European Governance of the Energy Transition: Enabling Investments
“European Governance of the Energy Transition: Enabling Investments” has just been presented at the Forum held at Villa d’Este in Cernobbio (September 3-4th). The key findings of the study, carried out by Enel Foundation and The European House Ambrosetti, in collaboration with Enel, are:
1. The next 10 years will be crucial to keeping global warming below 1.5 degrees, and Europe aims to be the global leader of the energy transition, meeting ambitious goals (such as the “Fit for 55” package) with a strong push to relaunch the economy based on green technologies (Next Generation EU)
During the State of the Union address on 17th September 2020, the European Commission revised its target to net greenhouse gas emissions reduction of at least 55% compared to 1990 levels by 2030, boosting the previously set 40% target. Such an ambition for the next decade aims to put the EU on a balanced path to achieving climate neutrality by 2050. The commitment has been renewed and confirmed by the “Fit for 55” package announced on July 14, 2021. The package consists of 13 policies that, besides setting new targets, represent a comprehensive approach to all the sectors involved in the energy transition.
Italy is the main beneficiary of Next Generation EU. According to the version submitted to the European Commission in April 2021, the Italian Recovery and Resilience Plan (PNRR) amounts to a total of about 235 billion Euros. As far as energy transition is concerned, the PNRR resources provide important opportunities to support investments in the key sectors identified. Mission 2, the “green revolution” is the one receiving the largest amount of financing, equal to about 59 billion Euros, 30% of the total.
2. Filling the energy investment gap (3,564 billion Euros in the EU, 186 billion Euros in Italy) needed to reach the 2030 goals could activate, over the next 10 years, a cumulated GDP of over 8 trillion Euros in the EU and over 400 billion in Italy
The deployment of investments in the sectors involved in the energy transition process analysed, thanks also to resources provided by the Next Generation EU and the Italian PNRR, would generate a number of benefits both in Europe and in Italy.
In order to evaluate the economic benefit, the GDP multiplier of the electricity sector has been calculated, leveraging on the results presented in The European House – Ambrosetti’s and Enel’s study “Empowering Europe’s Investability” published in 2016. The analysis conducted reveals that for each Euro invested in the electricity sector, the total impact on the economy is 2.28 Euros of GDP (with a direct impact in the electricity sector of 1.19 and indirect and induced effect of 1.09). Thus, if the European Union and Italy were to succeed in unlocking the investment gap, they could generate a direct, indirect and induced benefit to their economies equal to 8,126 billion Euros and 424 billion Euros respectively.
3. At the current pace, Europe and Italy will risk failing to meet the 2030 decarbonisation targets, lagging behind on average by 19 and 29 years respectively, and missing a unique opportunity to reap the full environmental, social and economic benefits of the energy transition
Despite the increasingly ambitious EU vision, at the current trend, Europe would reach the new 2030 -55% GHG target only in 2051, with a delay of 21 years. With regard to the achievement of the other targets for renewables (40%) and energy efficiency (+36%), Europe also shows a significant delay: at the current pace it will achieve them in 2043 and 2053 respectively.
In Italy, the 2030 PNIEC still needs to be revised according to the new proposed “Fit for 55” package. By estimating the new targets that Italy could set in the new version of the PNIEC, the following targets can be considered for the country: -43% GHG emissions, 37.9% of renewables and 46.4% of energy efficiency improvements. Assessing Italy’s current performance in achieving these targets, however, a delay of 29 years on average emerges compared to 19 years in Europe, with a delay of 24 years for RES.
4. The slow pace is due in part to shortcomings in the governance of the energy transition, which must be tackled (as it has already started to be done in some areas) at an EU, Member State and local level
In the present study, the governance of the energy transition has been defined as the set of roles, rules, procedures and tools (at legislative, implementation and monitoring level) concerning the management of the energy transition that aims at reaching strategic and operational targets:
- Setting climate, energy and environmental targets and effectively and efficiently achieving them.
- Maximising synergies between all the sectors and actors involved, including EU institutions and Member States and non-EU countries.
- Facilitating the effective and efficient deployment of the necessary investments.
- Ensuring smooth processes and procedures and setting up accountability, control and enforcement provisions, ensuring that actions are put in place and results achieved.
The governance of the energy transition is a highly intertwined mechanism involving several actors at the global, European, national and local level with differentiated roles and assignments. The current European energy transition governance is affected by three main issues:
1. Firstly, energy is a shared competence between Member States and the EU: both can legislate on this matter and adopt legally binding acts.
2. The second issue is related to the need to implement a new “indirect” enforcement. From a system based on binding EU-wide targets and non-binding Member State targets (with the exception of GHG reduction, binding also at Member State level) matched with an indirect enforcement system, through the Recovery Plan the EU is progressively turning to a system where the Member States are responsible for making good use of the huge resources provided by the Commission. This requires urgent and coordinated action by Member States to lay out and implement one of the biggest investment programmes in history, assuring timely coordination of various public and private actors, while at the same time addressing the inefficiency of the current system.
3. The last issue is connected to the need to strengthen the new mechanism for managing policy targets. The current mechanism for managing policy targets and transpositions into National Plans is still based on a pre-Recovery Plan vision, which has led to some inefficiencies. The RES and energy efficiency targets set out in the “2030 Climate and Energy Framework” are not binding at Member State level, but only at the level of the EU as a whole, while the target for GHG emissions is also directly binding for Member States. As a consequence, EU targets are not adequately addressed by all Member States and their results are very uneven and unsatisfactory. Member State targets - and actions to attain them - must be quickly aligned with the opportunity offered by the available resources of the Recovery Plan.
In Italy, energy governance is affected by five issues limiting a successful energy transition:
1. High degree of fragmentation of competences between different actors at different levels of governance and between the central government and local institutions (regions, metropolitan cities, provinces and municipalities).
2. Competences related to the various dimensions of energy transition are assigned to different territorial actors (regions, metropolitan cities, provinces and municipalities) which apply their regulations, resulting in territorial differences and non-uniform application of national laws at local level.
3. Multi-level governance, regional differences and lack of effective commitment to the energy transition by local authorities also lead to the issue of social acceptability and poor involvement of local communities.
4. Technical administrative public bodies present inefficiencies mainly due to understaffing, unmet skills requirements, lack of appropriate professional figures for RES authorization processes and to the complicated regulatory frameworks within which they must operate.
5. Fragmentation in sectoral policy design.
6. To accelerate the EU and Italian energy transition and address the governance outstanding issues, seven proposals have been identified
The energy transition entails several economic, social and environmental benefits. Nevertheless, to take full advantage of the opportunities offered by the transition, some outstanding governance issues must be addressed. To this end, 7 proposals have been identified to tackle the existing challenges. The proposals have been grouped into two different levels according to the sphere of action: European (internal and external dimension) and Italian.