Energy Efficiency Green Paper

Discussion transcript session 6 - fiscal policy & finance mechanisms

A summary of the discussion dd Jan 13 on this subject, with as panellist Lorenzo Pagliano (Politecnico Milano).

Efficiency and sufficiency
‘Doing more with less’ is the subtitle of the Green Paper on Energy Efficiency. But why do we have to do more? We should avoid that the contribution of energy efficiency to the economy will go entirely to improving productivity, without an improvement in environmental performance. When the steam engine was replaced by the internal combustion engine, this meant a much better energy efficiency, but it did not result in a reduction of environmental impact. On the contrary, it lead to an explosion of consumption.

An energy consuming device should not only be ‘efficient’, it should also be ’sufficient’. That is an unpopular subject, difficult to discuss with politicians.

Certain measures combine efficiency with conservation. For example, by ensuring that refrigerators do not only show a kWh/l rate, but also their total consumption/year, consumers are stimulated to buy an efficient refrigerator that is not too big.

Developing the trans-European network?
The Green Paper suggests that developing the Pan-European transmission network would benefit the overall energy efficiency in the EU. A strange point of view, since transporting energy over long distances inevitably causes energy losses, and any link with energy efficiency is hard to see.

The role of energy taxation
According to some experts, energy taxation does not promote energy efficiency, since the energy demand is price inelastic. But taxation can work in two ways:

1. If price elasticity is high, taxation will stimulate large energy savings
2. If the price elasticity is low, the increased cost per kWh due to taxation will only stimulate energy savings to a limited degree, but governments will earn large revenues that can be invested in energy efficiency measures

Benefits of improving efficiency
According to the BEST project, Europe could make a net economic benefit by implementing the energy efficiency directive of 10 billion euro/year. That is a rough estimate, calculated by subtracting the total investment in energy efficiency from the total cost of energy saved. No indirect effects were taken into account.

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Add comment January 16th, 2006

Merging emission trading with Contraction and Convergence (C&C)

The Green Paper asks (Question 2) how the emission trading mechanism could be better harnessed to promote energy efficiency.

One possible improvement would be to extend it to embrace some of the elements of the Contraction and Convergence principle. On a global scale C&C sets a clear target for levels of emissions consistent with protecting the environment, and gives everybody an equal right to emit greenhouse gases, and to sell their unused rights to larger consumers.

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C&C could become particularly appropriate within Europe’s boundaries as the residential and commercial sectors increase as a proportion of total energy consumption.

1 comment November 1st, 2005

Single or similar levels of energy taxation

Energy taxation issues, the progress that has been made, and some of the benefits of harmonization, are discussed extensively in the Green Paper. But the overall impact of the widely varying levels of energy taxation within the EU on coordinated energy efficiency action is not mentioned. There has often been a belief in the past that relying on competitive and transparent markets is the best route to achieving EU energy sector objectives.

The paper also describes the goal of making the polluter pay, without increasing the overall burden of taxation. Will this limit the ability of fiscal instruments to achieve their potential as key tools to reduce energy consumption, improve the return on investment for energy efficient equipment and develop new technologies?

2 comments October 25th, 2005