Energy Efficiency – How Europe Can Achieve Its 2020 Targets

Becoming more energy efficient is perhaps the most straightforward and least expensive way of tackling the energy problem. Recently, the EU has addressed this issue within the framework of the so-called Europe 2020 targets which aim at reducing gross energy consumption by 20 %, producing at least 20 % of all energy from renewable sources and reducing greenhouse gas emissions by 20 % (with respect to 1990 levels). All that is supposed to be attained by 2020 at the latest.

Leaving aside the two latter issues, we will focus in this posting on the question of energy efficiency. Lowering energy consumption by 20% (when compared to projected levels) means in particular that by 2020 Europe will use some 1474 Mtoe (mega-tonnes of oil equivalent) of primary energy.

Fig. 1 shows the development of EU gross inland consumption from 1990 onwards with EU-27 representing the entire union whereas EU-15 refers to the “old” Member States, i.e. excluding those countries which joined the union in 2004 or later.  One striking observation is that during the past two decades consumption figures have always been substantially higher than the 2020 target line. Thus we are facing a real challenge.

Fig.1 EU gross inland consumption of energy. Source: Eurostat.

But looking at absolute consumption levels only does not reveal the whole story since, at the same time, we are also expecting economic growth. And a growing economy means higher energy consumption, at least to some extent. Putting consumption and economic performance together yields another interesting observable, namely the so-called energy intensity which is shown in Fig. 2. This parameter indicates how much energy is needed in order to produce one unit of economic output. Energy intensity is thus measured in kgoe/kEUR (kg of oil equivalent per 1000 EUR). Apparently, this indicator has fallen drastically since 1991.  In 2010 it was at 168 kgoe/kEUR for EU-27.

Fig. 2 EU energy intensity. Source: Eurostat.

One apparent feature of this figure is that the gap in the intensity levels between EU-27 and EU-15 is getting smaller over the years, thus indicating that the countries which joined the EU in 2004 or later are outperforming the older Member States (EU-15) when it comes to becoming more energy efficient. Nevertheless, the energy intensity of the younger EU members is still considerably above average.

Reducing absolute energy consumption means that intensity figures will drop accordingly. But by how much? In order to obtain an answer to this question, we analysed two scenarios, one with a stagnant economy, i.e. no (real) GDP growth up till 2020, and another one with an average GDP increase of 2 % annually.

Taking the zero-increase economy as a reference we find that energy intensity must drop from its 2010 level to some 141 kgoe/kEUR in 2020. This is not too far from the current EU-15 level (151 kgoe/kEUR). However, at EU-27 level this means that the intensity has to go down by some -1.75 % on average per year.

Going over to a more dynamic scenario with an average economic growth rate of 2 % we find the respective energy intensity in 2020 at 115.5 kgoe/kEUR. Obviously, the effort is much stronger in this case, requiring an annual decrease of almost -3.7 %.

To put things into perspective we may mention that the average intensity gain during the period 1991-2010 was 1.94 % per year. Thus, the prospect of performing equally well in a no-growth economy does indeed look quite promising. However, once the economy is supposed to grow even at a moderate pace, our effort may easily double.  In that case, more drastic measures are required in order to attain the ambitious goal.

Oil Dependency of Developed Economies

Oil is one of the major energy sources for a modern economy. Both, developed and developing economies depend heavily on it. So we may ask ourselves to what exent we depend on this critical source. Intuitively, we know that renewables are constantly gaining ground. However, the simple fact that oil prices continue to be a vital indicator for economic activity shows us that oil still keeps its dominant role in the energy mix.

In order to find out how our dependency on oil and oil products has developed over the past decade, we compare the economic output in terms of nominal GDP with the respective oil consumption figures. This is done for the EU, the United States and Japan. The period in question is running from 2000 to 2010. Both, the GDP and oil consumption are normalized to be equal to 100 in 2000. The raw data for our investigation have been taken from Eurostat and the Shell Statistical Review of World Energy 2011.

Let us start with the European Union. Fig. 1 gives us a nice impression about the decoupling of economic activity and oil consumption which has taken place in the past decade. A net gain in real GDP is accompanied by a significant drop in oil use.

Fig. 1 EU-27 oil dependency 2000-2010, 2000 = 100.

The underlying reasons for this significant development are twofold: on the one hand, oil is facing competition from other sources such as natural gas. On the other hand, oil using machinery, like car engines etc. are getting more efficient, i.e. using less energy per km/mile.

Fig. 2 displays the same analysis for the United States. Again, real GDP and consumption of oil are jeading in different directions. As in the case of EU-27, the decoupling becomes even more siginificant as of 2006/2007. Quite remarkably, during the economic crisis in 2008/2009 the relative drop in consumption was considerably bigger than the one in economic performance.

Fig. 2 US oil dependency 2000-2010, 2000 = 100

As a final example, let us have a look at the situation in Japan. In one of our previous post we have already observed that Japan excels particularly when it comes to energy intensity, i.e. economic output per unit of energy used. Having this in mind, we would expect quite similar findings for the case of oil consumption. Fig. 3 shows the results of our analysis.

Fig. 3 Japan´s oil dependency 2000-2010, 2000 = 100

Although Japan´s GDP has performed less favourably when compared to the US and the European Union, its oil dependency has fallen much stronger than the one of its competitors. The decoupling between economic performance and the respective oil consumption is already quite significant in the beginning of our observation period, getting larger during the years. Thus, the reduced consumption of oil and its products is one of the key factors in Japan´s successful struggle to obtain a higher economic output per unit of energy.