Select Committee on Environmental Audit Minutes of Evidence


Memorandum from the Association for the Conservation of Energy

  You asked me to write to you, prior to the session on energy efficiency policy with the two relevant ministers, which your Committee will be holding next week. This I gladly do.

  You will recall that following the publication of the Government's response to the Committee's excellent Energy Efficiency report, I wrote to you at some length on 5 November 1999 setting out my concerns at the way in which the substance of the report had been so summarily dismissed. It was I felt symptomatic of the lack of attention given to the report that the argument for the development of satisfactory indicators to measure progress on energy efficiency was not addressed, simply because it did not feature as one of the formal 17 recommendations which appeared at the end of the Committee report.

  As this was a very fundamental point made within the body of the report, it did at least deserve some response—preferably a positive one. You may be interested to know that this is one of the key objectives set out within the European Commission's new Action Plan on Energy Efficiency, published in April, and presented to the Council of Ministers on 30 May.

  Since last November, there have been certain policy developments, pertinent to energy efficiency, which I hope that the Committee will feel able to explore, most particularly, the Climate Change Consultation document, plus the Energy Efficiency Standards of Performance developments.


  The framework for action laid out in the Climate Change Consultation document is worthy of support, in particular the recognition that carbon dioxide emissions are the main challenge for 2010 and beyond, and that emission reductions far greater than the current domestic target of 20 per cent will be needed in the longer term, with the significant changes in lifestyles this will require. The recent announcements concerning the closure of certain elderly Magnox nuclear reactors reinforce the importance of a strong foundation for increased future action to reduce emissions.

  We note that the quantified measures within the proposals do not meet the domestic target of a 20 per cent reduction in CO2 emissions by 2010, and urge the Government to increase policy activity to ensure that the target is met, and the UK is firmly placed on a path to greater emissions reductions in the future.


  We believe that the assumptions made in the "UK Energy Projections working paper", issued to accompany the consultation document regarding likely business-as-usual emissions in 2010, are generally far too optimistic. The provenance of this working paper is of itself extremely interesting. It is now over 15 months since Government officials informed the Committee that these revised forecasts would be available shortly. Unlike previous working revisions, this one was issued without—so far as we can see—any direct discussions with interested parties or overt peer reviews; and its very downbeat launch and absence of over ministerial backing evinces little confidence that the importance of its forecasts to energy efficiency policy development was simply not recognised.

  This is not the appropriate forum to undertake a detailed critique of this working paper, even though it is its projections which provide the parameters for the entire Climate Change Programme. For instance, in relation to projections on energy use it is unclear why the recent increases in commercial sector energy use are not expected to continue. During the 1990s the UK services sector expanded energy use by 5.5 per cent annually (source EU Energy Outlook to 2020). Also, the assumption that ownership of energy intense domestic appliances will reach saturation swiftly does not appear to have regard to increasing use of equipment such as tumble dryers and, most worryingly, air conditioning.

  Although the combination of quantified and non-quantified measures may achieve the domestic target of a 20 per cent in CO2 emissions, if the impact of programmes is at the lower end of the projected range the target could be missed by a significant margin (almost nine million tonnes of carbon). In addition, we are concerned the impact of worsening trends in energy intensity, particularly in the commercial sector, has been significantly underplayed.

  Thus there is a clear need for definition of potential additional policy actions. Also adequate and timely monitoring and reporting of the effectiveness of policies is vital to ensure that any corrective action required can be implemented in time.

  We are disappointed that the potential impact of strengthening the buildings regulations is quantified as 0.25 MtC: this low figure suggests that the original target dates for the implementation of stage II improvements for new buildings and of extension to existing stock, announced in May 1998, will not be met. Early implementation of much higher building regulations and commitment to extending the regulations to existing buildings would send an extremely valuable signal to both consumers and the construction industry, and this opportunity should be taken at the earliest possible time.


  We support the approach to business energy use which recognises the diversity within the sector, and the consequent need for a range of measures to address it.

  Indeed, we suggest that the separation of the sector into industrial and commercial sectors would be beneficial in clarifying the precise roles to be played by these differing types of business. A distinction between industry and commerce was made in the original climate programme consultation, and it is not clear why this sensible strategy was not adopted for the present consultation.

  We are concerned that the present mix of proposed policy activity will be insufficient to stimulate significant action in the growing commercial sector particularly for smaller commercial enterprises. This concern is reinforced by DT figures which demonstrate that the vast majority of the price effect of the Climate Levy will occur in the industrial sector.

  Gaps in the programme—we welcome the introduction of more targeted advice for smaller businesses as part of the strategy. But this alone is unlikely to result in significant additional uptake of energy efficiency measures. The draft programme mentions "eligibility for more comprehensive follow-up support" for businesses which are willing to implement cost-effective energy saving measures. However, it is not clear what this means, nor how it will be used to encourage otherwise reluctant businesses to take action. We believe that further development of policy in this area is an urgent priority.

  In particular the barriers created by the large proportion of commercial property not in owner-occupation must be addressed. Early and significant strengthening of the building regulations and their application to existing buildings would be a step in the right direction. Regulation to require landlords to improve the energy efficiency of their properties would also be helpful.

  The introduction of enhanced capital allowances for energy efficiency investments is to be welcomed. However, it does not seem appropriate for these to be open to all businesses, when a proportion will already derive additional financial benefit from energy efficiency investments (over and above reduced fuel bills) via exemptions from the Climate Levy. We would argue that those businesses entering into negotiated agreements with government should not be eligible for enhanced capital allowances on investments to meet the commitments of the agreement. We also believe that the failure to include within the list of relevant technologies improvements either to the fabric or ventilation of a commercial or industrial building needs to be rectified, so as to avoid distortion of investment programmes by beneficiaries.

  Additional policies, such as encouragement of more development of energy service provision for small businesses, and incentive programmes for the adoption of cost-effective technologies by these companies, are needed. An expansion of the Energy Efficiency Fund in future years to a significantly larger size than the present portion of £50 million will be needed to support the implementation of such policies. The development of new working partnerships will be vital to the delivery of increased action in this sector, and we welcome the energy efficiency Minister's endorsement of the nascent Energy Efficiency Partnership for Commerce.

  Allocation of a portion of the £50 million Energy Efficiency Fund to support the development of renewables seems somewhat inconsistent. Whilst we support the need for increased use of renewable technologies we would question whether this is an appropriate mechanism for their development. The Fund is too small to support significantly both energy efficiency measures and renewables, and its use should be restricted to supporting the most cost effective options available and to measures installed at the premises of companies, in line with the Government's policy of recycling revenues specifically to those paying the levy.


  We welcome increased action to eradicate fuel poverty, particularly the implementation of New HEES, and the commitment to monitoring the effects of health and well-being. We urge the Government to facilitate increased inter-agency working between health professionals and those implementing energy efficiency programmes, to ensure that the health benefits of such programmes are maximised.

  We also welcome the expansion of the EESoP programme. We urge the Government to move forward from its "aim to work towards" the estimated carbon savings from this programme by 2010, and to develop targets for the industry for the period 2005-10 at the earliest possible opportunity. The involvement of the energy efficiency supply industry in the development process is vital to ensure that issues of industry capacity and workers' training needs are taken into account.

  Development of energy service provision as a mainstream of the energy companies' business should be monitored closely and, if the incentives within EESoP prove insufficient, additional action should be taken. Please note that we have provided a separate response to the EESoP consultation paper.

  Strengthening the signal about the need for change:

  We note the Government's reluctance to use fiscal measures to incorporate social costs into domestic sector energy prices. We urge therefore further increases in action to eradicate the problem of fuel poverty so that in the longer term fiscal mechanisms, such as variable tariffs rising with usage, could be considered. We note also that significant early progress in fuel poverty alleviation will be necessary if the EESoP programme is to achieve its full carbon saving potential. In this context, we welcome the Government's support for the Warm Homes and Energy Conservation Bill.

  The programme places a heavy emphasis on education and information for the general public. Whilst this undoubtedly has a role to play, not least in ensuring the acceptability of other policy activity, the assumption that the public have the inclination to understand fully the issues involved, and to act on this understanding, may be optimistic. Targeting education and information towards key professional groups (architects, builders, plumbers, heating engineers etc) may be more appropriate and effective.

  Implementation of such targeted information provision is an area where the Energy Efficiency Partnership for Homes could play a role. More generally, we would urge Government to further support the Partnership, giving it the necessary resources to move from discussion to action.

  We endorse the key role set for local authorities. Additional support for the development of inter-agency working, with local authorities as a focal point, could increase the effectiveness and longevity of energy efficiency messages by giving them a local element, and ensuring that they are targeted most appropriately.

  Early Government commitment on the timing of new legislation is vital to underpin early action by others. For example, the uncertainty over timing of legislation on energy efficiency information for home buyers is presently discouraging many mortgage lenders from starting pilot initiatives in this area, and is undermining the efforts of those who are taking early action.


  At present too little is being done to encourage action by the fuel rich. The range of potential carbon savings defined for EESoP in the consultation, and the assumption that the actual savings will be at the higher end of this range, presumes that this programme will move its focus from the fuel poor to the fuel rich. We would support strongly such a move, believing other mechanisms to be more appropriate to deliver the eradication of fuel poverty in the UK.

June 2000

Annex 1

Further Memorandum from the Association for the Conservation of Energy

  You asked for my comments on the Government response to your Energy Efficiency report. Overall, I am deeply disappointed at the—frankly—patronising level of the response: it is complacent, arrogant, and dismissive of practically all the proposals put forward.

  I am now convinced that the Government has not read the original report in full. Otherwise there would have been some acknowledgement, at least, of the detailed proposals made by the Committee relating to the development of satisfactory indicators to measure progress (or lack of it) on energy efficiency. But, as it did not feature as one of the formal 17 recommendations which appeared at the end of the Committee report, it did not apparently merit any response.

  Moving on to the 17 specific recommendations, there are several where the response is mind-bogglingly banal. To take the first proposal, arguing for a sustainable hierarchy for UK energy policy: it is not so much irritation at the philosophical inconsistency of rejecting the concept, but rather the complete misunderstanding about what a sustainable policy is. Paragraph 3 epitomises this. How at this time the UK Government can write in a formal document that sustainability excludes either social issues or the cost of supply beggars belief. I would hope that you can, at minimum, incorporate this particular asininity as part of the "evidence" for your Sustainability enquiry.

  The response to proposal 5, on fuel poverty, is most interesting in what it does not say. There is no reaction at all to your demands to show some real urgency with this matter. There is no reference to abolishing the problem—and paragraph 11, in particular, seems to infer that the main thrust of any ameliorative policy is involved with cutting prices, rather than dealing with the root cause of the problem, improving energy efficiency.

  Incidentally, one small point: paragraph 15 states that local authorities will be asked to report annually on fuel poverty progress "in their own housing". That was not the commitment given to John McAllion MP when he agreed to withdraw his Fuel Poverty and Energy Conservation Bill. This was intended to cover all housing in the council area, as part of the Home Energy Conservation Act reporting procedures. You may also care to note that even under New HEES, senior citizens receiving assistance will still have to choose between having roofs or walls insulated—they apparently can't have both.

  Several of your recommendations have simply been ignored. These include proposal 7 (covering inappropriate incentives), and proposal 12 where you require the Climate Change Levy to be included on customers' bills. I hope you will challenge these omissons.

  I note that the response to your proposal on VAT (proposal 13) states that the Government is still considering whether to reduce VAT on energy saving measures as labour intensive services. You know that the French Government has already done this. I understand that the UK has no intention whatsoever of taking this up. They really should have conceded this, rather than misinforming you.

  There are some important statements in the response. I am certainly glad that the Government supported the Energy Efficiency Bill (paragraph 40), although it is disingenuous to suggest it fell "due to objections in the House of Commons". It is always within the powers of Government to make sufficient time available for any legislation it wishes to see progress; it has chosen not to do so during this Session. But it is encouraging to see (paragraph 41) that the Government is "continuing to look for ways in which the objectives which lie behind the Bill can be achieved by other means". We have already had discussion with the Environment Minister, and latterly with his senior officials, about the potential for achieving this objective within the next Local Government Bill.

  We were also pleased to see paragraph 38, dealing with the need to extend the EESOPs to gas, and confirmation that the Government would comment on the details of the Regulator's proposals. In practice, the Government has now commented, with a specific recommendation from the Environment Minister regarding the appropriate levels of sums which should be allocated. It is a matter of genuine concern to us that the Energy Regulator should choose to ignore the Minister's recommendation. Speaking at the British Association for Energy Economists' AGM on November 1, the Energy Regulator said that the Environment Minister's views were an "interesting factor, but not a determining factor". Bearing in mind that the Regulator had previously justified his earlier lack of urgent action on energy efficiency by emphasising he is "not an elected official", it would surely be appropriate for him to respond more positively to the considered view of the relevant elected Minister.

  The response to proposal 9 is worryingly dismissive. Whilst, as I said to the Committee in the course of my own cross-examination, the key issue is political will, it is manifestly complacent to conclude (as paragraph 25 does) that "these arrangements work well". It is also less than helpful to make this somewhat opaque reference to "a prospective Carbon Trust" (paragraph 26). This is, as I understand it, the first occasion that the Committee has been informed about this proposal in this context; it would have been helpful to know rather more what the Government has in mind.

  Finally, I would draw your attention—and perhaps more particularly those concerned at the likely impact of the Climate Change Levy—to the statement that "the Government does not regard high prices as an acceptable way to achieve energy efficiency" (paragraph 19).

  I hope you and the members of the Committee find these comments of interest and assistance. I hope that you will respond robustly to this very shoddy response.

November 1999

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