Evaluating our future

The crucial role of discount rates in European Commission energy system modelling

In this project for the European Council for an Energy Efficiency Ecnonomy (eceee), Ecofys examined recent European Commission practice in applying discount rates in energy and climate policy impact assessments. The higher the discount rate, the lower the value we assign to future savings in today’s decisions. Consequently, high discount rates make energy efficiency policies look less attractive.

In the EC 2014 Impact Assessment for the 2030 greenhouse gas and energy efficiency targets, high discount rates in PRIMES modelling caused lower ambitions in EU energy and climate policy. Yet, lack of transparency of EC Impact Assessments makes it impossible for policy makers to truly assess assumptions and conclusions. A major hidden issue is the missing distinction of when to use high private or low social discount rates. For evaluating energy and climate policy a societal perspective needs to be taken, using social discount rates. This has not been the case in recent EC Impact Assessments, where many times higher social discount rates have been applied than by Member States.

Discount rates deserve special focus and priority since several Impact Assessments will be carried out in the coming months by the European Commission in connection with the review and possible revision of the Energy Performance of Buildings Directive (EPBD), the Renewable Energy Directive (RED), and the Energy Efficiency Directive (EED).

The resulting report is available at: eceee.org


Andreas Hermelink
Urban Energy
Annual energy cost resulting from different discount rates  (c)  eceee, Ecofys 2015