3. Energy use

3. Energy use

indicator	policy issue	DPSIR	assessment
energy intensity	does economic growth still require additional use of energy?	driving force
energy supply	have we been successful in reducing total energy use?	driving force
renewable energy share in energy supply	is the share of renewables increasing?	driving force
energy prices	are prices developing in a direction that stimulates less use of energy?	driving force
taxes on energy	are taxes developing in a direction that stimulates less use of energy?	response

Energy use in EEA member countries increased during the period 1985-97. Real prices were at low levels for almost all fuels during this period, which may partly explain why we consume so much energy. At the same time, energy taxes have not compensated for the underlying fall in energy prices.

This chapter deals with energy as it is generated, transformed and used in all parts of society. The next chapter concentrates on the energy sector, i.e. the economic sector responsible for the production of energy necessary for the other sectors (transport, domestic, industry).

General energy policy in the EU is based on three `pillars' or basic aims: overall competitiveness; security of supply; and protection of
the environment (European Commission, 1995). Of key importance to the last objective is to achieve internationally agreed targets for greenhouse gas emissions (see Chapter 8) and air pollutants (Chapter 10); energy use is responsible for most of the main emissions for which targets have been agreed (Figure 3.1).

Figure 3.1. Air emissions from energy use as a percentage of total air emissions in EU Member States, 1996

Source: EEA-ETC/AE

Sulphur dioxide emissions from energy use fell significantly between 1980 and 1996 (see also Figure 10.8). In 1996, the EU as a whole met the sulphur dioxide emission targets for 2000 set by the UNECE Convention on Long Range Transboundary Air Pollution (CLRTAP) Second Sulphur Protocol. Nitrogen oxide emissions also fell during the same period (see also Figure 10.10), but to a lesser extent.

Total carbon dioxide emissions in the EU from all sources (including the use of energy) were the same in 1996 as in 1990 (see Figure 8.3). Carbon dioxide emissions in the EU from the use of energy — the main source of this greenhouse gas — increased by nearly 1.5 % between 1990 and 1996. This increase underlines the need for further initiatives in this area in order to reach the Kyoto Protocol target.

Factors contributing to emission reductions are listed in Chapters 8 and 10.

3.1. Trends in energy intensity

Energy use in EEA member countries has continued to increase over the past decade (Table 3.1). Energy intensity, i.e. the amount of energy needed to produce a unit of gross domestic product (GDP), has declined only gradually. This decrease has been insufficient to allow GDP to grow without an increase in energy use (Figure 3.2). Between 1985 and 1997, the GDP in EEA member countries grew, in real terms, by 34 % compared with a 13 % increase in energy supply. Energy intensity fell by an average of 1.4 % per year during 1985-97. Most of the decrease in energy intensity occurred between 1985 and 1990, when the annual average decrease was 2.0 %. Much less progress (0.9 %) was observed between 1991 and 1997. Similar levels were observed in the EU.

Figure 3.2. Energy supply compared with gross domestic product in EEA member countries, 1985-1997

Source: Eurostat
Note: Gross inland energy consumption is defined as the total supply of energy used in the transformation to other products (notably electricity and heat) and for energy consumption.

Economic growth continues to demand additional energy use. The link between growth in gross domestic product and increased energy use has not been broken.

It is difficult to determine the effect of energy-efficiency initiatives, such as the EU's THERMIE and SAVE programmes, environmental agreements and eco-labelling, on the overall decrease in energy intensity. The observed decrease in the EEA member countries is considered not to be notably higher than the normal improvement expected from `business-as-usual' investment in new capital stock and measures to save money by avoiding energy wastage, i.e. autonomous energy-efficiency improvement. The limited decrease in energy intensity in the EU during 1991-1997 is below the forecast in the European Commission's conventional wisdom baseline scenario for 1990-2000 (European Commission, 1996). This suggests there is room for further energy-efficiency initiatives and better implementation of existing initiatives.

During the period 1985-1997, the primary energy source in EEA member countries has been oil (Figure 3.3). Coal was the second most important fuel in the 1980s, but has been displaced by gas since 1992. Gas consumption increased from 16 % of gross inland energy consumption in 1985 to 21 % in 1997 — an increase of around 50 %. In 1997, nuclear power increased to almost 15 % of gross inland energy consumption. Renewable energy sources contributed just over 6 % (and 5.8 % in the EU) in 1997 (Figure 3.4 and Table 3.2).

Figure 3.3. Energy supply sources in EEA member countries, 1985-1997

Source: Eurostat

Energy supply in EEA member countries continues to depend on fuels with significant environmental impacts or risk of impacts (fossil fuels and nuclear power).

Despite some growth in the use of renewables, the potential of this energy source to reduce carbon dioxide and other pollutant emissions is some way from being realised. The EU target of 12 % use of renewable energy by 2010 will require significant additional initiatives.

Figure 3.4. Renewables' share of energy supply in EEA member countries, 1985-1997

Source: Eurostat

Renewable energy sources continue to contribute only a small share to the energy supply in EEA member countries.

Due to the small starting base, the contribution of `high-profile' renewables (wind and solar) to the energy supply is marginal. However, there has been significant growth in many EEA member countries. Growth in the use of wind power and solar heat has been strong, in relative terms, in Germany, Denmark and Greece as a result of public and private interest in developing wind power in Germany and Denmark, and solar water heaters in Greece.

Policies to increase the contribution of renewable energies include the EU's THERMIE and ALTENER programmes and national grant programmes for the support of renewable energy. In some EU Member States, prices for electricity produced from renewable energy are guaranteed. The European Commission is currently drafting a proposal for a directive to make current national systems of support to electricity from renewable sources compatible within the context of EU liberalised electricity markets. There are also bottom-up initiatives in some Member States whereby consumers can buy `green electricity' at a premium, either through funds or directly (see box `Empowered customers' in Chapter 4).

In 1996, renewables' share of electricity generation amounted to 9.3 % on average in the EU, but with considerable variation across EU Member States (see Figure 4.5).

3.2. Trends in energy prices

A likely reason why so much energy is used is that energy prices are low (Figure 3.5). Historically, energy demand fell sharply only after the price rises sparked by the 1973 and 1979 oil crises.

The drop in fuel prices since 1985 was mainly caused by the crash in oil prices in 1986, and the fact that other fuel prices are often indexed to the oil price. Other factors included the process of energy market liberalisation in some EU Member States and the increased liberalisation of world trade with newly accessible supplies of fuel. The continued development of the liberalised EU internal energy market is also expected to lead, within the current policy framework, to some reduction in prices.

Figure 3.5. Average real (1990) energy prices in EU Member States, 1985-1996

Source: DG Energy
Notes: The prices shown are real prices, i.e. the effect of inflation has been removed. 1990 values were used to deflate. Most of the prices shown are final prices, with all taxes included. Value-added tax has been excluded for industry and for diesel. See Eurostat (1999) for an explanation of the calculation of EU average prices.

Between 1985 and 1996, the price of all fuels remained, in real terms, at low levels, offering little incentive to reduce fuel use.

Prices for heavy fuel oil and natural gas for industry showed the largest fall between 1985 and 1996 (an average of 7.9 % and 7.3 % per year respectively). Domestic electricity and premium leaded petrol fell the least, the former falling by 1 % per year in real terms over the period and the latter by 1.3 %.

During the 1990s, prices rose in real terms for transport fuels. However, demand for transport fuels showed little response — demonstrating the `low elasticity of transport demand to price'. Diesel remains significantly cheaper than unleaded petrol. This offers little incentive for private car owners to switch from diesel to less-polluting unleaded petrol.

Without the increase in taxes for many fuels (Figure 3.6), final fuel prices would have fallen still further between 1990 and 1997, and the incentive to increase fuel use could have been even greater.

However, fuel taxes reflect more of an interest in raising revenue than in reducing fuel use. Revenue from energy taxes in the EU rose from around ECU 100 billion in 1990 to ECU 158 billion in 1997 (see Chapter 15). Apart from increased taxation levels, this rise reflects growth in consumption.

Figure 3.6. Taxes as a percentage of final energy prices in EU Member States, 1990-1997

Source: Eurostat
Notes: The tax component of industrial energy prices includes both non-deductible taxes and value-added tax.

Taxes, as a percentage of final prices, have risen for almost all fuels. However, the fall in underlying prices and/or little link between demand and price has given no incentive to reduce energy use.

Taxation policies differ between fuel type and between the domestic, industrial and transport sectors. Taxes are highest for transport fuels and much lower in industry — often with exemptions for particularly energy-intensive industries. Low taxes for industry reflect government policies not to harm the competitiveness of their industries in international markets.

At 16 % of the final price, domestic taxes on natural gas were the lowest of all the fuel taxes in 1997. Heating-gas oil taxes were much higher. Low taxes reflect, in part, political concerns about tax rises increasing domestic heating costs. Energy is often regarded as a basic consumer right for which governments are responsible to ensure availability, delivery and a fair price through regulatory and taxation instruments.

Notes: Liechtenstein excluded from all EEA totals. Iceland not included in the EEA total for 1997 and 1996 data used for its specific renewables share.

3.3. References and further reading

European Commission (1995). An energy policy for the European Union — White Paper of the European Commission. COM(95)682 final. European Commission, Brussels.

European Commission (1996). European Energy to 2020. A scenario approach. Energy in Europe, special issue. European Commission, Brussels.

European Commission (1997). The White Paper for a Community strategy and action plan. COM(97)559 final. European Commission, Brussels.

European Commission (1998a). Strengthening environmental integration within community energy policy. COM(1998)571 final. European Commission, Brussels.

European Commission, DG Energy (1998b). Energy in Europe. 1998 annual energy review, special issue. European Commission, Brussels.

Eurostat (1999). Integration indicators for energy. Key indicators series. European Communities, Luxembourg.