of ambition levels between low- and high-income countries.

The European Parliament called repeatedly for a reinforced implementation of the EED through binding national targets - latest 2020 in their reaction to the Green Deal. The European Commission has come some way toward this expectation, but was held back by opposition from Member States.

The achievement of the target can be secured, if the EU’s legislators manage to clarify and put the right order into the proposed target governance elements and fully deploy the supportive elements of the other pieces of the package. The result will be an effective and credible energy efficiency policy and an increased financial flow to support climate investments: the prerequisites to deliver a fast, fair and attractive energy transition.