Energy Efficiency: Time to get out of reverse gear

by Jan Rosenow & Richard Cowart

In recent years across the UK, citizens, government, and the business community have all demonstrated a willingness to lead the world in the fight against climate change. So the mystery today is – why is the UK walking away from energy efficiency, the most effective and least-cost way of reducing carbon emissions?

We certainly know better. When it comes to energy efficiency, the UK has achieved a great deal. On average, individual households now use 37 percent less energy than they did in 1970, with the bulk of this decrease occurring since 2004. Total household energy use decreased by 19 percent between 2000 and 2014, despite a 12 percent increase in the number of households and a 9.7 percent increase in population.

flickr photo by itmpa https://flickr.com/photos/itmpa/5127227514 shared under a Creative Commons (BY-NC-ND) license

flickr photo by itmpa shared under a Creative Commons (BY-NC-ND) license

Those impressive reductions in energy use have not been accidental – they have been driven by energy efficiency policies such as Energy Efficiency Obligations on energy suppliers, regulation supporting condensing boilers, and grant programmes such as Warm Front. Research commissioned by British Gas has shown that about 2/3 of the large reduction in domestic gas use has been achieved by energy efficiency improvements.

However, the introduction of the Green Deal and the reorientation of the Energy Company Obligation (ECO) resulted in a sharp drop in the installation rates of energy efficiency measures. By mid-2015 the average delivery rate for loft insulation had dropped by 90 percent, cavity wall insulation was down by 62 percent, and solid wall insulation had declined by 57 percent compared to 2012. It is now widely accepted that the Green Deal failed and the recent report by the National Audit Office confirms this view. The level of energy demand reduction is therefore expected to slow down in coming years.

Going forward, ECO will be focused on households in fuel poverty, an area that has traditionally been supported by dedicated grant programmes. For the first time in more than two decades, there is currently no energy efficiency programme for the able-to-pay market, even though most of the properties requiring energy efficiency measures are within this segment. In order for the UK to meet its carbon targets this acute policy void needs to be filled.

This cannot be achieved simply by wishing that “energy markets will deliver energy efficiency,” without either helping consumers or regulating energy businesses. International experience shows that where energy efficiency improvements have been delivered at scale they succeed either by providing incentives and other supports to consumers, or through regulatory requirements, or a combination of the two.

The Westminster Sustainable Business Forum’s new report Warmer & Greener: A guide to the future of domestic energy efficiency policy provides a number of important recommendations in those areas. Developing more stringent regulatory requirements for existing properties at the point of sale or rental is one of them. New financial mechanisms are equally important to trigger investment in energy efficiency. Providing rebates for energy efficiency improvements would offer home buyers the option to claim back part of the Stamp Duty they have to pay if they upgrade their properties. If designed carefully, this could be done so that it is fiscally neutral. Including the able to pay market within ECO is also considered in the report and has been proven to work in the past.

An alternative approach could be to deliver carbon credits or carbon revenue to energy service companies or building contractors who deliver efficiency savings, thus mobilizing the UK’s carbon levy to actually deliver carbon reductions while lowering, rather than raising, the nation’s energy bill.

There is no shortage of ideas for upscaling energy efficiency delivery – it is time for the government to reconsider its approach and develop a bold policy to make the most of the energy efficiency opportunity in the UK.

Jan Rosenow contributed to the WSBF’s recent report Warmer & Greener: A guide to the future of domestic energy efficiency policy

This blog was originally published by Policy Connect.