Approach

The European Commission’s policy decisions are underpinned by thorough analyses and impact assessments. When developing and implementing the Energy Union Strategy, the Commission uses a wide range of mathematical models and tools to explore policy proposals and evaluate their potential energy, transport, economic, social and environmental consequences.

The EU Reference Scenario is one of the European Commission's key analysis tools used in the context of the Energy Union. It is updated regularly as it projects the impact of current EU policies on energy and transport trends as well as changes in the expected amount of greenhouse gas emissions. It provides projections on a five-year period up until 2050 for the EU as a whole and for each EU country. It is not designed as a forecast of what is likely to happen in the future. It rather provides a benchmark against which new policy proposals can be assessed.

On 20 July, the European Commission published its latest Reference Scenario: the EU Reference Scenario 2016 (REF2016). With the active participation of national experts from all EU countries, the European Commission worked in partnership with a modelling consortium led by the National Technical University of Athens to develop REF2016, making use of a range of different models.

The projections are based on a set of assumptions, including on population growth, macroeconomic and oil price developments, technology improvements, and policies. Regarding policies, projections show the impacts of the full implementation of existing legally binding 2020 targets and EU legislation. As such, they also show the continued impact post 2020 of policies such as the EU Emissions Trading System Directive (including the Market Stability Reserve), the Energy Performance of Buildings Directive, Regulations on ecodesign and on CO₂ emission standards for cars and vans, as well as the recently revised F-gas Regulation. Such policies notably influence current investment decisions, with impacts on the stock of buildings, equipment and cars, which have long-lasting effects post-2020 on GHG emissions or energy consumption.

Results

REF2016 is set up to meet the binding energy and climate targets for 2020, the latter being achieved as a result of existing policies. However, it shows that current policies and market conditions will deliver neither the EU's 2030 targets nor the long-term 2050 objective of 80 to 95% greenhouse gas (GHG) emission reductions. Overall GHG emissions decrease by 26% in 2020, 35% in 2030 and 48% in 2050. GHG emissions from sectors covered by the Effort Sharing Decision are projected to decrease by 16% in 2020 and by 24% in 2030 below 2005 levels, less than emissions in sectors covered by the EU Emission Trading System. In 2020, the renewable energy share (RES) in gross final energy consumption reaches 21%, while in 2030 it increases slightly further, reaching 24%. In addition, the energy efficiency 2020 non-binding target is not met in REF2016, the scenario projecting a reduction in primary energy savings (relative to the 2007 baseline) of 18% in 2020, and, respectively, 24% in 2030.

Figure 1: Projection of key policy indicators

Source: PRIMES, GAINS

The EU's energy production is projected to continue to decrease from around 760 Mtoe in 2015 to about 660 Mtoe in 2050. The projected strong decline in EU domestic production for all fossil fuels (coal, oil and gas) coupled with a limited decline in nuclear energy production is partly compensated by an increase in domestic production of renewables. Biomass and biowaste will continue to dominate the fuel mix of EU domestic renewable production, although the share of solar and wind in the renewable mix will gradually increase.

The EU's import dependency shows a slowly increasing trend over the projected period, from 53% in 2010 to 58% in 2050. RES deployment, energy efficiency improvements and nuclear production (which remains stable) counteracts the strong projected decrease in the EU's fossil fuel production.

The EU power generation mix changes considerably over the projected period in favour of renewables. Before 2020, this occurs to the detriment of gas, as a strong RES policy to meet 2020 targets, very low coal prices compared to gas prices, and low CO₂ prices do not help gas to replace coal. After 2020, the change is characterised by further RES deployment, based on market conditions, but also a larger coal to gas shift, driven mainly in anticipation of increasing CO₂ prices. Variable RES (solar and wind) reach around 19% of total net electricity generation in 2020, 25% in 2030 and 36% in 2050, demonstrating the growing need for flexibility in the power system. The share of nuclear decreases gradually over the projected period despite some life time extensions and new built, from 27% in 2015 to 22% in 2030.

Primary energy demand and GDP continue to decouple, which is consistent with the trends observed since 2005. Energy efficiency improvements are mainly driven by policy up to 2020 and by market/technology trends after 2020. With regard to the fuel mix in final energy demand, there is a gradual penetration of electricity (from 20% in total final energy use in 2005 to 28% in 2050). This is because of growing electricity demand as compared to other final energy use and to some electrification of heating (heat pumps) and to a limited extent of the transport sector.

Figure 2: Evolution of final energy demand by fuel (Mtoe – left, shares – right)

Source: PRIMES

Investment expenditures for power supply increase substantially until 2020 driven by RES targets and developments, but slow down thereafter, until 2030, before increasing again from 2030 onwards notably due to increasing ETS carbon prices reflecting a continuously decreasing ETS cap based on the current linear factor. New power plant investment is dominated by RES, notably solar PV and wind onshore. Investment expenditures in demand sectors over the projected period will be higher than in the past. They notably peak in the short term up to 2020, particularly in the residential and tertiary sectors, as a result of energy efficiency polices.

Energy system costs increase up to 2020. Large investments are undertaken, driven by current policies and measures. Overall, in 2020 energy system costs constitute 12.3% of GDP, rising from 11.2% in 2015, also driven by projected rising fossil fuel prices[1]. Despite further fossil fuel price increases, between 2020 and 2030 the share remains stable and decreases thereafter, as the system reaps benefits from the investments undertaken in the previous decade (notably via fuel savings). In this period, the share of energy system costs in GDP is gradually decreasing, reaching levels close to 2005 by 2050.