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.
Ludicrous
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.
Hardliners
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.
Editor’s Note
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.
Raffaele Piria says
the link to ” has been using a higher rate ” is broken! Please, repair it.
Karel Beckman says
thanks, it’s been repaired
Mike Parr says
One can have one’s cake & eat it.
I agree with most of what Mr Riley has written. Bringing this out of the policy sphere, one of the problems with the EU ETS is that it functions in a political market – with the Poles and east Euros engaging in synchronised whining with respect to energy prices which they link to higher EUA prices – which are needed if you want the EU ETS to do what it says on the tin. But if, for example, a population used much less energy (through energy efficiency actions), would a rise in energy prices matter so much?
Problem 1: Polish miners are seen by Polish political parties as key to winning the next election. Polish miner quite rightly want jobs.
Question 1: do these jobs need to be digging coal – how about other jobs requiring team work, that are long term & pay similar rates to digging out coal.
Problem 2: The Polish housing stock (& that of other East Euros) loses energy like an incontinent bag lady – and is in desperate need of energy renovation.
Observation 1: energy renovation of houses is labour intensive & relatively inexpensive with respect to materials (think 4 people working for one month on one house).
Question 2: Does the Polish state have the money to pay (ex)miners to energy rennovate houses – probably not.
Question 3: Could some of the Euro60bn/month that the ECB/Draghi is currently hosing at Euro banks be used to fund energy renovations? If not, why not? Answers on a postcard.
I’ve said it before & I’ll say it again, the Polish political “elite” seem to be too thick to make their problem (Polish miners) somebody else’s (Euro Council). The problem with ETS and energy efficiency are different sides of the same coin. If EUAs could be massively pulled off the market EUA prices would rise – coal etc would start to be priced out of energy markets. At the same time, if the Euro money hose was focused on energy efficiency (and jobs for Polish miners/other east Euros, Spanish youth, French youth etc etc) this would silence opposition to meaningful ETS reform, make the ETS mon-maniacs in DG Clima happy and get us to 40% EE by 2030. it would also reduce the amount of Vlad-gas or slave-state gas that Europe uses. Any rise in energy prices would matter less, becuase… people would be using less energy. There is not much to dislike about this scenario.
However, none of this will happen: the Polish politicos are far too stupid to engage in lateral thinking, the ECB is not in business to do sensible things (Draghi is in business to keep Goldman Sacks in business – in fairness he did work for them) and the people in DG Clima have their careers to think of = make ETS a success at all costs & hang the consequences. If it was any less funny it would be pathetic.
Cormac Madden says
It is true that the Athens modelling leaves a lot to be desired. The results for many countries show that.
However we really need to focus on the headline greenhouse gas target. Greenhouse gases are damaging the climate; any other target is a only means to an end. Most would deem the EU target of -40% adequate. Certainly it is more than any other bloc has committed and the EU emits only 1% of emissions globally so more won’t necessarily help.
So will the EU meet the -40% GHG target? Well let’s look at past performance. The EEA estimates (Trends and Projections in Europe – Oct 2015) that by 2014, the 2020 target had been exceeded by this much maligned sector. For 2030, the the -43% ETS contribution has been already been hard-wired into the ETS through legislation. The ETS has a fixed carbon budget in line with the target. The annual reductions in auctioned credits started in 2013 and will continue until the budget is gone. More GHG cannot be emitted or punitive fines for companies will result. Paradoxically, further efficiency targets in this sector don’t reduce emissions since the budget is fixed and this amount will eventually be emitted.
The balance of GHG, in agriculture, transport, waste and heating of buildings is the responsibility of governments. It (the Non-ETS sector) accounts for 60% of the EU’s climate problem (Carbon Market Watch May 2015). We don’t hear enough of about the 60%. Governments have binding targets, subject to penalties to meet this. Regulations are an EU Commission responsibility and the Volkswagen incident certainly doesn’t help governments reduce their transport emissions to meet the target.
We need more focus on carbon. Energy efficiency is a tool and, if pursued as an end in itself, not always a helpful one. For example a biomass boiler is not as ‘energy efficient’ as a modern oil boiler, as we measure it today. But its a whole lot better for GHG emissions.
In short, focus on GHG. Employ the technologies that work best on the main problem. The economically efficient answer will yield more energy efficiency. It may not be exactly 27% or 40%. That’s not really important. The EU will have helped to give the planet will have a chance or survival and that IS important.
Cormac Madden says
Apologies, the 5th line in the second para should read: the EU emits only 11% of global GHG.
Reynier Funke says
CO2 tax would achieve all that is said to be needed: reduce energy consumption (because it becomes expensive) by investment in efficiency (because it will pay off). To take the burden from Polish miners and others, reduce VAT significantly, 40 years ago VAT was between 0 and 10%, now it is between 5 and 25%. The state is dependent on regular income, provided by VAT. That can be achieved with CO2 (or better GHG) tax as well. Ms. Lagardere has proposed such measures several times, but it has gone nowehere. Why? Because industries such as coal mining, but also makers of large trucks and cars, have obviously no interest in such GHG taxes. We do not need complex models and non-transparant assumptions, but just common sense and political will to act rather than talk. Except for the effective policy of RE preference and FiT as defined by individual MPs rather than large political parties/systems, the impact of policy makers on Europe’s energy consumption has been minimal since 1973, when the first “oil crisis” did hit Europe. For transportation oil is anno 2015 still king and I doubt it will be much different in 2057 (another 42 yeras out) unless a drastic policy change occurs.