FURTHER MEMORANDUM FROM THE DEPARTMENT
OF THE ENVIRONMENT, TRANSPORT AND THE REGIONS AND THE DEPARTMENT
OF TRADE AND INDUSTRY
SECOND RESPONSE TO THE SEVENTH REPORT FROM
THE COMMITTEE, 1998-99, HC 159, ENERGY EFFICIENCY
In September 1999 the Government responded to
the issues raised in the Summary of Conclusions and Recommendations
in the Committee's Seventh Report on Energy Efficiency. This paper
responds to a number of additional issues identified by the Committee,
on which they would welcome further advice.
1. We recommend that the UK, along with its
international partners with the EU and the OECD seek to develop
a set of indicators for national energy efficiency. These indicators
should be based around:
energy intensity (whole economy*
and by sector);
energy consumption by sector;*
energy prices (by sector* including
proportion made up of taxes);
import/export balance of energy-intensive
incidence of fuel poverty*
thermal efficiency of housing
levels of investment in energy
efficiency measures (all sectors, including contribution from
public expenditure); and
public expenditure on energy conservation
and efficiency research and development.
We note that a number of these (marked *)
appear in the description of the Government's chosen sustainable
development indicators that was published alongside the revised
UK Sustainable Development Strategy. (Paragraph 19)
The Government is working to ensure that useful
energy efficiency indicators are available at national and international
As the Committee have noted, five of the eight
national indicators which they have suggested are already included
in the set of sustainable development indicators in "Quality
of Life Counts (indicators for a strategy for sustainable development
for the UK: a baseline assessment)", published by DETR in
Also, DTI produces an annual booklet of "Energy
Indicators"; the 1999 version was published on 23 December
1999 and is available on the website at www.dti.gov.uk/epa/esi.
The "Energy Indicators" booklet covers a range of indicators
and includes a number on energy efficiency.
The Government has produced energy efficiency
indicators in a range of areas, where consistency of reporting
can be assured. In those areas where consistency of information
is more difficult, the Government will look to carry out research
to identify what other energy efficiency indicators might usefully
The Government is actively encouraging the European
Union and the International Energy Agency to develop energy efficiency
indicators. Under the EU SAVE programme a large dataset of both
energy consumption figures and related socio/economic variables
such as industrial output, number of households, etc is being
compiled. A booklet entitled "Energy Efficiency Indicators:
the European Experience", outlining some of the analyses,
was published in 1999. In addition, in December 1999, EUROSTAT
published a booklet, "IntegrationIndicators for Energy".
In addition, the Government is encouraging the
Commission to identify a key set of summary energy consumption
indicators, to enable broad-brush comparisons across Member States
to be carried out more easily.
The International Energy Agency (IEA) has produced
several analyses of energy efficiency comparisons, using indicators,
in the last few years. Recent examples include "Indicators
of Energy Use and Efficiency" (May 1997) and "The Link
between Energy and Human Activity" (November 1997). The IEA
are also working with the European Commission to extend the work
being done through the SAVE project to other, non-European, OECD
2. We urge the DTI to publish its latest
energy forecasts as soon as possible. (Paragraph 21)
New energy and emission projections have been
made available, as a Working Paper, alongside the draft climate
change programme issued on 9 March. Putting these in the public
domain has taken longer than we might have hopedbut as
the Committee itself recognised in its Seventh Report, the issues
are complex and the policy agenda has itself been moving, with
knock-on effects to the projections.
It clearly was important to ensure that the
analysis was available to support the assessments within the draft
climate change programme. We have done that.
3. The programmes for industry provide information
and advice rather than grant funding or tax incentives and this
is unchanged under proposals for the Climate Change Levy. There
appears to be some overlap between the best practice programmes
and there may be value in reviewing them to assess whether a single
programme might be able to offer economies of scale and a higher
critical mass of expertise (they currently share a telephone hotline).
The Energy Efficiency Best Practice programme
funded by the DETR is a well established and respected programme
providing impartial advice and information on worthwhile energy
efficiency measures; sectoral benchmarking information on energy
use and consumption performance; and support for research, development
and demonstration. It has very close links with the joint DTI/DETR
Environmental Technology Best Practice programme through, for
example, common membership of programme steering machinery. These
links will continue and opportunities will be taken to develop
joint activities (for example, the environment and energy Helpline)
where this helps deliver a better, more coherent service to business
and the public sector.
In the 1999 Budget the Chancellor announced
proposals for a £50 million per annum fund to promote energy
efficiency and renewables. For energy efficiency, this is intended
to be used to provide advice to businesses, particularly small
and medium sized enterprises, and to support research and development
of low carbon technologies. This support will build on information
and advice already available through the Energy Efficiency Best
Practice programme. In his November 1999 Pre-Budget Report, the
Chancellor announced that, in the light of responses to the consultation
on the Climate Change Levy, he was minded to increase the support
for energy efficiency measures under the Climate Change Levy package.
The enhanced capital allowance scheme is a new
initiative aimed at boosting the take-up of new, energy efficient
technology. It draws on the scheme currently running successfully
in the Netherlands. The scheme will give companies 100 per cent
first year capital allowances for energy saving investments. Businesses
will be able to set this investment against their corporation
or income tax bills. The Government is currently considering which
energy efficient products and technologies might qualify, in the
light of responses to the recent consultation exercise.
Energy intensive sectors of industry will also
be able to qualify for an 80 per cent discount in the rate of
Climate Change Levy if they agree to energy or emission targets
with the Government. The 80 per cent discount will act as a further
incentive to companies to make investment in energy efficiencyif
milestone targets are not met, companies will be required to pay
the full rate of Levy.
In addition, Good Quality Combined Heat and
Power will be exempt from the Climate Change Levy.
4. In addition to assessing the benefits
of combining the two programmes the Government should consider
whether the resources available are sufficient to make the best
out of the introduction of the Climate Change Levy. (Paragraph
The announcement by the Chancellor of his intention
to raise the support for energy efficiency measures under the
Climate Change Levy package, from £50 million for 2001-02
rising to £150 million shows an increased commitment to the
introduction of the Climate Change Levy.
The £50 million fund is intended to:
provide energy efficiency advice/audits
to small and medium sized enterprises;
promote the development of "new"
sources of renewable energy; and
encourage the research and development
and take-up of low carbon technologies and energy saving measures
through a "carbon trust".
The £50 million fund and the enhanced capital
allowance scheme need to be fully integrated into a wider package
of energy efficiency policies and measures. This is in line with
established programmes operating in other countries, which aim
to speed up technological innovation and to facilitate the diffusion
of new technologies by developing synergies between research,
development and demonstration (RD&D) and advice programmes.
The Government therefore intends to adopt a
co-ordinated approach. Synergy between the various elements is
vital to enable the various policies and measures to work together.
The proposed programme elements are therefore designed to form
a balanced, integrated programme.
5. Given this broad experience of partnerships
and SMEs we believe there is merit in Ministers asking the Trust
to administer the fund for sustainable energy being created out
of revenue from the Climate Change Levy. (Paragraph 69)
The Government is in the process of taking views
about how to put this programme together and the organisational
structures needed to ensure its effective delivery. Final decisions
will be made as part of the 2000 Spending Review.
6. We recommend that the Government's work
on the draft Climate Change Programme address the development
of a clear, accurate and consistent way of expressing the targets
and performance of its energy efficiency programmes. (Paragraph
Work on the draft climate change programme followed
the course recommended by the Committee.
The draft climate change programme, which was
published on 9 March, summarises the scope for carbon savings
from the different elements of the Government's proposed programme.
It also lists the main areas of non-quantified action which are
expected to add to the Government's core programme.
A technical paper has been produced by officials
in the Department of the Environment Transport and the Regions
as an accompaniment to the draft climate change programme. It
provides further details of the derivation of the carbon savings
figures included in the draft programme. For each measure included
in the draft programme it sets out the source of the data, the
models that have been used, any key assumptions and uncertainties,
and where further information may be obtained. The technical paper
is available on the DETR website at http://www.environment.detr.gov.uk/consult/draftclimatechange/index.htm.
7. We are concerned by the apparent lack
of communication between Ministers and the Director General of
Electricity and Gas Supply over the immediate and longer term
future of the Standards of Performance scheme. We urge Ministers
to respond to the request for clarity over their intentions set
out by Mr McCarthy in evidence to us. (Paragraph 81)
The position on the future of the Standards
of Performance scheme is now clear.
Following consultation, the regulator has announced
new EESOP obligations (EESOP3) equivalent to £1.20 per customer
per fuel per year from April 2000 to March 2002. This includes
gas suppliers for the first time.
Through the Utilities Bill it is intended that
the power to set future EESOPs will pass from the Regulator to
the Government, with the Regulator continuing to be responsible
for oversight and implementation of the obligation. Since 1998
the Government has been developing its proposals for the future
operation of EESOPs under the prospective new utilities legislation,
in discussion with Ofgem, the energy utilities, consumer and other
interested organisations. The Department published its consultation
proposals for the future operation of EESOPs, and for the first
new style EESOP, covering the period 2002-05 ("EESOP4")
on 9 March alongside the draft Climate Change Programme. Further
details are given below, in section 9.
DETR, DTI and Ofgem officials are working closely
together on the development and implementation of both EESOP3
and EESOP4. And Ofgem have sought to ensure that the proposals
for EESOP3 provide "as smooth a transition as possible towards
the arrangements provided under the Utilities Bill" (Energy
Efficiency Standards for Gas and Electricity Suppliers 2000-02,
8. We regard the elaboration and implementation
of utilities reform as a matter of utmost urgency. We recommend
that DTI publish the relevant Bill in draft for consultation,
and perhaps pre-legislative scrutiny, as soon as possible. (Paragraph
The Utilities Bill had its Second Reading in
the House of Commons on 31 January 2000 and is currently at Committee
Stage. Both the proposals that the Bill is intended to enact and
the use of the powers under the Bill have and continue to be the
subject of extensive public consultation.
Individual energy efficiency aspects of the
Bill are subject to consultation in their own right. Examples
include the current consultation on the levels and characteristics
of the new Government-set Energy Efficiency Standards of Performance,
and the statutory Social and Environmental Guidance to be issued
in support of the legislation.
9. We support the establishment of an enhanced
Standards of Performance scheme for energy efficiency and we strongly
recommend that obligations, both for electricity and gas, be imposed
on the supply function rather than the distribution function in
order to encourage the development of energy services provision.
The new EESOP3, which has been announced by
the regulator, covers both gas and electricity, with the obligations
resting on the suppliers.
The consultation paper on the proposed Energy
Efficiency Standards of Performance, which was published alongside
the draft climate change programme, proposes an enhanced EESOP
Subject to the consultation and the further
statutory consultation under the proposed provisions of the Utilities
Bill, the Government proposes to set an Energy Efficiency Target,
covering both gas and electricity which is set out in the consultation
document. We estimate that this would reduce annual domestic energy
consumption by around 11 terrawatt hours (this equates to about
2 per cent of annual domestic energy consumption in 1998) from
2005 onwards and yield a carbon saving of around 0.75 MtC/yr.
In considering the future form of EESOPs, the
Government considered the question of whether energy efficiency
obligations would work most effectively through energy suppliers,
or distributors. The Government's conclusion is set out in the
consultation document on EESOP4:
"The Utilities Bill provides that EESOP
obligations may be placed on either licensed supply or distribution
companies, or both. Whilst Government wishes to keep both options
open, its view is that EESOP obligations placed on suppliers align
better with the wider policy objective of fostering a strongly
consumer-focused utility market, and build on the supply companies'
direct relationship with consumers, and their interest in developing
and marketing new energy services including energy efficiency.
" (Paragraph 2.3italics added)
The consultation document went on specifically
to address the issue of energy services as follows:
"In the liberalised market, energy suppliers
are likely to develop `energy services', combining energy supply
and energy efficiency improvements, in seeking to retain existing
customers and attract new customers. This is of value to consumers,
giving them wider choice. The Government therefore proposes that
companies will be able to meet their future EESOP obligations
through approved EESOP programmes . . . linked to companies' wider
marketing to consumers, including marketing of energy services
. . ." (Paragraph 3.19)
10. We recommend that a national database
for energy consumption by geographical area be established, under
the auspices of the regulator, to assist local authorities and
others to fulfil their responsibilities and desire to promote
energy efficiency. We believe this should form part of forthcoming
legislation on utilities reform. (Paragraph 87)
The Government is aware that access to energy
consumption data is of interest to local authorities and others.
The Government will discuss with the Local Government Association
the precise requirements and will consider how they might be met
in a cost effective way which is consistent with the availability
of information, regulatory, licensing, and issues of privacy and
11. We recommend that the Government takes
steps to address the apparent lack of clarity in Clause 14 of
the Local Government Bill regarding the legal capacity of local
authorities to establish or run energy services companies. (Paragraph
Clause 14 of the Local Government Bill has now
become section 16 of the Local Government Act 1999.
Section 16 of the Local Government Act 1999
enables the Secretary of State to provide new powers for local
authorities to form companies in pursuit of the delivery of Best
Value. Use of section 16 to clarify the legal capacity of local
authorities to establish or run energy services companies must
relate to a local authorities existing functions in this area
and could not be used to extend functions into areas not covered
by existing primary legislation.
The Government will consider whether there is
a need for advice to local authorities on the matter.
The Committee will wish to note that energy
services do not have to be provided by a separate company.
Looking forward, the current Local Government
Bill includes new powers for local authorities to promote or improve
the economic, social and environmental well being of their communities,
and to develop comprehensive "community strategies".
Amongst other things, these powers will increase the scope for
local authorities to work with other bodies to co-ordinate and
support energy services.
12. We would urge the regulator in the difficult
interregnum he described to have regard to the possibility that
success in one area of his responsibilitiesalbeit a primary
one such as reducing pricesmight be reasonably argued to
shift the balance he has to strike in favour of another areasuch
as promoting energy efficiency. (Paragraph 85)
The Committee will recognise that this is a
matter for the Regulator, however he has told us that he has taken
steps within the existing statutory framework to provide further
support for energy efficiency. As announced on 9 March, the Energy
Efficiency Standards Scheme will be extended for another two years
until March 2002, and will be expanded to include gas and second
tier electricity suppliers. Funding for the scheme will be increased
from £1 to £1.20 per customer per year, and the energy
savings targets will be tightened compared with the previous standards.
The Regulator has indicated that he will continue to have full
regard to the importance of his statutory duty to promote energy
efficiency in carrying out his duties ahead of the Government's
13. We believe that to assess the implementation
of his duty to promote the efficient use of energy the Director-General
of Electricity and Gas Supply, or a suitable agent, should examine
the impact of the provision of advice on energy efficiency by
energy suppliers in terms of outcomes achieved. (Paragraph 86)
The Committee will recognise that this is a
matter for the Regulator, however he has advised the following.
Through the Social Action Plan, which was published in final form
on 1 March 2000, Ofgem is taking steps to improve the provision
of energy efficiency advice by suppliers. This work, together
with improvements in monitoring, will enable Ofgem to assess the
overall effectiveness of energy efficiency advice. Strengthened
licence conditions and codes of practice proposed under the Plan
should ensure improvements are made in the quality of advice and
how it is promoted. The Plan also includes research, being sponsored
by suppliers, to determine ways in which customers prefer to access
advice, the extent to which advice currently given is appropriate,
and how it is acted upon. Low income customers are a particular
focus of this research.