Select Committee on Trade and Industry Second Report


148. It seems to be widely accepted that the least costly way to achieve greater security of supply than market forces can deliver is by reducing energy use. The Minister told us: "[the Government] want to slow the growth in demand and eventually to reverse the growth".[309] Other witnesses gave varying estimates as to how much reduction in demand might be feasible: an estimate by the Environment Agency was 50% by 2050, but the witness from Greenpeace said that this was just an ideal aim not a target, because it would depend on the implementation of a large number of measures.[310] We therefore now turn to the question of the contribution that energy efficiency measures can make.

149. In market economies the most important incentive to energy efficiency is the price of fuel. This worked fairly well for industrial sectors, as such customers are motivated to cut costs by reducing fuel consumption.[311] In contrast, energy demand among domestic consumers appears to be relatively price inelastic.[312] As the price of electricity has fallen, the Government has kept up the pressure on industrial consumers by introducing instruments, like the Climate Change Levy and the associated Climate Change Agreements,[313] while the combination of lower prices and higher incomes has made many residential customers even less interested in saving energy.[314] The net result of all this has been that in the last thirty years while energy intensity in industry has fallen by 62%, and in the service sector by 43%, in the domestic sector it has fallen by only 6%.[315] The DTI estimated that there was the potential for a reduction of as much as 20% in energy use by domestic consumers.[316]

150. We asked a variety of witnesses how energy efficiency was being promoted among residential consumers, and what more could be done. A number of them mentioned to us the schemes currently run by energy suppliers, many of which are aimed at helping those in fuel poverty but others of which, like the 'green' electricity schemes, have environmental targets. The schemes vary in their detail, but they normally involve help with meeting the cost of measures such as loft insulation and draught-proofing. We were told that energy suppliers would spend about £150 million pa between 2002 and 2005 on energy efficiency schemes.[317] The Energy Saving Trust told us that they no longer needed to do as much work with organisations like social housing associations because the supply companies had taken up the promotion of energy efficiency as part of their core business.[318]

151. DEFRA has introduced an Energy Efficiency Commitment for 2002-05, which places an obligation on gas and electricity suppliers to help domestic consumers to achieve energy efficiency improvements.[319] The Commitment aims at tripling the previous energy efficiency standards of performance to save 400,000 tonnes of carbon a year (out of the 150 million tonnes pa produced by the UK).[320] Ofgem considered that this scheme was likely to be more effective than the previous standards of performance, mainly because Government spending on it was due to be higher; but the Regulator pointed out that, if the aim really was to cut carbon emissions, the measures would focus on heavier energy users, whereas DEFRA had to achieve a balance between achieving maximum reductions and targeting fuel poverty.[321] Some witnesses were concerned that the proliferation of different schemes promoted by suppliers and the Government was blunting the overall effect.[322]

152. As for increasing consumer receptiveness to energy efficiency, several witnesses said that, since appeals on the basis of cost were likely to fall on deaf ears, campaigns should concentrate on prodding people's sense of social responsibility and the environmental costs of energy use.[323] The Energy Saving Trust suggested that concerns about the bad effects of climate change, like recent floods, would make people more receptive to the idea that saving energy was necessary. The Trust also said that some people were inclined to dismiss energy efficiency on the grounds that, if it were that important, central and local government would be doing more about it. To counteract this, the Trust was undertaking work with local authorities and the press to promote awareness of energy efficiency by publicising measures taken locally.[324] But the Trust agreed that changing public attitudes would take time.[325] Both the Trust and other witnesses suggested that if energy efficiency were to play a full part in increasing security of supply, more radical measures than publicity campaigns were needed.

Buildings and appliances

153. Most of our witnesses argued that, in order to achieve energy efficiency targets, the Government should address building standards. Various options were put forward. Some people suggested that building regulations should be amended to impose higher standards of energy conservation, both for new buildings and for renovation work.[326] Other suggestions were the imposition of a requirement for an energy efficiency audit as well as a general building survey when homes were sold; reducing stamp duty on energy efficient homes; tax credits; reduced council tax; and — to address the problems faced in rented accommodation where landlords bear the costs of improvements to insulation while tenants reap the benefits in terms of both warmth and lower costs — imposing an obligation on landlords to meet certain energy efficiency standards before they may let buildings.[327]

154. Another problem in raising the energy efficiency standards of housing was perceived to be the variation between local authorities in the effort they put into improving the housing stock. The Energy Saving Trust believed that about 76% of local authorities with housing responsibilities actually took practical energy efficiency measures; the rest, it felt, would never do so as matters stood.[328] We note that at present the House of Commons is considering a Bill called the Home Energy Conservation Bill, which seeks not only to impose tighter obligations on local authorities (not least in reporting what they are actually doing to promote energy efficiency) but also to tackle the landlord/tenant problem mentioned above. We welcome the all-party support for this Bill.

155. Many witnesses thought more could also be done to raise the energy efficiency of electrical appliances, not least by setting standards to eliminate the most inefficient products from the market.[329] We asked whether the imposition of higher standards of energy efficiency would not have the effect of raising the prices of these appliances, to the detriment of those on a low income. The Energy Saving Trust, while confirming that higher-rated appliances were in general more expensive, said that their research showed a greater variation in cost within a particular energy rating than between ratings. The Trust concluded that by shopping around, consumers could probably find a higher rated freezer at a price they could afford. Also, the Trust believed that setting minimum standards would not cause prices to rise much: price was influenced more by factors like the features of an appliance. And it would have very little impact on low income customers, because in general they bought second-hand rather than new appliances.[330] While setting higher standards would get rid of the worst products, promotion of the best could, the Trust suggested, be achieved by measures like reducing the rate of VAT on the most efficient appliances and central heating boilers.[331]

156. It would clearly be politically difficult for the Government to use fiscal instruments to curb domestic consumption. No one even suggested otherwise to us. If energy savings are to be increased in the domestic sector, they must initially be achieved by means of greater promotion of the benefits of energy efficiency, insulation and by raising minimum standards for buildings and appliances. We recommend that the various interested Departments — the DTI, DEFRA and HM Treasury — look at the range of options (both carrots and sticks) for raising energy efficiency standards, and come forward with proposals as soon as practicable.


157. As far as domestic heating is concerned, a promising future technology may be domestic-scale CHP. Micro-CHP would be based on either of two technologies: the Stirling engine and the fuel cell.[332] The Energy Saving Trust suggested that, taking into account such issues as the need to train fitters and market resistance to new technology, there was potential for 700,000 CHP units to be installed by 2010, rising to 8 million by 2020. Other estimates were as high as 4 million units by 2010.[333] The Trust believed that, once enough units were being manufactured, they would cost about £500 more than a normal gas boiler. Because they could produce about 50% of average domestic electricity consumption as well as all the heating and hot water required, each unit could save about £150 a year, thus repaying the extra cost of the boiler in about three years.[334] (This does not, of course, take into account the likely extra cost of installation and maintenance.) There were still hurdles to be overcome: CHP units would have to be connected to the electricity distribution network, and it would be necessary to obtain type approval of the methods for connection (to avoid the need for each installation to be supervised by an engineer from the distribution network); and further field trials for reliability and safety were necessary.[335]

158. The proponents of CHP argued that the benefits of small-scale CHP were already clear: at least one housing association had been able to reduce energy costs by 20%. Moreover, as individual metering of consumers' heating and power was possible, there was still an incentive for consumers not to waste energy.[336] Micro-CHP was particularly appropriate for large, badly insulated properties, like much of the Victorian housing stock in the UK.[337] However, CHP should not be forced on consumers: they should be free to make a choice.[338]

159. Micro-CHP does appear to have the potential to contribute to energy saving. However, we suspect that, in their enthusiasm, some witnesses may have under-estimated the difficulties of connecting micro-CHP to the distribution system safely and in such a way as to maintain security of supply on the network and for individual consumers. Moreover, we understand that there are considerable problems in ensuring an appropriate match between heating and electricity needs at a domestic level: put at its simplest, there is no guarantee that the peak of electricity demand for a household will coincide with the peak heating demand, and so on. These difficulties can to an extent be smoothed out where groups of households are connected to the same CHP unit, but the technical problems for smaller units need to be addressed before micro-CHP can be widely adopted. We do not dismiss the potential of CHP; we just wish to record a caveat.

Energy saving and industry

160. As mentioned above, industry has in general achieved greater energy efficiency savings than the domestic sector, and, in this context, we wish briefly to note the good work of the Energy Technology Support Unit (ETSU) at Harwell. ETSU has concentrated on working with small and medium-sized enterprises, on the grounds that these companies were less likely than larger ones to have the in-house expertise necessary to put in place appropriate energy efficiency measures. One of our witnesses, however, pointed out that even larger companies do not always have such expertise: his company had approached ETSU and received very useful advice.[339] We do not know whether ETSU has sufficient resources to expand its work, if demand is there, but we recommend that the Department look into this matter and, if possible, publicise the work of the unit to a wider audience.

308   The Environmental Audit Committee conducted a thorough inquiry into this subject in the last Parliament: Seventh Report of Session 1998-99, Energy Efficiency, HC 159. Back

309   Q 271. Back

310   Q 568. Back

311   Q 420 (Chemical Industries Association). Back

312   Qq 567 (Greenpeace). One witness even went so far as to say that one needed the sort of price shock recently experienced in California before domestic consumers would reduce their demand: Q 459 (Electricity Association). See also Q 640 (Energywatch). Back

313   See Paragraphs 115-7 and 122 above. Back

314   Q 611 (Energy Saving Trust). Back

315   Q 316 (DTI). Back

316   Q 311 and Appendix 19 (Association for the Conservation of Energy), paragraph 4.2. On the potential savings to be made by individuals, see Appendix 6 (National Energy Action).  Back

317   Q 126 (Gas Forum). Back

318   Q 616. Energywatch sounded a warning note that the real difficulty was in constructing instruments to help customers who were just ineligible for benefits but were still too poor to invest in energy efficiency measures: Q 637. Back

319   DTI's Memorandum, paragraph 2.24. Back

320   Q 515 (Ofgem) Back

321   Qq 513 and 514. Back

322   Q 134 (Gas Forum). Back

323   Qq 420 (CIA) and 611 (Energy Saving Trust). Back

324   Q 611.  Back

325   Q 613. Back

326   Qq 404-6 (Chemical Industries Association) and 566 (Greenpeace), Appendices 19 (Association for the Conservation of Energy), paragraph 4.4, and 27 (Centrica), paragraph 38. Back

327   Qq 134 (Gas Forum), 566 (Greenpeace) and 627 (Energy Saving Trust); see also Appendix 27 (Centrica), paragraph 38. Back

328   Q 629. Back

329   Qq 312 (DTI), 429 (Chemical Industries Association) and 566 (Greenpeace). Back

330   Qq 620-3. Back

331   Qq 623 and 627; Appendix 27 (Centrica), paragraph 38. We will be returning to these issues in our inquiry on fuel poverty: see paragraph 162 below. Back

332   Q 250 (CHPA). Back

333   Q 603. The estimates were based on take-up to 2010 being largely confined to existing housing stock; but the 2020 figure assumes changes in building regulations to require new houses to produce (in effect) zero emissions: Q 610. Back

334   Q 606. Back

335   Q 608 (Energy Saving Trust). Back

336   Qq 252 and 253 (CHPA). Back

337   Q 610 (Energy Saving Trust). Back

338   Q 251 (CHPA). Back

339   Q 420 (CIA). Back

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