March 27, 2017
BRUSSELS INSIDER #1 by Sonja van Renssen
EU agrees overhaul of A-G energy label: victim of its own success
March 27, 2017
MEPs and Member States have agreed the overhaul of one of Europe’s most successful energy saving policies to date: the A-G energy label for household appliances. This is already saving the EU as much as the entire energy consumption of Italy, but now that virtually all products have become A+, a new definition is necessary. Energy Post spoke with representatives from industry and consumers about how the new system will work.
The famous A-to-G (green to red) sticker for products like washing machines and TVs is designed to help shoppers identify the most energy efficient products in a particular category. Surveys show that nearly everyone (85%) takes them into consideration when they make a purchase.
Together with an ecodesign regulation that sets minimum energy efficiency standards for the same products, the energy label is expected to deliver no less than half of the EU’s 20% energy efficiency target for 2020. In real numbers, this is an annual saving of 175 million tonnes of oil equivalent (mtoe), or the annual energy consumption of Italy.
“We think we will achieve the 20% energy efficiency target in 2020 and products will have done half the work,” said Head of Unit for Energy Efficiency at the European Commission Paul Hodson at the launch of a report on the European home appliance market by CECED, representing household appliance manufacturers, in January this year. The energy label and ecodesign rules are expected to deliver similar savings over the next decade out to 2030.
A new label for a new decade
The EU first introduced the energy label in 1995. As technological change has made products ever more efficient, policymakers have created new categories (A+, A++ and A+++) to accommodate these innovations. With time, the system has reached its limits however: today, 40% of all washing machines are in the highest A+++ category and already in 2013, all cold appliances put on the market were A+ or higher. Buying a green “A” product no longer means buying the most efficient product.
For that reason, the Commission proposed a complete overhaul of the label nearly two years ago, in July 2015. It suggested a return to the original, closed A-to-G scale, with a new definition of what these categories mean, plus a process for future updates. That initiative was concluded on 21 March, when the European Parliament and Council of Ministers reached an informal agreement on a new energy label. The deal must now be formally approved by both institutions before it enters force; this is expected to be in September.
The new label reverts to the closed A-to-G scale, with a differentiated phasing in by product type: new labels for white goods and TVs should be in shops from 2020 and new labels for most other products from 2024, but new labels for heaters and boilers may not see the light of day until 2030. Subsequent rescalings will be triggered when 30% of a product group falls into category A or 50% into categories A and B. The top two label classes will be left empty at every rescaling in an effort to limit the exercise to once a decade.
In addition to the rescaling, the 21 March deal foresees the creation of a product database with a dual function: to provide consumers with more information on what they’re buying and to help national authorities with market surveillance.
Why it took so long
For everyone involved, the fact that there is an agreement at all is a relief. The energy label is one of two unfinished energy files the Maltese EU Presidency inherited from its predecessor, Slovakia, in January. The other is a revised gas security of supply regulation, which is still under negotiation. At the start of the year, it was widely reported that the only outstanding point of contention on the label was procedural: should the rescaled labels be introduced via “delegated” or “implementing” acts?
This sounds technical but is actually highly political. The deal decrees that rescaling shall be done through delegated acts, which is basically a continuation of the status quo. It means that the Commission draws up a proposal and the European Parliament and Council of Ministers each have an equal right to veto it. The alternative would have empowered a committee of member state experts to oversee implementation – clearly not a winner for MEPs.
Other issues too proved highly contentious during the reform, notably the timelines for introducing the new label and the idea of a product database.
Wins and losses for consumers…
The Commission does not comment on timings in its press release on 21 March. For a consumer advocate such as Stephane Arditi, Co-ordinator of Coolproducts, a coalition of European NGOs dedicated to ecodesign and energy labelling, this is because the new label’s phase-in does not put consumers first. He would have liked to see a faster phase-in (as did MEPs), he explained to Energy Post, because here is a way in which the EU directly helps consumers cut their energy bills. (And carbon emissions: under the deal, fossil fuel boilers can continue to be installed as green, class “A” products for another decade, he notes.)
Two other missed opportunities for Arditi are the lack of consumer compensation for products that are declared incorrectly labelled outside of the warranty period – MEPs were forced to drop this demand in their negotiations with Member States – and both institutions’ resistance to a focus on absolute energy consumption beyond efficiency.
But Arditi also singles out “the dropping of the confusing plusses” and the creation of a product database (opening the door to “smart” labels e.g. through QR codes) as two big wins. He calls the compliance portal of the database “a major achievement” too, though he warns that national authorities must use it to better target, not substitute, physical checks. The Commission estimates that 10-25% of all household appliances on the market are either incorrectly labelled or break ecodesign standards.
…and appliance manufacturers
Industry association CECED waited until Friday to put out a press release. Its measured tone reflects the thought that went into it: it is good that there is an agreement, but it will be a considerable challenge to implement.
In a conversation with Energy Post, Director General Paolo Falcioni, explained: “Consumers will need to understand that the new label and products are much more efficient than A+, A++ or A+++.” The industry has been wary of transitioning back to the closed A-to-G scale label. Falcioni welcomed the product-by-product approach and called the phase-in times “reasonable”. “Definition of new classes will be the next challenge.” He also welcomed the planned use of QR codes and a “smartness indicator” that will inform consumers whether an appliance is compatible with demand response.
Falcioni said that the product database “could be an interesting tool for market surveillance authorities” but warned, as Arditi did, that it cannot be a substitute for physical checks. He worries that policing the database could detract resources from such checks. Companies fret too that this “honeypot” of intellectual property may prove a tempting target for hackers (working on behalf of foreign competitors).
The way forward
The new and improved energy label will save households an extra €15 a year, raise manufacturers’ revenues by €10 billion a year and save an amount of energy equivalent to the annual consumption of the three Baltic States, the Commission estimates. That’s on top of what the current label already delivers.
The energy label reform goes hand in hand with a new ecodesign work plan for 2016-19. The latter was issued as part of the Commission’s Clean Energy Package on 30 November. It was heavily delayed, reportedly because of the Commission’s fears that the British press would massacre it as an example of EU interference in everyday life in the run-up to the Brexit vote.
Indeed, the plan finally excludes controversial products such as toasters and hairdryers. But it does target seven new product groups for ecodesign standards: electric kettles, hand dryers, lifts, solar panels and inverters, refrigerated containers, building automation systems and high-pressure cleaners. The Commission also says it will investigate several ICT products for future attention.
Back in January, Hodson predicted that EU products would continue to play an important part in delivering EU energy savings. Many of the direct improvements in product efficiency have now been reaped, he added, with future opportunities especially in smarter use, controls, buildings and systems. Priorities for him are better information for consumers (to facilitate energy savings during operation), appliances that plug into the wider energy system (think demand response) and big data analysis (to identify new opportunities). Beyond energy, EU policymakers are thinking about how to address issues like durability, reparability and recyclability in product policy.
BRUSSELS INSIDER #2 by Sonja van Renssen
The big winner in the Gazprom anti-trust case: the market
March 27, 2017
Gas market experts are positive about the European Commission’s announcement on 13 March of a draft settlement with Gazprom in its anti-trust investigation into the company. It did not impose a fine on Gazprom. Instead, EU competition commissioner Margrethe Vestager said that the company’s proposed commitments address her concerns and constitute a “forward-looking solution”. But Poland is unhappy – which may affect the fate of the Gas Security of Supply regulation still under discussion.
“This is a big step forward,” says Kirsten Westphal, Senior Associate at the Stiftung Wissenschaft und Politik (SWP), the German institute for International and Security Affairs, about the draft decision from the Commission, which is open for comment for seven weeks. “It’s a further step to make Gazprom play according to the rules in the EU market.”
For gas market experts, it is clear that Gazprom’s (and Russia’s) number one priority going forward is to maintain its share of the European gas market. Europe will remain Gazprom’s key export destination: it is a solvable market that fetches good prices (and deals with China have proved difficult). Gazprom will increasingly defend its European market share through volume rather than pricing strategies. It has spare capacity on its pipelines after all.
This fits with a European gas market that has become more flexible and interconnected over the last years. “The EU wanted more short-term transactions and Gazprom is adapting to that,” says Westphal. It is going for more physical connections and a new marketing strategy. Its 2015 gas auctions in Germany and 2016 gas auctions in the Baltic States would have been unimaginable ten years ago.
Not a big deal
In fact, the anti-trust case comes at a time of “inevitable transformation” and the timing is “rather favourable” for Gazprom, says Simone Tagliapietra, a Research Fellow at Bruegel, a Brussels-based think tank specialised in economics. “The anti-trust case is not a big issue for Gazprom,” he argues. “It requires no structural change to its exports that is not happening anyway.”
Gazprom started to adapt to a more market-based system in 2010 with for example retroactive price discounts, says Westphal. It began to learn, especially in Germany, that it was well placed to dominate even in this new world. It is helped by a strong position in storage, with sites conveniently located close to gas trading hubs. “They are really at the heart of the Northwest European market,” Westphal tells Energy Post.
This dawning realisation that it could use its presence across the value chain to its advantage was matched by shifts in the Russian market too towards more transaction-based pricing.
For Westphal, the draft anti-trust settlement is a golden opportunity to further the liberalisation of energy markets in Central and Eastern Europe. It opens up the possibility to renegotiate long-term contracts and make them more market-based. There may be renegotiations of gas volumes and delivery points too.
There is still a split in Europe between member states like Germany that are taking a market-led approach and those like Poland that persist with a state-led gas policy. The market approach does mean keeping an eye on prices. Europe has benefited from a well-supplied gas market in recent years and as unlikely as the shift to a sellers’ market might seem any time soon (thanks to LNG) it would mean having to deal with price spikes.
Poland is not very happy with the Commission’s decision. In a letter to Vestager on 16 March, Polish MEP Jerzy Buzek, Chair of the European Parliament’s industry, energy and research committee, welcomes her 13 March announcement as a “step in the right direction”, but says he is “disappointed that the preliminary agreement is missing the provisions for compensation to the affected parties and a fine for the breach of EU rules”. He adds: “It sets a dangerous precedent and does not send a clear signal of the EU’s commitment to defend its rules.”
Polish oil and gas company PGNiG issued a statement saying that “our initial assessment shows that the commitments are insufficient” and “may not make any significant contribution to change the situation that triggered the Commission action in 2012”. It confirmed that it will be submitting “a detailed position providing minimum requirements to be imposed on Gazprom” to the Commission.
Muted reactions from other Central and Eastern European countries suggest that they may see advantages to further liberalisation of their energy markets.
Westphal and Tagliapietra believe that the Commission must have had good reasons for making the decision it did. Who knows whether it really is a question of opting for a “forward-looking solution” or not having enough evidence to impose a fine?
What is certain is that this is one of the Brussels’ biggest anti-trust investigations, it has been going for a long time (since 2011), and the Commission has not shied away from fining other companies. A favourite example is the €561 million fine it imposed on Microsoft in 2013 for breaching web-browser commitments. “I do not see the politics in it. I see politics in the reaction,” Tagliapietra said of the Gazprom case to Energy Post.
How to secure gas supplies
The difference in viewpoint on a market-led vs. state-led approach boils down to a question of whether you believe that more competition can take care of security of supply or not. Poland does not believe this.
Tagliapietra argues that it is all about options: “There is no problem buying huge amounts of cheap Russian gas as long as you have other options [in case something goes wrong].” He believes that Russian gas “is the cheapest you can buy and will probably continue to be”. With this is mind, he emphasises the importance of all the “small” infrastructure projects within Europe, such as the Midcat gas pipeline between Spain and France or reverse flow projects that enable Italian LNG to travel north, as “a sort of insurance”.
“I think that the development of the Southern Gas Corridor – through which limited gas will reach Europe at high cost – shows that we are better off integrating the market and using existing infrastructure [to improve security of gas supply],” he explains to Energy Post. This approach also makes sense from the point of view of minimising stranded assets in an increasingly decarbonised energy system. It is a different approach to energy security than 10-20 years ago when it was all about building new pipelines (remember Nabucco?).
Even if the Gazprom draft anti-trust decision can be construed as a victory for both the Commission and Gazprom, back in Brussels it presents a number of challenges on the ground. For one, the Commission faces the delicate task of bridging a growing divide with Poland, which has had to swallow the re-election of Donald Tusk as European Council President, the Commission’s decision last year to let Gazprom use more of the OPAL pipeline and now this.
Buzek also happens to be the MEP leading the Parliament’s negotiations with member states on a new gas security of supply regulation. This is the one outstanding file the Maltese EU Presidency inherited from its predecessor Slovakia in January that it has yet to resolve.
The next negotiating session is scheduled for 27 March. “Significant differences remain… in particular on regional cooperation and information exchange [on commercial gas contracts]” said an EU source close to the talks. The Parliament’s main objective is to “establish a more effective mechanism for regional cooperation through obligatory elements and an enhanced role of the European Commission”. You can imagine it has suddenly become more important than ever to Buzek, to stand his ground.
Meanwhile, a sister law on energy intergovernmental agreements (IGAs) that was informally agreed between lawmakers last year, was formally signed off by the Council of Ministers on 21 March. It is expected to enter force later this year. In its statement on the Gazprom anti-trust case, the Commission explained that it was because of an IGA between Poland and Russia that it could not object to Gazprom’s control of the Yamal pipeline under anti-trust law. Every policy has its part to play.