Cities want to deliver on energy efficiency, but fear obstacles

Local and regional governments are crucial to a more energy efficient Europe. Accounting rules should help deliver the creation of climate and security-friendly jobs and growth, write Tine Heyse, Eva Schobesberger and Valentí Junyent i Torras.

Tine Heyse is president of Climate Alliance, Eva Schobesberger is Linz city councillor for the environment and Valentí Junyent i Torras is president of the Catalan Network of Cities and Towns towards Sustainability.

Energy efficiency is a proven way of achieving the EU’s energy and climate policy goals. It contributes to a structural solution for the 54 million Europeans who are not able to heat their homes properly. Reducing energy consumption will also improve the bloc’s energy security, as for every 1% of additional energy savings, gas imports are reduced by 2.6%.

The jobs potential in the sector is enormous: realising Europe’s full cost-effective energy savings potential would create or maintain over 11 million jobs in the EU. This is equal to half of the people currently unemployed in Europe. It would also see increased competitiveness due to reduced energy bills, health benefits because of better indoor air quality and greenhouse gas cuts.

Local and regional governments have multiple projects in the pipeline to implement energy efficiency measures. We have submitted more than 5,000 sustainable energy action plans in the framework of the Covenant of Mayors. The measures foreseen in these local anchored plans are expected to lead up to 20% reduction of final energy consumption by 2020. An analysis of submitted monitoring reports concludes that signatory cities are well on track to reach their targets, in particular, they have reached a 14% reduction in final energy consumption.

Cities are helping the Energy Union meet energy and climate targets, especially in sectors not covered by the EU’s Emission Trading System such as buildings and transport. However, regarding investments in our own public buildings, accounting thresholds are creating barriers for local and regional authorities to launch wide-scale investment programs, which is the case with the accounting treatment of Energy Performance Contracting (EPC) on our public accounts.

The EU needs its cities to help deliver the Energy Union and Energy Efficiency Directive aspirations, and should therefore reinterpret the accounting rules, as stated in Eurostat’s note on EPC impact on public accounts for energy efficiency investments.

We are ready to help the EU meet its climate and energy goals, but this requires launching substantial investments.

Energy Efficiency investments require upfront capital. This is capital that the private sector is able to provide, if we can present the projects for investment, such as in our building sector. This sector accounts for 44% of the overall greenhouse gas emissions reductions expected by 2020, by the Covenant of Mayors signatories.

Eurostat rules on accounting treatment of energy performance contracting prevent this from happening on the necessary scale. The rules currently classify such investments by default as government expenditure, despite the fact that projects are being financed wholly or in part by the private sector – who also take the risk. The direct consequence is that such investments are counted towards public sector debt.

In many European countries, where the focus is on reducing public sector debt, this is a major disincentive to act because the investment appears on the government’s balance sheet. We need to look again at whether the accounting rules are fit for purpose and deliver progress on the Stability Pact objectives, such as halting unnecessary public spending. Energy efficiency projects in our building stock are just about that.

The result is either that the investment does not happen at all or we are forced into a situation where we can only deliver off balance sheet financing through using grants schemes, which will never lead to the necessary scale of renovations. This is a very inefficient use of public finance and a situation we are keen to get away from if the rules enable us.

Reinterpreting the accounting rules will enable cities to use the scarce public funding available to much greater effect – by using it to leverage private sector capital that is both needed and available to support our energy efficiency investment programmes.

We need it: in the building sector alone, the current investment level is less than half what it needs to be to meet the EU’s 2020 target of 20% energy efficiency improvement. The Energy Efficiency Financial Institutions Group report demonstrated that there is no lack of money, neither is there a lack of barriers to access it. Reform of accounting rules is one place where the Commission can start to take down these barriers and we call for a review to take place.

Local and regional governments are committed to the fight against climate change and delivering the Energy Union. But we need to be heard and supported to turn the dream into a day-to-day reality we can deliver.