It is obvious that a lean and highly efficient energy system has many advantages. The challenge is to set the right incentives. This is the key to adapting future demand to fluctuating power generation.


The targets for the Energiewende include not only the expansion of renewable energies. Also for energy efficiency Germany has set ambitious goals: By 2020, the country’s electricity consumption reduced by 10 percent; and by 2050 by 25 percent compared to the 2008 level.

Especially with regard to climate protection, energy efficiency is an important lever: Without efficiency measures, renewable energy would need to be significantly expanded in order to achieve the same reduction in greenhouse gases. Increasing energy efficiency pays off on three l

  • for the economy as a whole,
  • for German businesses, and not least
  • for private households.

Domestic economic strength is also impacted: The less power consumed, the less gas and coal that have to be imported. In addition, energy efficiency increases domestic value added and creates jobs.

Moreover, the same amount of products produced or services provided with less energy reduces energy costs for the consumer. At the same time, the costs for the entire system sink because in a sleek, high-efficiency system less has to be invested in expensive power generation, electricity grids, storage, and backup capacity. From an economic perspective, investments in energy efficiency make sense as long as the investment costs of a saved kilowatt hour are lower than the investment cost of producing a kilowatt hour of electricity.

It’s a two-pronged strategy: Energy demand is reduced by significantly increased energy efficiency; the remaining share of demand will be largely provided by renewable energies. However, while the development of renewable energy in Germany is making excellent progress, the reduction of electricity consumption is currently lagging behind Germany’s original ambitions.

Although there are marketable efficiency technologies available today, Germany has not begun to take advantage of this large, highly profitable potential. Many energy service business models don’t pay off – at least not in the crucial, short-term perspective of capital markets. The reason: business models that focus on energy efficiency are usually associated with high initial costs and long payback periods. Moreover, the fragmentation of many efficiency measures assumes that many (private) actors take initiative simultaneously. It is the challenge of the future to create a market that provides such services in the most efficient manner.

Core results

  1. 1

    Including the buildings sector into any kind of CO2 pricing scheme without addressing the landlord-tenant dilemma could heavily burden tenants and fail to incentivize climate action in buildings.

    In nearly all EU Member States additional costs for carbon emissions would only increase tenants’ bills without encouraging landlords to refurbish their buildings.

  2. 2

    Sweden shows the way out: Here, most rental contracts are all-inclusive rents. Coupled with a CO2 tax of 114 EUR/t, Sweden has effectively reduced household CO2 emissions by 95% since 2000.

    Since landlords pay heating bills, they have a clear incentive to reduce energy consumption and avoid carbon taxes by renovating their houses and switching to clean heating systems.

  3. 3

    Temperature-based rents can provide targeted incentives for both landlords and tenants.

    When heating bills are based on a guaranteed temperature, landlords have the incentive to renovate their buildings, while tenants who keep their apartments cooler (verified by temperature monitoring) pay less.

  4. 4

    The EED should be revised to allow for all-inclusive and temperature-based rents.

    This would provide all Member States (not only Sweden, currently profiting from an exception clause) with an easy-to-implement policy instrument that protects tenants from high carbon prices and provides targeted incentives for landlords.

  1. 1

    The sustainable energy transition in the heating sector is currently lagging and buildings sector goals are unlikely to be met by 2030.

    Reducing emissions from the current level of 130 million tons of CO2 to between 70 and 72 million tons in the next 11 years will require ramping up all available technologies across the board. These include insulation, heat pumps, heat networks, decentralized renewable energy and power-to-gas. Cherry-picking the various building technologies is no longer an option because of past shortcomings.

  2. 2

    Energy efficiency in existing buildings is a prerequisite for technology neutrality.

    Ensuring adequate competition between various energy supply options such as renewable energy, heat pumps, synthetic fuels and decarbonized heat networks requires reducing final energy consumption by at least a third before 2050. The more efficient a building is, the more realistic any necessary expansion on the generation side will be.

  3. 3

    Power-to-gas can only complement aggressive efficiency policies in the buildings sector, not replace them.

    Synthetic fuels are a significant component of energy supply in all 2050 climate protection scenarios. But their contribution by 2030 is only limited, and even between 2030 and 2050 they are considerably more expensive than most energy efficiency measures in the buildings sector. In addition, the bulk of generation from power-to-gas may be allocated to other markets (industrial processes, shipping, air travel and transport by truck).

  4. 4

    To successfully implement the heating transition, we urgently need a roadmap for promoting energy efficiency in buildings by 2030.

    To this end, a package of policy measures is needed, including changes to relevant laws, regulations and energy tax laws, as well as an overhaul of funding programs. The heating sector goals for 2030 and 2050 can only be met if the installation rate of all building-related climate protection technologies is quadrupled.

  1. 1
  2. 2

    The ongoing protests of the Yellow Vests are of the Macron government’s own making.

    Over the last 18 months, the French government has abolished the wealth tax, increased flat-rate social security contributions, reduced housing subsidies and increased the tobacco tax. Taken together with the energy tax increase and a lack of compensation, these measures have contributed to the widening of economic inequalities in French society.

  3. 3

    CO2 taxation is regressive in nature and necessitates the compensation of lower income groups to ensure political stability.

    Like any consumption tax, the CO2 surcharge on energy consumption has a greater effect on low-income households than high-income households in percentage terms. This was also the case in France. A per capita redistri-bution of revenue or other redistribution mechanisms are necessary to balance this.

  4. 4

    For CO2 taxation to be widely accepted, it must be implemented in a reve-nue-neutral manner.

    In France, most of the revenue from the CO2 surcharge on energy taxes was used for consolidating the budget. The contribution climat énergie was therefore not recognised by large parts of the population as a climate protection measure. In addition to so-cial compensation, it is therefore necessary to use the revenues for climate protection measures which are transparent and easily accessible.

From study : The French CO2 Pricing Policy:
  1. 1

    Improving energy efficiency would significantly lower the costs of the German electricity system.

    Each saved kilowatt-hour of electricity reduces fuel and CO2 emissions, as well as investment costs forfossil and renewable power plants and power grid expansion. If electricity consumption can be lowered by10 to 35 percent by 2035 compared to the Reference scenario outlined in the study, the costs for electricitygeneration will reduced by 10 to 20 billion euros2012.

  2. 2

    Improvements in the energy efficiency of the electricity sector can be achieved economically.

    One saved kilowatt-hour of electricity would lead to reduced electrical system costs of between 11 to 15euro cents2012 by 2035, depending on the underlying assumptions. Many efficiency measures wouldgenerate lower costs than these savings, and would therefore be beneficial from an overall economicperspective.

  3. 3

    Reductions in future power consumption mean a lower need to expand the power grid.

    A significant increase in energy efficiency can significantly reduce the long-term need to expand thetransmission grid: between 1,750 and 5,000 km in additional transmission lines will be needed by 2050,down from 8,500 km under the “business as usual” scenario.

  4. 4

    Reducing power consumption would reduce both CO2 emissions and import costs for fuel.

    Reducing power consumption by 15 percent compared to the Reference scenario would lower CO2 emissionsby 40 million tonnes and would reduce spending on coal and natural gas imports by 2 billion euros2012 in2020.


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