APPENDIX 6
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.
1. GENERAL COMMENTS
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.
2. EMISSIONS
PROJECTIONS
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.
3. BUSINESS ENERGY
USE
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.
4. DOMESTIC ENERGY
USE
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.
5. GAPS IN
THE PROGRAMME
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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