Cost of Europe 2020 to Britain’s medium-sized businesses

The EU’s Europe 2020 climate change targets are calculated on flawed assumptions, and are no longer fit for purpose. Europe 2020 has had a troubling impact on the UK’s medium sized businesses. Open Europe estimates that it will increase the average energy bill for a medium sized business in the UK from £130,000 in 2013 to £350,000 by 2020.Source: Open Europe

23 October 2014

Europe 2020: flawed assumptions

Under the Europe 2020 climate change and energy targets, the UK has committed itself to the largest increase in renewable energy consumption of any EU member. Currently 4% of the UK’s energy consumption comes from renewables, but by 2020 this must almost quadruple to 15%. In terms of electricity generation, this means increasing the share of renewables from 11.3% in 2012 to over 30% in 2020. [1]

According to the UK government’s impact assessments, energy-related regulations linked to the EU impose a recurring cost of around £8.4bn per year on Britain, compared to £1.3bn a year for UK-derived regulations. Over their life, EU regulations will cost the UK £96bn. The EU’s proposed benefit of £162bn under Europe 2020 is heavily reliant on some flawed assumptions.

  • When it was first announced, the EU’s climate change policy relied on numerous assumptions, which have proven flawed. Most importantly, a global deal on emissions has not materialised, meaning that the net benefit to the UK from EU climate change measures has dropped from over €200bn – estimated in 2009 – to a net cost of between €11.4bn and €20.6bn up to 2020. This is just one of five flawed assumptions Open Europe highlights in its Europe 2020 report.
  • Far from boosting the UK’s energy security – which was the assumption – the EU’s environmental legislation, and in particular the renewables target, is exacerbating a potential energy crunch. We calculate that if the UK is to meet its c.30% targets for renewable electricity consumption, around 40% of the UK’s installed generation capacity will need to be renewable – predominantly wind. This remains an incredibly difficult task.

Average cost of Europe 2020 to UK households and business

Open Europe estimates that, in 2013, the average household’s dual gas and electricity bill was increased by £59 (5%) due to EU regulations or UK implementation of EU defined targets. [2] By 2020, EU-related regulations or targets will increase annual household bills by £149 (11%). [3]

The impact on medium sized businesses is particularly troubling. Open Europe estimates that in 2013 the average medium-sized business bill was increased by 9% (£130,000) due to EU regulations or UK implementation of EU defined targets. By 2020, EU-related regulations or targets will increase medium-sized firms’ bills by 23% (£350,000).

Open Europe recommendations

To reduce these costs, Open Europe recommends that the UK:

  • Pushes for an agreement to drop EU renewables targets immediately: If the UK and others are content with removing the legally binding renewables targets from 2020 – which EU leaders recently agreed – the UK could push to implement the change now. This could potentially deliver savings of between £16bn and £21bn for the UK. The amount saved could fund insulation and other energy efficiency savings for 4.2 million households – lifting 2.4 million UK households out of fuel poverty in the process.
  • Unilaterally drop the targets: If reaching an agreement is not possible, the UK could unilaterally drop existing targets in the knowledge that they will soon expire. Alternatively, it could continue to pay lip service to the targets but simply not implement them. Risking EU infraction proceedings may be a cheaper option than the wrong energy policy.

In the long-term, Open Europe recommends that the EU suspends its micromanaging energy policy-prescriptions and instead moves to overall targets with each country free to meet the target in whatever way is deemed the most cost effective.

Editor’s note

Open Europe is not taking a position in the climate change debate. Our focus in this paper is to assess the practical policy implications of the EU’s Europe 2020 targets. Specifically, we will accept the broad parameters of the policies to see if they achieve the goals they set for themselves and whether the assumptions and predictions inherent to such policies have proved correct in reality. We acknowledge that there is significant amount of discussion around these broader topics, however, we have not addressed them in this paper.

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[1] DECC, Renewable Electricity 2012, September 2013 & DECC, Dukes Chapter 5, September 2013

[2] This is supposed to be offset by £45 in projected savings in efficiency. However, there is no reason why these efficiency savings could not be achieved without the EU’s climate and renewables targets.

[3] Of the overall regulatory impact on bills, the EU accounted for 43% in 2013, rising to 53% in 2020.

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