In the last posts we focused mainly on the producer’s and supplier’s side of the energy market, including renewables, as well as on gird-related aspects, including smart grids. Today we continue our series on the competing parties’ positions on how to give incentives to consumers directed towards increasing energy efficiency.
On 25 October 2012, the EU passed the Directive 2012/27/EU on energy efficiency. This Directive is an important element to achieve the Union’s 2020 20% headline target on energy efficiency and to incentivize further energy efficiency improvements beyond that date. The Directive sets a common framework of measures for the promotion of energy efficiency. It lays down rules designed to remove barriers in the energy market and overcome market failures that impede efficiency in the supply and use of energy, and provides for the establishment of indicative national energy efficiency targets for 2020.
The implementation of this Directive into German law, which is due by 5 June 2014, has not started yet, and it touches ground which already in the past has resulted in tensions which could not easily be resolved. For such reasons, the implementation of Directive 2010/31/EU on the energy performance of buildings was partially halted, as the Bundesrat, the 2nd Chamber of the German Parliament in which the German Länder (States) are represented, did not agree on the draft of the 2nd Ordinance on the Amendment of the Energieeinsparverordnung (Energy Savings Ordinance, EnEV) in its last meeting prior to summer break, on 5 July 2013. It is considered unlikely that it will vote on it in its next meeting on 20 September, just tow days before the Federal Elections, as further Committee consultations are pending, and the discussion continues.
One important reason for these difficulties is that energy efficiency measures in practice cannot be reduced to the mere mathematics of cost-benefit analyses, as the EU Directives seem to assume, but that the question needs to be resolved how to allocate and fund the investment costs associated with most of such measures, whether the investments shall be funded with support of the state, whether state intervention is needed or private investment can be encouraged by the right incentives, whether the Länder contribute to the funding of such investments, and how and in which timeframe such investment costs are passed on or shared by the ultimate consumer who benefits from an increased energy efficiency,.
Calculations published in conjunction with the discussions on the 2nd EnEV Ordinance by the business daily Handelsblatt indicated that the current rental law provides for reallocation of 11% of the renovation costs on the rent. To put that number into perspective, the renovation of one square meter at a cost of 300€ would result in an increase of the rent by 33€ per year or 2,75€ per month per square meter. This is much more than the value of the related energy savings and what most tenants can afford. On the other hand, most Länder objected against tax breaks for landlords who invest in energy efficiency measures, as this would but a strain on their budgets.
Thus, one major task of the next German government will be to address the costs of the Energiewende not only in terms of energy costs but also in terms of rent development, especially for the lower-income classes.
CDU/CSU (Christian Democratic Union/Christian Social Union)
CDU/CSU refer to already established instruments to improve energy efficiency and seem confident to achieve the targets laid out in the EU-Directive. However, to be on the safe side CDU/CSU want to introduce further tax incentives for energy-efficient housing renovations, but leave it up to the investor which measures are selected and technology is used to achieve the objectives.
CDU/CSU lay out the goal to increase energy efficiency within the EU by a minimum of 20% and a decrease in energy consumption of buildings by as well 20% by 2020 and a decrease in electricity consumption by 10%. In addition to the already mentioned tax benefits, the CDU/CSU believes that an increased consumer information on energy-efficient household appliances and energy-efficient renovation will help to achieve these targets..
In order to avoid sharp increases in rents, CDU/CSU propose to decrease the net renovation costs which need to be recovered by landlords by offering tax benefits, an energy efficiency financial support program, and low-interest loans issued by the German state-owned public funding bank, Kreditanstalt für Wiederaufbau (KfW). Additionally, CDU/CSU propose a modest rent control, ensuring that landlords cannot increase rents as they like and therewith do not abuse their power within the landlord-renter relationship.
SPD (Social Democratic Party of Germany)
The SPD criticizes the current government for confusing investors by frequent changes to the funding of energy efficiency instruments, and promises to procure for a steady and reliable financing of such instruments. Furthermore, the SPD wants to create an energy-efficiency-fund to support consumers and small and mid-sized companies in terms of energy counselling and the realization of energy-efficiency measures.
In order to reduce rent increases, the SPD proposes to reduce the threshold of 11% of renovation costs which can be recovered annually by increasing the rent to 9%. Furthermore, the SPD proposes to balance costs and energy-efficiency improvements reasonably.
Additionally, the SPD proposes that improvements in energy efficiency do not have to be costly. The SPD believes that energy counselling can make a huge difference by just changing some basic consumer habits.
In contrast to the CDU/CSU, the SPD program also addresses the need to increase energy efficiency of commercial customers, and to expand decentralized co-generation.
FDP (Free Democratic Party – Liberals)
The FDP argues that based upon the “Prognos-Study” Germany already is in a good position in terms of energy efficiency. Therefore one should not spent a lot of money to achieve only minimal improvements. According to the FDP one should rather spend that money in countries within the EU which are behind in energy efficiency. The FDP-spokesman on energy matters, Klaus Breil, puts it: “At home we cannot achieve much more efficiency with 1€, but in other countries that 1€ can make a great difference!”
However, the FDP endorses in terms of implementing the EU-Directive a market approach by creating incentives, rather than obligations. As CDU/CSU, the FDP endorses tax benefits for housing renovation measures.
The social dimension is not addressed to a great extent by the Liberals. They believe that in many cases there is no real benefit of costly energetic renovations, and thus propose not to overdo with such renovations, and in particular forced renovations. The FDP explicitly criticizes the “extensive renovation approach” of the Greens as this would only boost the rental costs of tenants irrespective of any cost savings.
B’90/Die Grünen (The Green Party)
The Greens want to set a national goal of decreasing electricity consumption by 15% until 2020, compared to the 10% proposed by the CDU/CSU. To reach such goal in line with the EU Directive on energy efficiency, they propose first of all to establish a legal framework for a “market for efficiency services”, which then shall decrease the costs of such services. Additionally, the Greens endorse the so-called ”Top Runner Approach”, meaning that the most efficient technology sets the standards and within a reasonable time all other suppliers of comparable products have to meet that standard. Furthermore, the Greens want to create an energy savings fund which shall finance extensive-energy efficiency counselling and the implementation of energy-efficient appliances. Such fund shall have a volume of 3 billion Euros.
As the SPD, the Greens want to cut tenant’s costs by lowering the percentage of the reallocation of renovation costs from 11% to 9%. In addition the Greens want to limit the ordinary rent increase. Furthermore, the Greens endorse allowances for rent in order to support lower-income classes, while still pursuing the “Energiewende“.
Die Linke (The Leftist Party)
The Leftists propose the introduction statutory obligations for industrial consumers and energy suppliers to minimize energy consumption on a European scale. As the Greens, the Leftists promote the “Top Runner Approach. To finance energy-efficiency counselling and energetic renovation the Leftist propose the introduction of an energy savings fund with a volume of 2,5 billion Euros.
Regarding the social aspects, the Leftist intend to establish a civil right to housing in the German Constitution. In order to ensure housing based upon such civil right, the Leftists want to support the municipalities in building public housing and setting up public housing suppliers, which are not allowed to generate profits. Additionally, the Leftist want to furnish the members of housing associations with more rights in terms of decision-making on investments and modernizations.
Furthermore, the Leftists propose that any private investor, which benefits from governmental financial support for energetic renovation measures, shall be required to invest a certain percentage of the original investment in public housing. For lower-income classes the Leftists endorse an allowance for rent.
On the question whether the next German government has to undertake further steps to reach the targets set by the EU-Directive on energy efficiency, the positions are divided between the governing parties, CDU/CSU and FDP, and the opposing parties. CDU/CSU and FDP consider the steps taken so far sufficient, however want to add tax benefits for energetic renovations. The SPD, the Greens and the Leftists want to set up an energy-efficiency fund (SPD) or an energy savings fund (Greens and Leftists) to fund consumer oriented energy counselling and energy-efficient modernization measures in housing and appliances. The Greens’ model has a volume of 3 billion Euros, the Leftists’ model of 2.5 billion Euros.
The social aspect, namely the question of rising rents is addressed by most parties. While CDU/CSU propose a rent control model, the SPD and Greens in addition to that propose to lower the maximum reallocation of modernization costs for renters from 11% to 9%. The FDP does not propose a solution to rising rents, but proposes to scale back mandatory renovation targets and allow owners to focus on those measures which make sense from an economic point of view.
The Leftists propose the most planned-economy approach, as they want to socialize the housing sector to a great extent and want to oblige private investors to contribute to public housing, if they are supported by government aid for their private renovation efforts. Furthermore, the Leftists want to establish a government allowance for rent. How such an allowance will be funded stays unclear.
In the next – and last – part of the series “2013 Election Energy Party Profiles”, we will analyse the parties’ positions on how to integrate renewable energies and German energy policy in general into a European Market and the parties’ overall positions on German energy politics in a European context.
- 2013 German Election Energy Party Profiles – Part 5: Towards a New Market Design?
- 2013 German Election Energy Party Profiles – Part 4: The Future of Conventional Power Plants
- 2013 German Election Energy Party Profiles – Part 3: Grid Extension, Electricity Storage and Smart Grids
- Energy Positions in Pre-Election Television Debate Between Chancellor Merkel and Social Democrat Opponent Peer Steinbrück
- 2013 German Election Energy Party Profiles – Part 2: Future of the EEG Surcharge and Electricity Tax
- 2013 German Election Energy Party Profiles – Part 1: Market Integration of Power Generation from Renewable Energies
- Chancellor Merkel Outlines Key Aspects of Reform of Renewable Energy Sources Act
- Coalition Agreement: Environment, Energy and Climate Change Provisions