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Funding energy efficiency will boost energy security in the EU, but more is needed

“The war against Ukraine is not only a watershed moment for the security architecture in Europe but our energy system as well. It has made our vulnerability painfully clear.” These words from Kadri Simson, commissioner for energy at the European Commission, emphasize the urgency to invest in improved energy efficiency. An SEI analysis, using data from the Energy Policy Tracker (EPT), found that much more investment is needed to align with climate and energy goals by 2030.

Maricruz Bravo Gallegos, Jindan Gong / Published on 6 June 2022
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Amid Russia’s invasion of Ukraine, the economic recovery from the Covid-19 pandemic and the growing threat of climate change, the EU’s need for investments in energy efficiency is more urgent than ever.

Energy efficiency measures provide a relatively easy way to improve energy sustainability and resilience during crisis and reduce the overall demand for fossil fuels. Technology already exists to make large-scale enhancements with far-reaching environmental, economic and social benefits.

In 2021, the EU relied on Russia for about 45% of its natural gas imports. With recent high and unpredictable energy prices in Europe, and with Russia’s ongoing war, the European Commission (EC) aims to eliminate its dependence on Russian fossil fuels before 2030. Boosting energy efficiency can go a long way toward achieving this goal and stimulating the economy – and it’s already accounted for in plans by the European Commission and International Energy Agency (IEA).

Energy efficiency investments also play an important role in a green economic recovery from the Covid-19 pandemic, as they require labour-intensive activities that can be quickly implemented to stimulate job creation. Similarly, energy efficiency measures within the industry sector could lead to improved productivity and resilience of local production amid price and energy supply disruptions. Energy efficiency investments also have a high potential for reducing retaliatory rebound in carbon emissions in the economic recovery process.

The current goals in place make the first necessary strides toward energy resilience. The EU aims to be the first climate-neutral continent by 2050 under the European Green Deal. This is complemented by an interim target to reduce greenhouse gas (GHG) emissions by at least 55% by 2030 compared to 1990 levels. According to an IEA study, improvements in energy efficiency can make up about half of the reduction in energy-related GHG emissions needed in the next two decades to help the world meet international energy and climate goals. In 2021, the EC proposed a strengthening of the EU Energy Efficiency Directive in an effort to meet the 2030 climate target.  This would make the target binding and introduce a principle of “Energy Efficiency First” to mark the importance of energy efficiency in policy and investment decisions.

However, this revision is not enough to achieve the target. Governments in the EU and everywhere need to make greater efforts.

Our analysis of eight EU countries’ public money commitments towards energy efficiency since 2020  – the countries with available data – shows large variations in commitments towards energy efficiency, both in absolute values and relative to their total energy-related commitments. Italy, France and Spain have made the largest absolute commitments toward energy efficiency. Together with the Netherlands, they are also the only countries whose energy efficiency commitments account for more than 5% of their total energy-related public financing.

Technology already exists to make large-scale enhancements with far-reaching environmental, economic and social benefits.

Figure 1. Energy efficiency commitments of analysed EU countries registered between 1 January 2020–24 March 2022. The size of the bubbles represents the share of energy efficiency commitments relative to the total value of energy commitments. The commitments are presented in US dollars, in line with the EPT methodology. Source: SEI.

The analysis shows that across all countries, the buildings sector comprises the greatest share of energy efficiency investments. This focus aligns with the Renovation Wave strategy set forth by the European Commission to boost renovation of public and private buildings. The strategy, published in 2020, aims to double the annual rate of energy renovations by 2030. Given that buildings account for 40% of energy consumption in the EU, this action could go a long way toward cutting Europe’s energy consumption.

Figure 2. Energy efficiency commitments by sector of selected EU countries registered between 1 January 2020–24 March 2022. US dollars were used in line with the EPT methodology. The “other sector” covers energy-intensive policies that do not fit into the other categories. There are no commitments made towards the mobility sector. Less visible commitments are $461 000 towards the power sector by Poland and $4.5 million towards waste and water by Spain. Source: SEI.

Despite these measures, a study by the European Commission in 2020 reported an annual investment gap in residential, business and industry energy efficiency of about $207 billion to meet the EU climate and energy targets by 2030. EU energy policy strategies need stronger efforts in energy efficiency, alongside renewable energy, to ensure consistency with the European Green Deal. Russia’s invasion of Ukraine exposed the vulnerability of the EU energy system and the need to increase its resilience.

Energy efficiency initiatives hold great potential to support a green economic recovery, improve energy security and reduce energy poverty during crisis. The EU countries we analysed have made considerable investments toward energy efficiency, particularly in the building sector. However, it is imperative to ramp up the progress on energy efficiency in all sectors of society by all EU member states if they are to secure their energy future and evade the worst potential consequences of climate change.

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Maricruz Bravo Gallegos was an SEI intern on the Energy and Industry Transitions team.

Written by

Maricruz Bravo Gallegos

Jindan Gong
Jindan Gong

Research Associate

SEI Headquarters

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