IEA commends Luxembourg for clear improvements in energy policy, but urges stronger action on climate change and oil security

“Luxembourg has strongly improved its energy policy over the past few years”, said Nobuo Tanaka, Executive Director of the International Energy Agency (IEA), today in Luxembourg at the launch of Energy Policies of IEA Countries – Luxembourg 2008 Review. He highlighted the country’s full deregulation of its electricity and natural gas markets, and its active participation in the development of the evolving Central West European regional electricity system.

“Luxembourg has revised the requirements for energy efficiency in buildings, and has ambitious plans for improving energy efficiency in all sectors. The country has also enhanced the support system for renewable energy sources and changed car taxation to reflect CO2 emissions. All these are significant developments”, Mr. Tanaka said. However the IEA publication points out that there is still room for improvement. Reducing CO2 emissions and ensuring secure oil supplies remain key challenges.

Post-2012 plan needed to reduce CO2 emissions: focus on transport
Luxembourg expects to reach its Kyoto target by using international flexibility mechanisms. This strategy will, however, be challenged in the post-Kyoto period by the new more limited role for flexible mechanisms under the EU law. As transport is by far the largest polluter, it is the logical focus for further efforts. But the dominant share of foreign consumers in transport fuel sales is complicating the matter.

“Purely from an energy policy point of view, the simplest way to reduce emissions in Luxembourg would be to raise taxes on transport fuels to equal those in neighbouring countries. But we understand this would come at a high cost, and have large fiscal implications,” observed Mr. Tanaka. “There is no silver bullet, and all options should be considered. This is why the government needs to develop an integrated medium- to long-term energy and climate strategy, with a focus on transport”, he added.

Improve oil security
Luxembourg is heavily dependent on oil imports. Although the country has enough emergency stocks of oil to meet its obligations as an IEA member country, more than 85% of these stocks are held in neighbouring countries and are often based on short-term leasing contracts. Adding to potential supply risks, more than half of the current storage capacity in Luxembourg may have to be closed in the next five years.