The European Commission’s climate and energy modelling, based on intransparent models from the National Technical University of Athens, is based on ludicrous assumptions, writes Brook Riley of the Friends of the Earth Europe. The consequences for the climate are deadly: energy efficiency targets would be much higher if proper models were used. Riley calls for a reform of current practices. On Wednesday 21 October there will be a hearing at the European Parliament about the European Commission’s climate and energy models.
What do the car industry and the European Commission have in common? They’ve both been fiddling data on efficiency. Volkswagen has lied about emissions. Commission analysts have manipulated discount rates and GDP impact analyses to justify dangerously weak efficiency targets. But this last is a scandal that is receiving virtually no publicity.
In climate and energy modelling, the discount rate is the value used to assess the costs and benefits of different scenarios. Put simply, the higher the discount rate, the higher the estimated costs – and the less attractive the policy. It’s like a high interest rate on a house loan.
The Commission has been using a higher rate for energy saving investments in Europe than oil companies use for their operations next to Islamic State territory
It turns out that the Commission has been using a higher rate for energy saving investments in Europe than oil companies use for their operations next to Islamic State territory. This makes ambitious efficiency policies look about as attractive as inhaling the fumes of a diesel VW.
But if the discount rate scam is a disgrace, the Commission’s method for estimating GDP impacts is worse.
For most policymakers, GDP is everything. So why is the Commission – via the National Technical University of Athens – using a model which is skewed to show negative GDP?
It’s called ‘general equilibrium’ modelling. It assumes – as crazy as this sounds – that current economic conditions are perfect. Consequently, investments in efficiency create a shock effect, which damages GDP.
It’s a ludicrous method! But policymakers only see the final numbers. They don’t trawl through hundred-page impact assessments to know how the GDP analysis is carried out. They simply reject higher efficiency objectives on what they believe to be sound economic grounds.
It’s hard to adequately convey the consequences of this mess. The EU is currently aiming to reduce energy use by 27% by 2030. Its true potential is at least 40%, according to a report for the Commission by Fraunhofer ISI, a leading consultancy on energy issues.
The Athens numbers underpin (or rather, undermine) the Commission’s entire climate and energy strategy
The consequences for the climate are deadly. Saving energy is the single most important policy for cutting greenhouse gas emissions. And the difference in emissions reductions between 27% efficiency and 40% is jaw-droppingly big: up to 600 million tons of CO2 in the year 2030, according to research by Ecofys (another consultancy). That’s roughly equivalent to the annual emissions of 125 million cars. (Based on US EPA data – if these can be trusted.)
Is this deliberate, like VW’s deception? It’s hard to tell. Some Commission policymakers I have spoken to about the GDP methodology seem genuinely shocked. And I’ve found references in a Commission assessment (see e.g. the last paragraph on page 77) pointing out that ambitious efficiency policies mean replacing fossil fuel imports with energy saving investments in Europe – and that this creates jobs and boosts GDP. But the fact remains the Athens numbers underpin (or rather, undermine) the Commission’s entire climate and energy strategy.
The discount rate scandal is more suspicious. Commission officials have known the rate is far too high for at least two to three years. Sources – including Connie Hedegaard in her final months as Climate Commissioner – have described the heavy internal lobbying to defend the EU’s Emissions Trading System (ETS) for emissions from industry from the threat of efficiency policies. ETS prices are already very low, mostly due to massive oversupplies in emissions allowances when the system was set up. The carbon market hardliners worried that ambitious targets for efficiency would cut emissions faster than expected and reduce ETS prices even further.
What a depressing explanation! Supposed climate advocates have been putting carbon trading before more effective emission reduction policies.
Compared to VW’s planned recall of 11 million vehicles, the Commission’s modelling scams are easy to fix
With dangerously weak EU objectives for 2030 already agreed by the member states, it will be very difficult to repair the damage. Worse, other major emitters have so far failed to go beyond what the EU offers when it acts early in an attempt to be seen as a climate leader. Six weeks ahead of the Paris climate conference, the UN is already making it clear that the world is badly off-track to keeping temperature increases below the 2°C threshold.
Is there any good news in all this? Yes: compared to VW’s planned recall of 11 million vehicles, the Commission’s modelling scams are easy to fix. To their credit, Commissioner Arias Cañete and his advisors have promised to lower the discount rate for efficiency (though we haven’t yet seen this reflected in modelling). And the Commission is testing an alternative – far more credible – method for assessing GDP impacts.
As I said, saving energy is the single most important policy for cutting greenhouse gas emissions. Fixing the Commission’s modelgate is essential to building the case – and a critical mass of support – for adequate climate action. And like at VW, heads in the Commission may need to roll to make sure this happens.
Brook Riley’s arguments are in line with the results of a study published on Monday (19 October) by the European Council for an Energy Efficient Economy which purports to demonstrate that “European energy and climate policies are partly based on flawed assumptions”.
The findings of this study, carried out by Ecofys, “reveal a significant discrepancy between the European Commission’s calculations for its EU-wide energy efficiency targets and the recommendations it makes to Member States for their own efficiency policies. In fact, the Commission uses an interest rate of 17.5% for its energy efficiency assessments at the EU-level, indicating a high cost factor for efficiency investments. At the same time, it recommends Member States to apply a significantly lower interest rate of only 4%, making energy efficiency investments considerably more affordable in reality than the EU efficiency targets would suggest.”
There will be a hearing at the European Parliament on Wednesday, 21 October on the climate modelling issue.