2. Energy

5EAP objectives for EU (1992-1995) Actions achieved Awareness building   Economic and fiscal instruments New proposal for Directive on CO2/energy tax (COM(95)172) - would establish a harmonised framework for Member States wishing to apply a carbon/energy tax (Communication on Environmental Levies used in Member States, in preparation) Amended proposal (COM(94)147) on excise duties applicable to fuels of agricultural origin Energy Efficiency   Implementation of PACE, SAVE and national efficiency programmes: SAVE - has supported 25 pilot projects in least cost planning and demand side management energy efficiency standards for appliances, products and vehicles Three energy efficiency Directives have been adopted: hot water boilers, labelling of household appliances & omnibus Directive 93/76 efficiency standards for energy technology Directive proposed on efficiency of refrigerators and freezers and draft proposal on least-cost planning   Communication on a Community strategy to reduce CO2 emissions and improve fuel economy (Council conclusions, June 1996) Technology Programmes   Implementation of THERMIE and JOULE programmes including: 3rd and 4th Framework Research Programmes R&D; of new energy technologies and promotion and use thereof R&D; on renewables (ie biomass)   Promotional Programmes   ALTENER: promotion of renewable energy Programme adopted by Decision 93/500 - promotion of renewable energy sources (ALTENER). Standards for biodiesel have been formulated and support given to pilot projects. Effects not expected until year 2000 Nuclear Safety Programmes   Study on safety and waste aspects of nuclear energy Ongoing Transport user behaviour - development of inter-active communication infrastructures   Locking and tracking systems, electronic home, video conferences R&D; efforts through a range of programmes covering vehicle-based telematics, telecommunication and telecommuting. Some funds from the Drive 2 Programme in particular are being diverted into environmental assessment of advanced telematics

2.2 Past trends

Energy consumption and prices

Since the early 1970s energy intensity1 has decreased mainly due to energy efficiency improvements and changes in the economic structure (eg, less heavy industry, less reliance on production of intermediate goods). This implies a weakening of the links between GDP, growth in population, and energy consumption. However, total gross energy consumption in the EU increased steadily between 1980 and 1990 by about 1% per year on average and stabilised between 1991 and 1994 (see Figure 2.1). The rate of increase differs across Member States and is considerably higher in the more peripheral economies of the EU such as Finland, Ireland, Italy, Portugal and Spain.

Figure 2.1: Development of gross energy consumption in EUR15 (the former
East Germany is included from 1991 onwards) Source: Eurostat; EC, 1995

A number of driving forces influence energy consumption including:

• economic growth;
• increased demand for transport services;
• low energy prices; and
• growing concern about the environmental issues.

Figure 2.2: World market oil prices. Source: DEA, 1995; EC, 1995

Oil prices increased sharply during the 1970s, peaked in the early 1980s and have been falling gradually since 1980 (see Figure 2.2). The current real price of energy is now at the same level as the early 1970s. The price has not been significantly influenced by energy-taxes. The consumer price of other energy sources was generally made dependent on the oil price.

Figure 2.3: Sectoral final energy consumption in the EUR 15. Source: Eurostat

Energy consumption within each sector has its own characteristic; the pattern in the households and the industry and transport are described briefly below (see also Figure 2.3).

• Energy consumption in industry in the EU shows a steadily decreasing trend from 1985 to 1994. This evolution corresponds to significant decrease of the energy intensity of the sector, especially given that overall industrial capacity increased steadily. Energy consumption in energy-intensive branches, such as iron & steel, chemicals, and non-metallic minerals, was also significantly lower in 1994 compared to 1985. Sweden is one of the very few countries where energy consumption by industry increased.
• In the transport sector, energy consumption grew steadily from 1985 to 1994. In this sector, energy demand has grown faster than overall economic activity. Therefore, energy intensity in the transport sector increased by 0.7% pa in the period 1980-1990 (EC-DGXVII, 1994). Also, real prices for transport fuel dropped, helping to push up fuel consumption. Significant decrease of the energy intensity of vehicles was counteracted by an increasing number of cars, a higher share of larger, more powerful cars in the transport sector and an increase in kilometres travelled per capita. Over the period 1980-1990 passenger transport (in kilometres) by road increased by almost 40%. These developments are reflected in road transport’s share of total energy consumption in the transport sector, which increased from 79% in 1974 to 83% in 1992.
• In the households and the tertiary sector, energy consumption grew slightly from 1985 to 1994, although consumption in this sector varies with climatic conditions and fluctuations. Other important factors are population size, number of households, private income and evolution of the services sector. It is not possible to give a full split between both subsectors, but indications are that there has been growth in energy demand in commerce (supermarkets, shopping centres, etc) and in households as a consequence of widespread penetration of household appliances. This growth in total demand has largely outweighed technological and other efficiency improvements. In most Member States, there has been a tendency for demand to stabilise or decrease over this period; exceptions to this include former East Germany, Greece and Portugal.

In the electricity sector, there has been an almost continuous increase in electricity consumption between 1974 and 1992 by an average of 2.7% pa. In 1992 electricity demand decreased to 1.3% growth as a result of economic slow down. In 1993 there was, for the first time, a drop in consumption by about 1%, reflecting economic recession.

Energy supply

The import dependency for energy supply has remained stabled during the period 1985-1994: about 45% of the total energy supply was imported (mostly oil).

The mix of fuels in the total energy supply of the EUR 15 during the period 1985 to 1994 is shown in Figure 2.4. Oil accounts for the largest share of total supply (42% in 1994); actual supply from this source has remained relatively stable since the 1980s. The trend in the share of energy supply by coal (18% in 1994) has been falling over the period, while the share by natural gas (19% in 1994) is slowly increasing. Nuclear power accounts for about 15% of the total energy supply. The share of renewable energy has remained stable in the period 1985-1994 at about 5%.

Figure 2.4: Total energy supply, the former GDR is included from 1991. Source: Eurostat; EC, 1995

National factors (own energy sources, direct access to harbours, climate, economic structure, political preferences, etc) explain the large differences in the type of energy used across the EU. The new Member States very much reflect the varying energy source structure for electricity generation in the EU: Austria has almost equal shares of solids, oil and gas, and a relatively substantial share of hydro; Finland is largely dependent on nuclear (45%) as is Sweden (70%).

2.3 Outlook

In 1990 the EC report Energy for a New Century: the European Perspective identified three major themes: the changing geopolitical framework, the internal market and the environment. Subsequent studies in 1992 and 1995 present several scenarios identifying the range of influences at work that could affect the direction of energy demand and supply in the longer term. From the latest Commission study - European Energy to 2020; A scenario approach (EC, 1995) - the so-called Conventional Wisdom scenario has been used. This scenario denotes the ‘business-as-usual’ world, representing a conventional wisdom view of the most likely evolution of events2.

Energy consumption and prices

In the period 1990-2010 an average growth in primary energy consumption of around 1% pa is expected (see Figure 2.1) (EC, 1995). The same figure also shows the development in energy consumption per capita. It can be concluded that the growth in energy consumption will be driven by production and consumption growth per capita. The growth in population will be relatively insignificant.

At the time of the 5EAP, the average growth pa was estimated at slightly less than 1% for the same period. Thus, despite the promotion and co-financing of energy conservation initiatives at the EU and national level, current energy consumption forecasts are virtually unchanged in comparison with the former projections. Lower energy use in industry and stable use in the domestic and commercial sector will be counterbalanced by increased use in the transport sector.

According to the current estimates, real oil prices would increase by about 60% between 1995 and 2010, and will arrive at the same level as it was in 1990 (see Figure 2.2). It is expected that coal and gas prices will decline relative to the price of oil.

Unsurprisingly, due to the lack of economic incentives, future reductions in energy intensity are likely to be modest. In industry, energy intensity gains must be considered together with a continuing change in industrial processing structures. Intensities in the domestic sector are also expected to decline. Energy intensity is estimated to decrease by about 1.2% pa to 2010, although the energy intensity has stabilised in the last 10 years.

One of the EU policy initiatives with a potential short term impact on the demand side is the SAVE Programme. This Programme (renewed in 1995) aims to attain a 20% energy efficiency improvement between 1986 and 1995. Estimates indicate that only about 10% of the improvement will be achieved. Recently adopted directives on efficiency for freezers and refrigerators may yield some results in the immediate future. An energy/CO2 tax has been suggested by the EC as a cost-effective instrument for substantial, short-term, improvements in energy efficiency, taking into account the responsiveness of energy demand to an increase in prices which would follow from the imposition of a tax. While an EU wide tax would be creating ‘a level playing field’ within the EU, some Member States (Denmark, Finland, Sweden, Austria, The Netherlands) have already introduced an energy/CO2. Those countries which already have such a tax allow exemptions to industry subject to international competitiveness.

Energy supply

The forecasts in 1995 for EU internal energy production in the period 1990-2010 show a steady decrease and the import dependency is expected to increase (from 45 to 65%) (EC, 1995).

The share of total energy supply accounted for by coal will (further) by around 1% pa due to their environmental drawbacks (SO2, NOx, CO2) and rapid substitution by natural gas in power generation, in spite of their competitive pricing (see Figure 2.4). The demand for natural gas is expected to increase rapidly (about 3% pa). The total shares for coal and gas in 2010 will be about 15 and 25% respectively. The efficiency, convenience and cleanliness of natural gas has been widely recognised by residential and commercial consumers. The prevailing trend in the electricity sector is the penetration of natural gas combined cycle plants, also built for co-generation of heat and power (CHP). The industrial market for hard coal and residual oil is also threatened by competition from natural gas. The projected further expansion of distribution, particularly in Denmark, Spain, Portugal, Ireland and Greece, will favour gas penetration in industry. Nevertheless, price relations between gas and its competitors are considered decisive. Oil products remain important for end-use, it is expected that their share in the market will remain stable.

The share of nuclear power will hold virtually constant to 2000 and will show a decrease afterwards (EC, 1995). Although the present share of renewable energy sources accounts for some 5%, this source has the highest future growth rate forecast compared to other energy sources and is expected to account for 7.5% in 2010.