Consequences of the Energy Efficiency Directive in Norway:

This report gives a short overview of the EU’s Energy Efficiency Directive (EU, 2012; herein referred to as EED) and presents estimates of some of the consequences of implementing the directive in Norway. A key aim of the EED is to contribute to the overall goal of 20 per cent energy savings in the EU by 2020. The EED is a supplement to existing policy instruments (such as energy taxes, building standards, etc.) that influence the energy use and incentives for energy efficiency.

The EED does not stipulate any concrete goals for energy efficiency for individual Member States, but does, nevertheless, include some specific goals and measures. One of these is the Energy Efficiency Obligation Scheme, which requires energy distributors and/or energy retail sales companies to achieve new savings corresponding to 1.5 per cent of annual sales to end users, each year in the period 2014-2020, averaged over the most recent three-year period prior to 1 January 2013. However, the EED allows for various adjustments to the requirements, with regard to both the target and which sectors are included. We estimate that in the base case (savings as outlined above), final energy consumption in Norway will be 23 TWh (10 per cent) below the reference path in 2020. In the case of minimum energy savings (excluding the transport sector, among others), the final energy consumption will be 14 TWh lower than in the reference path.

Power production from renewable sources is expected to increase by 26.4 TWh in Norway and Sweden in 2012-2020 as a result of the common market for green certificates. This means that the power supply is increasing more than it would have done otherwise. We have estimated that with given prices, the power production potential will exceed domestic demand by 21-23 TWh (depending on how the requirements of the Energy Efficiency Obligation Schemes will be implemented) in 2020. If prices fall as a response to the increased supply, demand will increase, which will make it more difficult to achieve the energy savings targets. Mandatory energy efficiency measures will lead to lower power demand and lower prices, which in turn will offset the energy efficiency incentives. However, increased energy efficiency will help achieve the renewable goal: the renewable share is estimated to be 73 per cent in the base case – well above Norway’s 67.5 per cent pledge.

The Energy Efficiency Obligation Schemes target final energy consumption. The overall aim for energy efficiency at the EU level is formulated in relation to primary energy consumption (which also includes energy consumption in the energy supply industries). If efforts to increase energy efficiency in final consumption are kept to a minimum, even greater efforts are needed in energy supply sectors to achieve the overall goal. Norway is in a special situation in this matter. First, extraction of crude oil and gas is a large and energy-intensive industry in which most of the output is exported. Second, most of the electricity in Norway is produced by hydropower. In EU countries, the main energy supply industry is electricity production, where more than half is produced by fossil fuels. Consequently, many of the supply side measures in the EED target thermal power plants.

We estimate that if final energy consumption is reduced by 23 TWh in relation to the reference path (the base case discussed above), a reduction by a further 42 TWh is required to achieve the (hypothetical) target of a 20 per cent reduction in primary energy consumption. This is roughly equivalent to the annual gas use in oil and gas production, or an annual reduction of 2.4 per cent in total energy consumption in all sectors in the period 2014-2020.

It is worth noting that the EED allows for cost efficient implementation of the directive. For instance, the Energy Efficiency Obligation Schemes can be replaced by other policy instruments (e.g. taxes, standards, etc.) or by a fund where an amount (equivalent to investments that are necessary to achieve the targets laid out in the Energy Efficiency Obligation Schemes) is contributed each year. The fund can also be used in other efforts to increase energy efficiency. It may be that the Enova fund can be used for this purpose in Norway. Nevertheless, if the EED is adopted in Norway, implementing the most cost-effective measures for increasing energy efficiency will be crucial.