The EU should aim to cut its energy use 30 per cent by
2030, the European Commission said today,
despite rumoured attempts to weaken the goal to 27 per cent.

Green NGOs are arguing that’s
still not very ambitious
. They say a higher goal of 35 or 40
per cent would have been more beneficial in terms of reducing
reliance on Russian gas, boosting growth, creating jobs and cutting
consumer energy bills.

But if it’s such a good idea why has the commission
gone for a lower target? In our analysis of the announcement we’ve
dissected the competing explanations of what’s going on.

Energy saving goal for 2030

The commission is proposing that EU energy use in 2030
should be cut by 30 per cent compared with the level of energy use
that was expected when the commission made projections back in

Making predictions about the future of energy
notoriously difficult
. These 2007
projections were made before the financial crisis hit, for

The crisis and the recession that followed put a
massive dent in demand for energy as factories closed down and
consumers turned down the thermostat to save money. This is one of
the biggest reasons why the EU is in a position to meet a 2020
target to cut energy use by 20 per cent.

How ambitious is the 30 per cent

Back in
we looked at a leaked draft impact
assessment from the commission backing a binding 30 per cent
target. It said such a target would mean “maintaining the momentum
of energy efficiency policy at the current level”. A 35 per cent
goal would increase ambition, it said.

A leaked draft of today’s announcement we saw
several weeks ago said energy saving was “a powerful way” to reduce
EU reliance on energy imports, and that a 30 or 35 per cent goal
would save more gas than the EU imports from Russia each year.
“Every additional 1 per cent in energy savings cuts gas imports by
2.3 per cent,” it said.

But a later draft completely changed tack. It
said a target of 27 or 29 per cent would be “ambitious” and would
“maintain the existing momentum of energy savings”. It said higher
targets would have substantial costs ranging from an additional €24
billion per year for a 30 per cent goal to €116 billion for 40 per

In the end, the Commission appears to have gone for a compromise
of 30 per cent.

How was the final decision

The competing drafts suggested there were
arguments within the commission over how ambitious to be, a view
confirmed when today’s announcement was delayed by two hours to
allow a final decision to be reached.

There are several
different ideas
about why parts of the
commission were pushing for lower targets.

One point of view is that a higher energy saving target would
put the EU’s whole
2030 climate and energy package
at risk, including its headline
goal to cut carbon emissions by 40 per cent. Getting agreement on
the 40 per cent emissions goal is
to be difficult, the thinking goes. Adding an
ambitious energy saving goal to the mix would make things even more
challenging, with eastern member states such as Poland thought to
be particularly resistant.

Another position was that a more ambitious
energy saving target would make the overall 40 per cent carbon
emissions cut easier to meet – implying more ambitious carbon cuts
that member states simply wouldn’t be prepared to

A higher energy saving target might also create
problems for the EU’s flagship carbon cutting machinery, the
emissions trading scheme (ETS) because it would reduce the amount
of effort required from those sectors the ETS covers.

Commission modelling shows the ETS carbon price
in 2030 would be €40 per tonne without a specific energy saving
goal, and fall to €25 with the proposed 30 per cent target. A more
ambitious 40 per cent goal would have pushed the 2030 price down to
€6 a tonne, the modelling suggests – the same as its current

That would obviously pose problems. But
spokesman for the commission’s climate directorate Isaac Valero
said this wasn’t the issue:

“It’s not about ETS
complementarity concerns, it’s about worries by some that costs may
be too high and that a higher target could derail the 2030

Cost or investment?

Commission figures suggest the proposed 30 per
cent goal will cost €22 billion a year more than a lower 25 per
cent target. The increased costs come from the need for more
up-front spending on insulating homes and other buildings as the
energy saving ambition increases.

Some will argue that this isn’t a cost, it’s an
investment. On this view, spending on insulation today to save
money on fuel tomorrow is a really good idea.

It all depends on your economic world view.
Interestingly, the commission used two economic models to estimate
the impact of different energy saving targets on the economy of the

One model – to use the jargon – is post-Keynesian
while the other is neo-classical
. This is the difference between those that believed in austerity –
government belt-tightening – after the financial crisis and those
that thought governments should borrow cheap money to provide jobs
for the unemployed to do things like insulating homes.

In the post-Keynesian model, the higher the
energy saving goal the bigger the boost to the economy, with GDP
benefitting by as much as four per cent in 2030 with a 40 per cent
target. In the neo-classical world the opposite is true – the
higher the target the bigger the dent in GDP with a 1 per cent
reduction under a 40 per cent goal.

This split approach may reflect the ideological
differences within the commission that have turned this into such a
public fight. The 30 per cent target announced today amounts to a
compromise. Up front costs will be higher than they might have
been, but so will the long-term benefits in terms of lower bills
for energy imports.

What happens next?

The announcement today from the commission is
just a proposal. Before it becomes official EU policy it must be
agreed by the heads of EU member state governments when they meet
in the EU Council in October.

The European Parliament of members elected from
across the EU must also sign off on the proposals. Earlier this
year the parliament said it wanted a 40 per cent energy saving
goal, much higher than the proposal out today. Since then a new
parliament has been

The October council will also have to decide if
the target should be binding at the level of member states, binding
for the EU as a whole or not binding at all.

The president elect Jean-Claude Juncker

last week that “a binding 30% energy
efficiency target is for me the minimum,” but he didn’t say what
kind of binding he meant and he doesn’t take office until November.
Juncker is at odds with current president Jose Manuel Barroso, who
had been pushing for a lower 27 per cent non-binding

What about those – like the NGOs – who wanted a 35
or 40 per cent target? They are pinning their hopes on a review
that has been put in the diary for 2017. After all, it’s 16 years
until 2030. That’s a long time in politics.