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EU’s next top model could unlock Paris Agreement

23 July 2018
Economics&Markets
energynomics

The European Commission outlined plans this week for a long-term strategy to drag Europe onto a Paris Agreement-compliant climate trajectory. But there are concerns that the forthcoming set of scenarios could be undermined by one factor: maths.

New legislation rubber-stamped by the European Parliament’s energy committee on 10th of July means that the Commission must put together a mid-century climate plan by next year. Berlaymont officials are targeting the COP24 summit in December as a potential launch-pad for the draft strategy, according to Euractiv.com.

In order to meet the Paris Agreement’s goals by 2050, the EU will have to tackle emissions from sectors like transport, agriculture and shipping, and ensure that efforts to increase renewables and energy efficiency stay on the right track.

During a kick-off event for the public consultation on Tuesday, EU climate chief Miguel Arias Cañete confirmed that the EU executive will look into “multiple pathways” and that the strategy will not be a legal act but a series of milestones.

But there are widespread concerns that the way in which the Commission calculates the costs of the energy transition is not telling the whole story.

EU’s next top model The Commission has relied heavily on the so-called PRIMES model to produce much of its recent energy legislation but at the strategy’s kick-off event, President of the European Alliance to Save Energy Monica Frassoni insisted that it is “unable to capture the full potential of energy efficiency”.

She added that PRIMES is flawed because it overestimates the costs of introducing increased efficiency measures. One of the reasons behind this is that it uses a so-called discount rate that is much higher than the member state average.

That rate is meant to address social and economic barriers, like installation and maintenance costs, which will inevitably be accrued by consumers. But the Commission uses a 10% rate, which is in stark contrast to the 5.7% EU average and the UK’s 3.3% rate.

In May, the EU executive produced a fresh analysis of energy efficiency targets, using the EU average rate. The new numbers showed that a 40% target for 2030 would cost the same as a 27% benchmark, calculated using the old 10% rate.

Although that evidence pointed towards higher ambition for the same investment, national capitals remained fairly rigid and ultimately signed up to an agreement based around a 32.5% target instead.

It is unclear at this stage whether the Commission will update the discount rate it uses but sources told EURACTIV that the EU executive plans to discuss the issue at a meeting of the Energy Economists expert group.

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