Q&A: The EU's push for a lower carbon economy

A draft European Union law on energy saving is one of the most complex pieces of legislation fighting its way to approval in Brussels.

Denmark, current holder of the rotating EU presidency, has made getting a deal on the law during its six-month tenure a priority and has also admitted it is a major challenge.

Last week, EU ambassadors debated the most contentious articles to help prepare Denmark's negotiating stance. Talks will resume this week.

The following looks at some of the issues.

What's the aim?

EU leaders endorsed an energy savings target in 2007 as part of a set of three 2020 goals to push the 27-member bloc towards a lower carbon economy.

Two of the goals are binding, and the EU is said to be on track to meet them.

The target to improve energy efficiency by 20 per cent was not binding, and the EU is not expected to achieve more than half of that level unless the Energy Efficiency Directive can be agreed to force change.

What's at stake?

The Commission has thrown its weight behind energy savings as a means to spur growth, create jobs in areas such as building renovation, reduce household bills, provide a route to cutting carbon and reduce reliance on oil and gas imports.

Many firms are embracing energy saving with, for instance, smart metering and other technology to improve efficiency.

Some of those keenest to achieve efficiencies including Siemens, Philips and Schneider Electric have grouped together in the European Alliance to Save Energy, set up in 2010.

"We just don't understand why this isn't something that every minister supports when we have an economy that desperately needs to get going and a construction industry on its knees," Tony Robson, chairman of the alliance and CEO of British firm Knauf Insulation, told Reuters.

Others in business, chiefly big utilities and energy-intensive industries, have resisted the need for upfront investment and the prospect of reduced profits.

Energy intensive industries, such as the aluminum sector, are looking on nervously as many of the advocates of efficiency are also exploring ways to support the carbon market.

It is trading far below levels needed to drive low-carbon investment, and greater energy saving would only add to a surplus of carbon allowances that have depressed prices.

An expected consequence of the energy efficiency bill would therefore be that the Commission would draw up a plan on intervention to drive up carbon prices.

How does the new law seek to close the gap?

In simple terms, the law seeks to make member states implement sufficient energy-saving measures to close the shortfall from the 2020 goal.

One article calls on every member state to set up an energy-efficiency obligation scheme, meaning utilities would have to achieve annual savings equal to 1.5 per cent of energy sales.

Another article of the Commission's proposal demands member states ensure that 3 per cent of the total floor area owned by public bodies is renovated each year beginning on January 1, 2014.

A compromise text hammered out in the European Parliament from hundreds of proposed amendments reduced the 3 per cent to 2.5 per cent but added a demand for deep renovation, which would amount to 75 per cent of energy reduction in a building.

Environmental groups said it would be a struggle to retain that requirement and also noted a growing list being proposed of which public buildings would be included.

What happens next?

Following a parliamentary vote last month that established a compromise text, representatives of the three EU institutions – the Parliament, the Commission and the Council of member state governments – will negotiate further towards achieving consensus.

Denmark, as president, wants a final text to be agreed in June.

What are the obstacles?

Many member states are niggling over details and arguing about how, for instance, the 1.5 per cent should be calculated.

Environmental campaigners have accused them of "accounting tricks" in trying to claim credit for energy savings already achieved, rather than pursuing genuinely new efficiencies.

Among individual nations creating complications, Germany has been talking about targets for energy intensity, or units of energy used per unit of GDP, rather than targets based on consumption.

Politicians say that change would favour efficient countries such as Germany, which have already made strides in lowering energy intensity and would have little progress to make.

For countries with nuclear power, including Britain and France as well Finland, which is building new nuclear capacity, environmental campaigners say efficiency is a problem.

Nuclear power plants are only about 30-35 per cent efficient in converting the energy they produce into electricity, compared with the most efficient new gas-fired plants, which can turn around 50 per cent of the energy produced from burning gas into power.

For renewable energy, no energy is lost in the process of generating electricity because sun and wind have no cost. Biomass, however, can be problematic because converting coal-fired plants to burn biomass in efforts to achieve renewable targets is not efficient.