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Energy Efficiency Policy in Romania

The path towards sustainable development

Student: Adina Elena Voicil Department: B.A in Political Science SPE 3 Course: Public Policies Lect. Dr. Claudia Udrescu

Table of Contents
Conclusions and suggestions to Policy Reform.....................................................11 Bibliography......................................................................................................... 12

Abstract The energy efficiency policy includes all public interventions ("policy measures") aiming at improving the energy efficiency of a country, through acceptable pricing, institutional setting, regulation, coupled with economic or fiscal motivations. The Kyoto Protocol objectives1, coupled with recent concerns about security of energy sources gave a bigger importance to such energy-efficiency policies. Almost all countries implement nowadays measures adjusted for their own national settings. Together with the recent and unending experience of high energy prices, they should represent a great area of interest for designing new policies. Transportation, environment, national resources, and unconventional energy are strong arguments for developing new technologies for the future. However, each country has different approaches to this matter. For industrial

The Kyoto Protocol to the United Nations Framework Convention on Climate Change (UNFCCC)

countries the need to reduce greenhouse gas emissions and local pollution is a priority, whereas for developing countries, relieving the financial problem of oil imports, reducing energy investment and making the best use of ones existing supplies are the most important drivers for engaging into energy efficiency. This might explain why the EU common framework for energy does not work properly. For Romania, not only that the common framework is not suited, but the bureaucratic sluggishness, money laundering and investing not in the future of the country, but in the future of the investors, prove to be a problem for energy efficiency. Thus, the aim of this proposal is to improve the current Romanian framework for efficient use of energy resources, in order to achieve sustainable development for its citizens and environments alike.

Introduction Energy is the core of our society, as everything ranging from industry to economy, to safety and well-being of our nation depends on it. Safe, secure, affordable and sustainable energy is the goal for many, especially for the European Union. However, the challenge of reaching a common framework for energy is far from being over. In 2010, after implementing a common working strategy for competitive, sustainable and secure energy, each European country started developing national strategic plans. However, at the end of 2012, the results are not that promising, and the expectancy of reaching the common goals by 2020 has dropped sharply. This is not the only problem, as the failure of achieving a well-functioning European energy market will increase the costs for us, consumers and challenge Europes own global competitiveness with other energetic superpowers, such as Russia and United States.

Energy efficiency is the cornerstone of the EUs Europe 2020 Strategy for smart, sustainable and inclusive growth2 and of the transition to a resource efficient economy. Thus, energy efficiency strategies3 provide effective ways to enhance security of energy supply, and to reduce emissions of greenhouse gases and other pollutants. So, by having uninterrupted physical availability of energy products and services on the market, at a price affordable for consumers, both private and industrial, while contributing to EUs social and climate goals, the common EU framework of energy efficiency is successful. The first step was including these principles into the Lisbon Treaty4, spelling out exactly what is expected from Europe in the energy area. Progress has been made towards implementing EUs main goals for security (security of supply, competitiveness and sustainability), but while international challenges continue to grow, Europes energy systems adapt too slowly. The on-going enlargement of EU also does not help improving this situation, as the Union takes in countries with out-dated infrastructure and less competitive energy economies. Such is that, by 2020, the existing strategy is unlikely to achieve al its targets, as it is inadequate for the current 2012-2013 challenges posed by Russia, global warming, and each individual EU state. Romania, however, is one of the few countries in which serious improvements regarding energy usage were seen. The most significant progress is the reduction of CO2 emissions and the promotion of renewable energy production. Yet, even with successful policy proposals regarding this issue, not even Romania can reach the EU targets until 2020. The process of advocating these policies faces numerous problems, from legislation conundrums, corruption, and bureaucratic lag to exportation of natural resources, financing and industry restructuring and privatization. EU Energy Issues and Romanias National Renewable Energy Policy In 2007, the European Council adopted energy and climate change objectives for 2020: reducing greenhouse gas emissions by 20%, increasing the share of renewable energy by 20%, and to make a 20% improvement in energy efficiency.5 However, these proposals cannot be achieved, since the internal energy market is still fragmented and has not achieved its potential for transparency and accessibility. National rules and practices still prevail over European common norms, and
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COM (2010), 2020 Energy efficiency refers to a less usage of energy inputs while maintaining an equivalent level of economic activity or service; it is not the same with energy saving, which is a broader concept that includes consumption reduction through decreased economic activities. 4 Article 194, Treaty on the functioning of the European Union (TFUE) 5 COM (2010) 639,final, page 2

moreover, implementation of internal legislation is disappointing, as there have been reported more than forty infringement procedures in a year. Not only national rules prevent reaching a common energy efficiency policy, but also delays in investments and technological progress. In 2010, nearly 50% of European electricity generation was based on low-carbon energy sources, manly nuclear and hydropower. As such, more a third of EU countries can lose this generation capacity by 2020 because of the limited life-time of such installations. Furthermore, the quality of National Energy Efficiency Action Plans developed by Member States is more than disappointing, leaving behind much unexploited prospective. The lag in moving towards renewable energy usage and energy efficiency is huge, as it cannot keep up with the current global demands. At an international level, the warnings of a future tight oil supply are ignored6, whereas the current gas supply crises have done little to awaken the EU states. Europe is vulnerable, because it lacks so much, and continues to use limited conventional resources; in order to adapt to the future, the Union should focus on unconventional energy resources, on changing its member states` energy interdependence, and on creating a pan-European integrated energy market. Currently, Romania has noteworthy reserves of natural gas and domestic reserves of lignite and crude oil. Other domestic energy resources consist of nuclear and hydro. Industry however accounts for 59% of electricity demand. There is a high use of natural gas and heat in the household and service sectors, along with the high level of direct uses of biomass in households, representing 1/3rd of total household energy consumption. Romania has encountered numerous issues regarding the policy of energy efficiency. Despite its many laws and regulations concerning environment, buildings, transport, and energy7, and the involvement of many Ministries8 in implementing such policy, it still has a long way to reach EU standards. One reason would be that its national renewable energy policy was drafted and
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IEA World Energy Outlooks, 2009-2010 Government Decision 445/2009, on effects of public private projects on the environment; Electricity Law, 13/2007; Law 325/2006; Law 220/2008; Government Emergency Ordinance 44 of 16 April; Government Decision 540/2004; Government Decision 90/2008; Law No 46/2008 Forestry Code; existence of National Regulation Authority for Public Utilities Community Services (ANRSC) and National Regulation Authority in the Energy field (ANRE); Order 1459/2007 approving the Implementation norms on the buildings energy performance; Government Decision 462/2006 approving the programme District heating 2006-2015 heat and comfort and the establishment of the Project Management Unit as subsequently amended and supplemented; 8 Ministry of Economy and Finance, Ministry of Regional Development and Tourism, Ministry of Transportation and Infrastructure, Ministry of Environment and Climate Change, Ministry for Water, Forests and Fisheries, coupled with the Minister Delegate for Energy and the Minister Delegate for Scientific Research and Technological Development

implemented in the difficult context of transition and post-transition from centralised economy to market economy. Its struggle to promote a rational use of energy feverishly continued even after becoming an EU member, but problems related to financing, legislation implementation and technological progress made Romanias evolution towards an energeticefficient country sluggish and inefficient. Starting with 2000, Romania began a Joint Implementation of energy resources with many European countries, and those projects, aimed at the use of renewable energy sources such as sawdust or geothermal energy, were developed at local authorities level. They were undoubtedly favourable in the reduction of greenhouse gas emissions. But, the usable potential of these energy resources is much smaller, because of technological limitations, economic efficiency and environmental restrictions. Another potential for energy saving in which Romania invested was the promotion of energy efficiency and rational use in the building sector. The policies used were of course modelled after European ones, but the annual programmes for the thermal rehabilitation and retrofitting of energy-inefficient buildings encountered financial and legislative mishaps. The energy safety policy aimed at providing the necessary energy resources and limiting the dependence of imported energy resources; moreover, diversifying the imported resources transport routes, and increasing the capability level of electricity, natural gas and petroleum national transmission grids were all aimed at achieving sustainable development. Another important matter to be taken into consideration is the specific regulation regarding the electricity produced from renewable resources, which, out of the total electricity gross consumption, should be 35% in 2015 and 38% in 2020. However, managing well in these priorities does not mean that there are no more issues to tackle. The stimulation of investments in improvement of energy efficiency is the most problematic, followed by support of research-development activities and the reduction of the negative impact of the energy sector on the environment. Moreover, the issue of competitive markets of electricity, natural gas, petroleum, uranium, green certificates9, greenhouse gas emission certificates and other energy services has gain momentum only until now, with the on-going discussions with Gazprom and the steady rise of the energy prices. Analysis and policy proposals The biggest issue that is being debated nowadays is that while states which do not have various natural resources, such as Japan or Switzerland, had managed to develop on all

New environment stamp tax, applied in Romania on the grounds of the old car tax, increasing the amount due on Euro 3 and 4 emissions, while decreasing the tax paid for Euro 2, 1 and non-euro category cars

levels, Romania, which has plenty of natural and renewable resources, continues on being dependent on energy importation. This is not only a matter of dependency on your neighbours for energy resources, but also a reason to raise bills and taxes for its citizens. Of course, there are on-going discussions regarding the energetic independence, tax relief and gas pipelines. But these will not stop natural gas importing; and neither the fact that most of it is used to produce electricity and heat. Hence, just because Romania managed to work out its gas emissions and still does, by implementing policies which still cannot have the desired effect on the population as in Western developed European countries, it does not mean that it will also reach the 2020 EU targets. The problems lie in its ambiguous legislation, incoherent energy practices of privatization, advocating green policies, which result in huge energy bills, inefficient oil refineries and expensive petroleum products, bankrupted power-plants, and failed foreign investments in Romanias future technology. Renewable energy One long-term solution for Romanias energy efficiency policy is its management of renewable resources. According to EU 2020, until 202, 24% of the total energy consumption should be from renewable resources. For Romania, the legislative framework started with the Law 220/2008, subsequently improved by the amended Law 139/2010 and Emergency Ordinance 88/2011, and thus, by 2012, Romania had a significant share of renewables, amounting to 12% of gross national consumption and 29% of electricity production. But, looking at how things work today, Romania will not manage to reach the threshold imposed by the Union, if it will not change its legislation concerning alternative energy. Romania has potential for wind, solar and geothermal energies, but investing in them is not cheap at all, even if the benefits are great, for both the environment and the energy costs for consumers. o Wind power, as an alternative to fossil fuels, is plentiful, renewable, produces no greenhouse gas emissions, and uses little land. The wind energy potential of Romania, straightforwardly speaking, exceeds by far the gross nuclear production from the Cernavod nuclear power plant. So, as far as potential is concerned, our country has a top position, but when speaking of turning potential into advantage, we are last. The problems that legislators face are the costs, from the equipment up to the whole electricity network. Up to this day, only 0, 07% gross domestic energy consumption is covered by wind power. The south-eastern region is under immense planning of wind farms, but the process is both sluggish and costly,

even though the government used to offer grants for those interested in investing in such projects. Moreover, this issue is being debated today, since the four big projects received funding from the government, but they are all in the same area, making thus a huge wind farm. Also, the wind turbines used are made by the same producer, but the price of 1 MW of energy is different for all four projects 10. Money laundering has thus caused inefficiency in using alternative resources, and in obtaining electricity at a smaller price.
o Hydroelectricity represents almost 1/3 of the whole electricity production of Romania.

However, Romania's hydro energy potential could double with additional investments on the Danube. Micro hydro power plants are the solution, but potential investors need concrete information, which can only come from up-to-date legislation. o Romania has a major solar potential waiting to be tapped. With 210 sunny days a year, Romania is eligible for annual energy flow. Moreover, radiation level in Romania is very good compared to other countries with temperate climate. But, despite the existing potential, solar energy is not fully exploited. Although solar energy is expected to be the second most active developed source of energy, after wind, from 2013, the green certificates released by the government will be reduced, which means that foreign investments will decrease. o Geothermal potential exists as well, especially in the Central region of Romania, where there are subterranean water sources which reach even 140 degrees Celsius. For now, this renewable resource is not used to its full capacity, since there is a need to invest in modern wells, as well as in thorough documentation. Geothermal heat represents a potential for public heating, green houses, agriculture and industry. The problem, as with the other renewable sources, is the slow-moving procedures for approving such project, gaining a green certificate and receiving funding.
Imported natural gas and huge bills

It is a paradox that the Romanian government continues to claim that Romania has small prices, when it is known that Romania pays 450$, compared to Germany, who pays 380$, for the same amount of imported Russian gas. The convention signed between Romgaz and Gazprom in 1993 expires, and Romania can eventually negotiate the prices for the natural gas imported from Russia. Up until now, the gas was not imported directly from Russia, but

Press Release of the Romanian Government, 8th of December, 2012,

through other two intermediary companies. However, the European Union obliges to liberalize the natural gas market, which means that domestic gas prices need to be the same with those imported. So, it will not matter anymore if we invest in our natural resources or import them, since the prices should technically be the same. The only solution is exporting our resources to Western countries, and for ourselves, finding other energy sources, such as shale gas. In Romania, there would be no need to modify the existing legislation, since it covers all types of hydrocarbon explorations. Moreover, the hydraulic fracturing method, which is said to have environmental disadvantages, has been used for decades in Romania, with petroleum extraction. Because of shale gas extractions, the price of gas in America, for example, fell by half in the last five years. Nevertheless, it takes years for the benefits to be seen, and population trust needs to be gained in order to invest in shale gas extraction.
Exporting resources

The first private power plant for electricity was funded by BERD, and even if its contract with the Romanian state mentioned the use of only domestic gas resources for a fixed price for the energy obtained, OMV Trading decided to also sell electricity packages on the external market, at a smaller price. The second power plant 11, this time built under Chinese surveillance, will also export its energy in Turkey and Austria, so as not to complete with the domestic prices. The export issue of energy has consequences not only in the energy bill, but also in black outs. In 2012, several black outs were caused by the electricity deficit of Transelectica. Because of droughts and small temperatures, combined with reduced coal and other fossil fuels, it could not cover the consumers need and exportation at the same time.
Private investments versus smart privatization

In 2010, energy production was held almost entirely by the Romanian state. Today, the state invests huge amounts of money in green solutions, overpowering the traditional ways of obtaining energy and raising bills for consumers. Moreover, numerous companies are being privatized12, without taking into account that the packages being sold can be modified afterwards through investments, the reason being that the State never tried to invest in updating the technology. Today, more than 85% of the Romanian power-stations are older than 30 years, and most of the plumbing installations have not respected the environmental

Complexul Energetic Oltenia, 12 OMV Petrom, Transelectrica , Transgaz, Romgaz, Nuclearelectrica, Hidroelectrica

norms of EU and they risk being shut down. Companies that invest in renewable energy production in Romania can receive financing up to 50 per cent of the eligible value of the project. In 2010, energetic companies announced that they would invest in Romania so as to build twelve new power stations on gas or coal. However, only one was built, the rest of the projects abandoned because of the economic crisis, the unclear legislative framework and the incoherence of the national energetic strategy. Thus, the only thing that remained attractive to foreign investments is the renewable sources, because here, producers benefit from state subsidies, and because of them, wind energy is three time more expensive than the classical one. Countries determined to subsidise expensive forms of green energy will be allowed to carry on this procedure by EU, which sees all these as a gamble on innovation. Denmark learned its lesson by subsidising wind turbines for years and now earns huge sums of money exporting them. Proposals After briefly analyzing the problems that Romania faces, coherent proposals can be drafted for improving the energy efficiency of this country: 1. Modification of the Green Certificates Scheme: the logic behind this implementation is to attract producers in investing in renewable energy. These free certificates are given to energy producers, based on the programme of generous governmental subsidies. Afterwards, the producer sells the free certificates on huge amounts of money energy providers, which in turn, sell the "green" energy" at huge prices. These costs are seen today in the bills of individual consumers13, and by 2016, 30% of these bills will go the subsidies of wind farms. Of course, the subsidies offered by the government are used for the foreign equipment and for other projects in foreign countries, since the profit needs to go to those who invest. Instead of choosing to finance in modernisation of our power plants, Romania chose to sell them and invest in green energy, which of course is much more expensive than classical one, because there are no capable people to provide a rational framework that can balance the costs-benefits relation. 2. Continue exploration for shale gas and extraction of natural gas in the Black Sea ; exploiting such reservoirs undoubtedly can give Romania energy independence from the point


Cogeneration contribution, with 2 lei added to the electricity bill in 2013, for green energy


of view of natural gas. Continue on informing citizens and holding information campaigns and debates; 3. Provide safety schemes for those who will not afford to pay their bills after the liberalization of the natural gas market; 4. Invest in modernising power plants instead of privatizing them on small prices; Companies which have been privatized will continue on producing energy, under huge foreign investments, and export it, with the State having no say in this; thus, a thorough legislation should be implemented, taking into account all factors which affect energy production, as well as putting a stop to exports when there is a deficit present in energy resources; 5. Over taxation of the currently privatized energy companies , so that 60% of their extraincomes should go directly to the state budget. Another tax should be put on the country's own resources, paid by companies that transport and distribute electricity and natural gas, such as Enel, Romgaz and Transgaz. Current debates are being held regarding this monopolistic tax, but it is the only solution for all the losses suffered because of deficient management of resources. 6. Nuclear power investment; this issue however is thoroughly debated, especially since the Fukushima incident from Japan. In Romania, the current nuclear power plant produces about 18 per cent from the gross domestic usage of energy. 7. Continue on investing in hydro power plants: Building wind-farms is relatively cheaper than hydro power plants, and the technological innovations in this domain permit the energy production to be huge, compared to other resources. But, since the scheme provided by the government cannot be considered useful for the population, attracting foreign investment for micro power plants on strategic water sources can improve our energy efficiency. 8. Investing in new technologies for obtaining energy, such as saw dust, biofuels, or biomass. Conclusions and suggestions to Policy Reform The European Union issued an energy policy that promised to restrain climate change, increase energy security, shield economies from unstable fuel prices and raise new industries in which Europe will lead the world. There is a solution for every country; for those worried about global warming, there is a target to reduce greenhouse-gas emissions; for those against nuclear power, huge bets are set on technologies such as wind and wave power. And for ex11

communist newcomers, the policy stresses independence from daunting suppliers such as Russia. However, this string of ambitious but sketchy energy goals cannot be achieved by 2020, providing that each country deals with different policies that match their own domestic agenda. Moreover, the economic crisis made numerous EU states to abandon some green policies in favour of other schemes for improving their economy. Romania, however, tried to set up policies in all areas, without investing first into its own modernisation. The measures were proven to be deficient, since.


The Kyoto Protocol to the United Nations Framework Convention on Climate Change (UNFCCC)