Select Committee on Environmental Audit Seventh Report



Energy efficiency and sustainable development

  36. Improving end-use energy efficiency and promoting energy conservation has the potential to contribute to all four of the Government's sustainable development objectives as set out in its revised strategy for the UK, "A better quality of life"[52]:

  • addressing the energy efficiency dimension of fuel poverty will contribute significantly to the achievement of equitable social progress (and a more prudent use of public expenditure);

  • reducing emissions of greenhouse gases and air pollution from the energy consumption will contribute significantly to the effective protection of the environment;

  • reducing the use of non-renewable fossil fuels will effect a more prudent use of natural resources; and

  • improving productivity (although energy costs are a small proportion of production costs for most goods and services); creating employment opportunities (e.g. in the home insulation industry); and developing new markets (eg in energy efficiency technologies) will assist in the maintenance of high and stable levels of economic growth and employment.[53]

37. There is, however, a distinction between energy efficiency and energy savings (conservation). The former is a means to secure the latter without necessarily reducing welfare—getting more from the same. But increased efficiency may not always lead to reduced consumption. Clearly energy efficiency measures are implemented to reduce energy costs. A key point is how the savings are used. As we have said above, in the case of efficiency measures installed to address fuel poverty, the objective is affordable warmth, and a significant proportion of the energy-saved will be taken in the form of greater "comfort", for example by heating more of a house or heating a house more.

38. Even where greater comfort is not an objective, resources released by increased energy efficiency may be invested in further energy-consuming productive capacity (or goods with high levels of embedded energy) that will act to maintain or increase overall consumption—this is known as the 'rebound effect'.[54] This effect has the potential to limit the effectiveness of increasing the promotion of energy efficiency as a strategy on its own and needs to be taken into account in making forecasts about the contribution of energy efficiency to environmental targets. This effect points to the need for a sustainable energy strategy to address both cleaning up production (by moving away from fossil fuels) as well as maximising efficiency of energy use.

Fuel poverty

  39. There remains a substantial problem of fuel poverty in the UK. This is the result of a combination of low income and low levels of home energy efficiency. A fuel-poor household is one where over 10 per cent of income needs to be spent on maintaining satisfactory heating levels. The table below shows the extent of the problem according to the Government's consultation document.

Table 5Fuel poverty in the UK, 1991 and 1996


Total no. of households

No. of households spending x% of income on fuel:—

No. of fuel poor

households (and % of total)

under 10%


over 20%






6,630,000 (34.7%)






4,372,000 (22.2%)

1. 1996 estimates include housing costs in calculation of household income. The 1996 figures for fuel poor households calculated on the 1991basis are 5,276,000 (26.8%).

Source: DETR, Fuel Poverty: The New HEES, May 1999

The problem of fuel poverty appears to be almost unique to the British Isles and its persistence is a national scandal. Research by National Energy Action (NEA) in 1997 observed that virtually all households in the Netherlands and Germany claimed to be able to adequately heat their homes while more than one in 10 households in the UK and Ireland cannot. The report concluded that more than five times as many homes in Ireland and the UK as in Germany and the Netherlands suffer from fuel poverty.[55] A number of witnesses described the non-comprehension in comparable European countries of the fact that in the UK people can die of cold within their homes and this was borne out in our discussions in Copenhagen and Bonn.[56]

40. The implications of fuel poverty for equitable social progress are serious. Damp cold housing causes chronic health problems and contributes to the winter 'blip' in UK mortality of 30,000 extra deaths.[57] The need to spend a disproportionate amount of income on energy consumption imposes inequitable opportunity costs on those concerned. There are estimates (though not by Government) of a burden on the NHS of between £50 million to £1 billion per year.[58] The damp caused by poor heating also exacerbates property decay and therefore maintenance bills.[59] The Government estimates the cost of personal subsidy (including winter fuel supplements and cold weather payments) to be £3,615 million over the next three years. The energy efficiency component of current plans for property improvement (including funds from both central and local government) are estimated to be about £1,210 million over the same period—about a third of the subsidy figure.[60]

41. This imbalance between alleviating symptoms (more part of the problem than part of the solution) and addressing the root cause does not seem to reflect a prudent use of public resources under the long-term perspective which has become a hallmark of the current Chancellor's pronouncements. We do not believe that expenditure can simply be switched from subsidy to capital investment given the extent of the existing problems but rather that, over the longer term, an appropriate programme of capital investment, in addressing fuel poverty and the quality of the UK housing stock, is likely to yield substantial environmental, social and public expenditure benefits.

42. The fall in energy prices flowing from liberalisation and competition should assist those in fuel poverty. However, witnesses such as the NEA and the LGA argue that this latter benefit will be constrained in two ways. First, those in fuel poverty are likely to be in receipt of benefits whose uprating is linked to movement in the Retail Price Index (RPI) of which energy prices form a part. Secondly, lown- income customers are unlikely to be sought out by energy supply companies and thus the benefits of competition may not accrue to those in most need.[61] Furthermore, as the Government itself stresses, fuel poverty is the result of low energy efficiency, as well as low income, resulting in an excessive proportion of income being needed to achieve, most importantly, an adequate heating regime.[62]

Fuel poverty and environmental concerns

  43. The extent to which the incidence of fuel poverty represents potential energy savings that could yield emissions reductions is unclear. Obviously the objective of policies on fuel poverty is to provide 'affordable warmth' which does not necessarily mean a reduction in consumption. The Energy Saving Trust however points to the achievement of energy savings from the Energy Efficiency Standards of Performance scheme despite 60 per cent. of expenditure being on low income households.[63]

44. Whatever the balance of benefits, there should be both social and environmental gains and we believe that addressing fuel poverty will also have a significant long term advantage in freeing the Government to consider other means of addressing domestic energy consumption when appropriate to do so. Currently, the Government has given commitments not to tax domestic fuel and power and has reduced the relevant rate of VAT to the lowest possible rate consistent with European Community law (5 per cent). The imperative to avoid increasing the burden on those in fuel poverty has what we regard as an unfortunate effect of exempting households of higher income, and higher energy use, from being presented with the wider implications of their consumption. This does not seem to be entirely equitable, nor sustainable over the longer term, in view of the magnitude of the emissions reductions required. However, fuel poverty must be addressed first.

45. The main Government programme for directly addressing fuel poverty has been the Home Energy Efficiency Scheme (HEES) which directly funds the provision of energy saving measures for low income households. Witnesses were at pains to stress that the scheme has been implemented well and has met the objectives as defined previously by Ministers. The criticisms that we heard from the Energy Saving Trust (EST) and the Association for the Conservation of Energy (ACE) were aimed at those objectives. Dr Eoin Lees of the Trust described the second manifestation of the scheme as an "unmitigated disaster" in that it did not reach those in the most need and was limited to the installation of one measure per property.[64] Since a large proportion of costs and effort is involved in getting installers on site in the first place, it was not cost- effective to limit what could be done in this window of opportunity.[65] We welcome the allocation of increased funds for the alleviation of fuel poverty set to rise to £150m in 2001-02 (representing a doubling of its current level). We also welcome the issue of the Government's proposals for "new HEES" which in essence tighten the focus of the scheme to identify those in priority need and without recourse to other sources of funding (such as local authorities and other social landlords) and raise the maximum grant for an individual property.[66] This would appear to begin to address the criticisms we heard. It seems therefore against the trend of these reforms to set a target for the scheme in terms of the numbers of buildings dealt with rather than in terms of actual achievements.[67]

46. The persistent problem of fuel poverty in the UK is a continuing national scandal. Its contribution to 30,000 extra winter deaths (including some caused by cold within the home), and the fact that up to four and a half million people are significantly affected, should be addressed with the sort of urgency and determination usually reserved for more sudden crises here and abroad.

  • In terms of public expenditure alone we believe it would be most prudent and effective to address the underlying causes of fuel poverty with a substantial and specific programme of capital investment to raise energy efficiency standards.

  • We are concerned at the way the target for HEES is expressed in the Sustainable Development Strategy in terms of the installation of "energy efficiency measures" in a headline number of buildings—one million—by 2002. We would prefer a more meaningful measure of the outcomes achieved in terms of a reduction in the incidence of fuel poverty and some assessment of associated emissions reductions.

  • We believe that until fuel poverty is addressed, taxes on domestic fuel and power are difficult to countenance. However, if the UK is to deliver the necessary reductions in greenhouse gas emissions (by 2010 and beyond) we do not believe that the domestic sector can be permanently exempt from the environmental consequences of its energy consumption. Therefore addressing fuel poverty is both a social and environmental imperative.

52  Cm 4345 Back

53  See a better quality of life - a strategy for the sustainable development of the UK, Cm. 4345, and briefing for the Committee from the Parliamentary Office of Science and Technology (POST), Appendix 1, HC159n- II. Back

54  EERU Report, No. 074, Does energy efficiency save energy, Herring, OU, July 1998 Back

55  NEA, 1997 Back

56  See Q191 Back

57  Ev pp 230ff Back

58  QQ665- 6 Back

59  Ev p 328 Back

60  Ev p 233-4  Back

61  Ev p 328 and Q566 Back

62  Ev p 228 Back

63  Ev p 16 Back

64  Q54 Back

65  Q137 Back

66  Fuel Poverty: The New HEES - a programme for warmer, healthier homes, DETR, May 1999 Back

67  Revised UK Sustainable Development Strategy, A better quality of life, Cm 4345, p 61. Back

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