Energy efficiency plan looks to business to take the heat off homes

Energy efficiency in households will deliver smaller CO2 savings than predicted in last year's energy White Paper, according to an energy efficiency plan issued by the Government.1 Further savings from business are expected to make up the shortfall - but the plan is very weak on the commercial building sector.

The energy White Paper projected that energy efficiency would deliver about half of the additional reductions in carbon dioxide emissions which the Government is seeking by 2020 (ENDS Report 338, pp 26-32 ). However, it offered few details - and left the meat to an implementation plan promised within a year.

The plan was published at the end of April, as part of a bumper package which included a progress report on the White Paper, a long-overdue strategy for combined heat and power (CHP) (see p 44 ), a consultation on biofuels (see pp 46-47 ) and a progress report on fuel poverty.

The plan restates the aim "to deliver a step change in energy efficiency on a scale not achieved before in the UK, and to do this in the face of increasing demand for energy." It claims that this step change "is already under way" in some parts of the economy - notably in industrial sectors under climate change agreements (CCAs), which are said to have tripled historic rates of energy efficiency improvement.

The Government stresses that many measures in the plan "depend on voluntary take up by homeowners and businesses" - and suggests that earlier efficiency programmes focused on technical and economic issues rather than "behavioural and cultural" barriers.

The White Paper projected that energy efficiency could contribute savings of some 10mtC (million tonnes of carbon) by 2010, of which 5mtC were expected from households. A further 10mtC were expected by 2020, split fairly evenly between households and the business and public sectors.

The Government has now pruned its expectations for domestic energy efficiency to 4.2mtC by 2010. Of this, 3.5mtC is expected in England and forms a statutory aim under the Sustainable Energy Act 2003.

The Government claims that further savings from industry will push the total saving from the plan up to 12mtC (see below). The extra savings are far from sufficient to make up the expected shortfall against the Government's target to cut CO2 emissions by 20% by 2010 (see pp 41-44 ) - and a review of the climate change programme, due by the end of the year, is likely to require a beefing up of existing policies.

Worryingly, an annex identifies serious risks to delivery of the plan's promised savings. The most significant high-risk areas include poor enforcement, efficiencies being swamped by rising use of energy-consuming products, and delays in reaching agreement on EU and international policies. There is a "medium" risk that energy efficiency improvements will not deliver the expected carbon savings.

The plan offers few new initiatives, but offers more detail on many previously announced measures. The main points are:

  • Households: The Government has confirmed plans to increase the energy efficiency commitment (EEC) on gas and electricity suppliers.

    A second three-year EEC starting next April will run at "broadly double the current levels of activity", delivering extra savings of 0.7mtC by 2010. The Government puts the annual costs at "not more than" £9 per fuel per customer, a level which "is expected to be highly cost-effective". A consultation on the details is expected shortly.

    However, the Government dropped proposals - contained in late drafts of the plan - to triple the EEC in 2008-11. The move - the main reason for the shortfall in savings from the housing sector - was driven by the energy supply companies' concerns over cost, supported by the Treasury and Department of Trade and Industry.

    The EEC is now expected to stay at broadly the same level from 2005 to 2011, subject to a review in 2007. The review will also explore "the opportunities for trading of the energy/carbon savings achieved" - an apparent reference to plans for "white certificates" under a proposed EU Directive on energy services (ENDS Report 347, p 56 ).

    Cavity wall insulation is expected to be the main source of savings under the EEC. So far, insulation has been fitted to just 8 million of the 17 million dwellings with wall cavities. The plan says that installation rates need to increase three-fold by 2009. This looks ambitious - installation rates have remained fairly static, even though under the EEC energy suppliers are offering discounts of 50% or more.

    After 2010, the plan says, the biggest challenges will be to develop insulation technologies suitable for the 7 million houses with solid walls and to tackle homes off the gas network.

    The other main contributor to carbon savings will be revised building regulations. New standards will take effect at the end of 2005 following a consultation this summer, and are expected to deliver savings of 0.8mtC by 2010. The Government intends to move towards regular five-yearly reviews of the standards.

    Most of the savings from the new building regulations will come from the new

    efficiency standard for boilers, which will generally require condensing boilers from next April. The plan expects no significant carbon savings from domestic CHP systems by 2010.

    Condensing boilers currently account for only 15% of the market and gearing the industry up by next year is a considerable challenge. Indeed, a revealing figure in the plan - apparently included by mistake - shows that the Government does not expect condensing boilers to capture the market until 2009.

    The figure reinforces the concern, acknowledged by the plan, that the building regulations' effectiveness is "being undermined by inadequate enforcement." Another problem is that the regulations only apply to existing buildings when people elect to carry out work. Parliament is currently considering a Private Member's Bill to enable the regulations to be applied to existing buildings (ENDS Report 350, pp 45-46 ).

    The third element of the package is a range of policies designed to tackle fuel poverty. The Government has delayed its promised fuel poverty implementation plan until after this summer's spending review.

    The number of households in fuel poverty fell to 2.25 million in 2002 - down from 3 million in 2001 and 5.5 million in 1996. However, much of the reduction to date has been delivered by falling energy prices - a trend which is set to go into reverse, not least because of the EU emissions trading scheme and renewables obligation.

    A range of other measures are in train, including a trial suspension of the "28-day" rule to develop energy services (ENDS Report 347, pp 49-50 ); a range of fiscal measures announced in the last Budget (ENDS Report 350, pp 28-30 ); and energy surveys in sellers' packs under the current Housing Bill.

    In late May, the Government also received a report from the Sustainable Buildings Task Group,2 set up at last year's "better buildings" summit (ENDS Report 346, pp 49-50 ). The main recommendation is for a new "code for sustainable building", setting out best practice standards for energy efficiency, water consumption and waste production. The group calls for reduced stamp duty on buildings which conform to the code.

  • Industry: The plan now expects energy efficiency measures in industry to deliver 7.9mtC by 2010 - up from 6mtC in the 2000 climate change programme.

    Most of the extra savings are expected to come from the CCAs. Targets under the 44 existing agreements are being reviewed this year, and the Government expects further savings of 0.9mtC to be added to the 2.4mtC already expected by 2010.

    Moreover, the Budget confirmed that CCAs will be extended to energy-intensive sectors which currently pay the full rate of climate change levy (ENDS Report 350, pp 28-30 ). The plan says this could deliver additional savings of "up to" 0.5mtC by 2010 - bringing the total from CCAs to 3.8mtC.

    The plan does not acknowledge the growing concern that CCAs may fail to deliver these savings. Many companies may instead dip into the massive surplus of cheap allowances from the UK emissions trading scheme and from over-compliance in the first CCA milestone period (ENDS Report 351, pp 27-30 ).

    The remaining additional saving will come from the Carbon Trust - which is now expected to deliver savings of 1mtC by 2010, double the figure in the climate change programme. The plan offers almost no details.

    Michael Rea, the Trust's director of strategy, is confident that it can deliver the saving without additional funding through its Action Energy advice service, interest-free loans to small firms, and building on its pilot Carbon Management programme with larger companies. However, the Trust may have its work cut out - the savings will need to come from less energy-intensive activities outside the CCAs and EU emissions trading scheme.

    The energy White Paper had suggested that the EEC could be extended to cover small firms as well as households. The plan drops the idea - citing possible high costs, difficulties in targeting such customers, and fears that domestic consumers could end up supporting energy efficiency improvements in business. However, none of these concerns prevented small businesses from being targeted under the EEC's predecessor, the "standards of performance" scheme.

  • Commercial buildings: The plan notes that the office and retail sectors have "the fastest growing energy use apart from aviation." However, action on energy efficiency has been "intermittent and restricted to a limited number of leading players" - mainly as a result of "relatively weak regulatory standards."

    However, the plan then peters out. The Government intends merely "to develop strong regulatory and market-based policies and support measures to stimulate energy efficiency uptake".

    Andrew Warren of the Association for the Conservation of Energy said: "This is supposed to be an implementation plan, not an intention plan. They really must be in contravention of the Trade Descriptions Act."

    The plan also says next to nothing about the implementation of the EU Directive on the energy performance of buildings, which is due by the start of 2006. This will require a beefing up of the building regulations, a new system of energy performance certificates, and regular inspection of boilers and air conditioning systems.

    Member States may delay the inspection and certification requirements by three years if there is a lack of qualified experts. Mr Warren points out that the plan says nothing about the training of assessors - suggesting that the UK is unlikely to implement the Directive in full until 2009.

  • Public sector: The Government recently announced new targets for energy efficiency on the central government estate (ENDS Report 350, p 8 ).

    The plan adds a new target to procure only buildings that are in the top quartile of energy performance - and to extend the initiative to include the rest of the public estate "as soon as practicable." The move may have a significant impact on the commercial property market, as the Government is currently responsible for about 30% of spending on new build.

    Earlier drafts of the plan warned that the private finance initiative - an important vehicle for public sector investment - "often fails to effectively include or incentivise energy efficiency" and proposed a strong role for the Carbon Trust. However, the final version merely offers anodyne statements about the need to give emphasis to sustainable development criteria in procurement documentation.

  • Products: The plan has little to say on products policy, other than pledging that the UK will negotiate rising standards through EU-wide agreements and Directives. The Government's Market Transformation Programme intends to establish energy efficiency information and standards "for at least 10 products".

  • Communication and awareness: The Government is "actively exploring the scope for a new climate change information campaign" to reinforce the strategy, although it accepts that "awareness alone rarely results in changes in behaviour".

    The Energy Saving Trust is keen to play a role by expanding its existing network of 52 energy efficiency advice centres into "sustainable energy centres", which would also offer advice on renewables and sustainable transport. It is seeking extra funds of some £20 million over three years in the forthcoming spending review.

  • Links with emissions trading: The new EU emissions trading framework (see p 54 ) raises awkward questions about the continuing relevance of many policies to address energy use. There are dangers of double counting if policies reduce emissions from installations covered by the scheme - either by reducing electricity demand, or by offering help to manufacturing industry.

    The plan accepts that "further work will be needed" to ensure that energy efficiency programmes integrate with the trading scheme. Carbon savings from demand-side measures will need to be reviewed and taken into account when setting the generators' caps for the second phase of the scheme in 2006.

    The Government also wants to explore options for allowing demand-side "projects" to link directly with the emissions trading scheme, and in the longer term to bring "the demand side more fully within the scope of the ETS itself".

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