Select Committee on Science and Technology Minutes of Evidence


Examination of Witnesses (Questions 20-39)

Mr Jeremy Eppel, Dr Hunter Danskin, Mr Chris Baker, Ms Marie Pender, Mr Paul Chambers and Mr Simon Barnes

3 NOVEMBER 2004

  Q20Chairman: So how would that be affected, for example, by the target of 20 per cent of renewables, of non-carbon?

  Mr Eppel: As the Energy White Paper sets out, different policy components in that White Paper are envisaged or expected to produce (within a range) different contributions of carbon towards that 20 per cent reduction. Energy efficiency is envisaged to produce about half of those reductions, renewables something like 20 per cent.

  Q21Chairman: But you see the relationship to the earlier point, that if people were using more energy but using it in renewables and not in carbon emission fuels you would not necessarily have increased energy efficiency but you would be meeting your baseline on carbon emissions.

  Mr Eppel: The energy efficiency bit is independent of that.

  Q22Chairman: So what is the baseline for energy efficiency?

  Mr Eppel: It is still the "business as usual" projection which already had some energy efficiency built into it but what we were saying in the White Paper and the Action Plan was that we would step up the contribution of efficiency and thereby reduce what the baseline would otherwise have been independent of how much there was in the way of renewables.

  Q23Chairman: This is the "business as usual" in the White Paper?

  Mr Eppel: The business as usual in the Climate Change Programme projections which were based on Energy Paper 68 which is the DTI energy projections.

  Chairman: We are looking puzzled here. We are still puzzled about this relationship between energy efficiency and carbon emissions but perhaps we will return to that, as time is moving on. Lord Wade?

  Q24Lord Wade of Chorlton: It is widely believed that low energy prices in recent years have reduced the cost-effective of investment in energy efficiency in both domestic and industrial sectors. Would you agree with this? Is it possible to effect the necessary change in outlook without major price rises which would, in turn, of course affect the Government's fuel poverty policy?

  Mr Eppel: I think I do agree on the whole that low energy prices have certainly made the attractiveness of energy efficiency measures lower and the pay-back has been lower, and so their cost-effectiveness has not been as attractive. I think that is undeniable as a general proposition. That is not necessarily the same as saying that significant price increases are automatically the route to achieving greater energy efficiency. Indeed, the whole thrust of the White Paper and the Energy Efficiency Action plan is that whilst the price signal is certainly important it is neither appropriate nor necessary to use only the price mechanism and that to use it in combination with appropriate regulation, voluntary measures and information tools is a more realistic and more appropriate approach, and that is the policy that the Government has adopted. However, the price signal does have a role. For instance, the Climate Change Levy was intended to send exactly such a signal but the price signal alone was not in fact proved to be as useful as a price signal coupled with voluntary measures because the Climate Change Agreements proved to be much more successful as a combination with the Climate Change Levy than the Climate Change Levy alone in those sectors that were unable to enter into such agreements.

  Q25Lord Wade of Chorlton: When you looked at the various scenarios of the impact this policy would have, did you look at the impact of increasing prices and finding another way of relieving fuel poverty, which is quite easy to do?

  Mr Eppel: Those kinds of examinations are always part of the system.

  Q26Lord Wade of Chorlton: But have you looked at it in that way?

  Mr Eppel: Not specifically in those terms.

  Q27Lord Wade of Chorlton: And you have not come to a view as to what price increases might be effective or might be possible before they start to have economic effects?

  Mr Eppel: It was not addressed in exactly those terms.

  Q28Lord Wade of Chorlton: Do you not think it should have been?

  Mr Eppel: To look and see whether putting up prices directly . . .?

  Q29Lord Wade of Chorlton: Yes, what would be the general impact of looking at that aspect. I do not know what the outcome might have been but would it not have been wise to have at least looked at the impact because, coming back to the previous question, the issue arises how does the average person measure efficiency? They mostly measure it by how much it costs them because that is the only measure that they know about. If you cannot measure something you cannot manage it. They normally measure by what it costs them. If costs went up then they would have to manage it. I would imagine that this would have been at least a scenario you would have looked at as an option to be considered?

  Mr Eppel: What we most certainly looked at throughout all the analysis underlying this work was what would be the likely price impacts of the policies and how would those in their turn affect fuel poverty. The price impacts of undertaking energy efficiency policies—energy efficiency being very low cost—are not great. For instance, for the Energy Efficiency Commitment, which is a major part of the policy in the household sector, I think the figure was about two to three per cent over the life of the entire policy. Have I got that figure right? Two to three per cent on household fuel bills over the three years of the policy which is pretty insignificant compared with the kind of price rises which have come through from external factors, and so the view was taken by the Government that the benefits of introducing these policies considerably outweighed the small additional price effect and impact that would have on fuel poverty. So we certainly looked at that. We did not specifically look to see how much we would have to raise prices in order to solely use the price effect and measure what impact that had on fuel policy because I do not think that was politically or practically realistic to do.

  Q30Lord Wade of Chorlton: You could find another way to deal with the fuel poverty which happens in other activities.

  Mr Eppel: We have a major programme of Government investment in fuel poverty (the Warm Front programme) which has just been increased and which acts directly to try and improve the energy efficiency and the heating systems of people either in fuel poverty or at risk of being in fuel poverty, so the chosen route is that one primarily.

  Dr Danskin: There is a point on the business side. Modelling was done on the impact of the raised energy prices on business by putting the Climate Change Levy on, and, as Jeremy has said, the impact of the Levy alone and then the impact of the Levy coupled with the voluntary climate change agreements. The latter combination has been considerably more effective in achieving energy efficiency improvements, but on the business side it was modelled.

  Q31Chairman: Part of what Lord Wade asked was how can you change people's outlook without price rises and that takes us back to Lord Paul's questioning really. It is not clear from your paper what it is you intend to do to change people's attitudes to the use of energy.

  Mr Eppel: I think it is certainly a challenge to try and get people to take up energy efficiency measures even when they are cost-effective. Part of that is related to low prices but a lot of it is related to other barriers that people see to undertaking this. The whole Action Plan is directed at trying to encourage people to take up measures either through more effective offerings from energy supply companies through the Energy Efficiency Commitment or through information and awareness raising and advice from the energy efficiency advice centres, and through the Energy Saving Trust, and so on. In a sense that is a key issue and it is one that we are very concerned to address further. It is one of the reasons why the Government is examining a new approach to overall communications about climate change so that people have better context because just addressing energy efficiency in terms of cost savings for many households, not necessarily for those in fuel poverty but for better off households, has proved to be an insufficient motivation to get people to either invest or to do things which would clearly save them money. Money is insufficient as a motivating factor on its own so you need to do other things. You need to appeal to different factors which will influence their choices, whether it is concern about the environment or concern about future generations or concern about their lifestyle choices, how their home looks, how it feels, how good it will be when they come to sell. Those are the kinds of areas, and they are complex areas, they are not easy silver bullets, but they are the kind of areas we want to continue to focus on.

  Q32Baroness Sharp of Guildford: Taking the example of the Carbon Levy and the voluntary agreements, you have got a prime example here of where a price mechanism by itself actually works less efficiently than one where you have a coherent programme of organising exhortation. What you are really saying is other than this we have got a whole programme of exhortation and we are hoping it is going to work in one way or another. Do the voluntary agreements on the Climate Change Levy not indicate that you have to have something more coherent than just a whole lot of exhortation?

  Mr Eppel: I do not think I would agree with you it is just a lot of exhortation. I do not think the Energy Efficiency Commitment, which is going to be doubled from next April and continue for at least six years at roughly that double level, is merely exhortation. It is a very significant investment and marketing programme.

  Q33Baroness Sharp of Guildford: It is an aspiration. It may be a commitment but a commitment by whom, the Government?

  Mr Eppel: No, it is a legal obligation on the energy supply companies individually with individual targets set out in a statutory instrument, the new version of which will shortly be laid in both Houses, and which Ofgem, the energy regulator, administers and monitors and reports on quarterly. What has been both interesting and encouraging is that in each of the previous rounds for the three-year periods of this commitment, at the beginning all the energy suppliers have said, "This is going to be very tough, this is going to be a very difficult target for us to meet, you have set the bar too high," and each time they have succeeded in meeting it. The reason that has happened is because they have had to begin to think about how they are marketing these energy efficiency products, are they really getting the message through to the consumers. Because of their obligation and legal requirement they have had to work much harder. It will be challenging again next time because we are doubling it but we know from the evaluation of it that it both works and is a practical and cost-effective way to do it. I do not know if you want to add anything about EEC and how well it has worked up to now.

  Dr Danskin: We know that reports from Ofgem say that two of the companies have met their targets six months early and are now working on the next programme because the rules allow them to carry over savings. I think other companies are still working towards that target but they are independently monitored and the targets are set in a way that means they have to install a given number of insulation measures or high efficiency boilers or similar things and Ofgem keeps a careful track of progress. If you look at the historic rates of installation of these measures there has been a significant rise since the beginning of the programme.

  Q34Baroness Platt of Writtle: What are the main barriers to improving energy efficiency across domestic and industrial sectors and what is being done to address them?

  Mr Eppel: I think the barriers are different in each of the sectors. There are some common themes but I think they fall into three broad categories essentially. I think one is organisational commitment, a second is probably constraints on finance or capital, and a third is really whether the technical know-how is available to undertake the work. That is particularly true I think in the way I have described in the business and public sector but there are also equivalent barriers in the household sector. There it is lack of information on what can you do and what would make a difference and there is a perceived (not always a real) cost up-front to do something, which clearly the Energy Efficiency Commitment, for instance, is designed to help overcome because that is the basis on which the costs are significantly reduced. Also I think we must be very realistic about this. People think it going to be too much trouble. It is a big hassle. "I do not want people coming in messing up my house even if it is good for the climate or good for my bills." Those kind of problems really require some quite innovative and smart solutions about how you can get round that because when people do have these measures installed, whether it is insulation or more efficient lighting or heating, whatever it is, they appreciate them, they welcome them, they are glad they are done but they would like it to happen just like that without anything disrupting their daily lives. One of the things that I think would be interesting is if some more creative business models were applied to this and some businesses came in which thought there was some money to be made in this and could offer the kind of turnkey solution that would take away a lot of that hassle factor. People would go out in the morning and come back in the evening and it would all be done.

  Q35Baroness Platt of Writtle: It probably cannot be like that but I did notice one of the paragraphs in your paper (which I must say I did find a bit repetitive, it went on and on and on) about training and skills, and it probably is a very important thing so that these kinds of things are done efficiently?

  Mr Eppel: Certainly I think skills and training in the energy sector as a whole has never been as high as it should be and on the energy efficiency side of the equation, partly because of an historic lack of attention to this area, it has certainly not been as good as it could be, and those are indeed some important barriers that we have tried to address in the Action Plan with other partners. The Government is not going to solve this problem on its own but it can facilitate these things, particularly installing high efficiency boilers and condensing boilers. We saw that as a very specific and important barrier so we worked with the Energy Saving Trust and the Learning and Skills Council who had the money to pay for the training, and Corgi, the gas installers' body, to devise a short, accessible and low cost but relevant programme for gas fitters to learn the benefits, not necessarily about the technicalities but whether the gas fitters are motivated to say to potential customers, "Yes, I would have a condensing boiler." Often they turn people off by suggesting they are not as good as they should be. It is getting those 50,000/60,000/70,000 gas installers willing to reach out to the customers to say, "This is a good thing to do," and then to be in a position to do it technically in a way that is not going to cause problems. That programme is underway and more than 10,000 have now been through this course and it is carrying on throughout this year so when next April the changed regulations to boilers come in there will be sufficient people able to operate it. In some other sectors there are similar skills and training needs but we identified that one as being most urgent.

  Q36Baroness Sharp of Guildford: It is acknowledged in the Action Plan that consumers may be tempted—and we referred to this earlier—to reap the benefit of improved energy efficiency by `comfort taking'. How does the Government propose to change the behaviour of consumers, apart from exhortation? Is public information enough or is the Government prepared to contemplate either new fiscal incentives or other strategies focusing largely on energy efficiency, for instance personal carbon allowances?

  Mr Eppel: Well, we are not relying on a change in behaviour in terms of comfort taking to produce the carbon savings. We build the information about comfort taking—and it varies between households according to their income and the state of the property and we have very specific research data available to us on how much comfort taking there is—into the projections of how much energy and carbon would be saved by particular policy programmes. That is, as it were, taken as a given. We are certainly not trying to say to people you should be colder or you should not increase your comfort if you consider that is what you want to do. I do not think it is for the Government to, as it were, tell people what the right temperature is although ultimately they may find it so hot in their homes that they do need to turn down the thermostat. Turning the thermostat down to a reasonable level is not bad advice, however, it is not the principal approach that we are taking. What we are saying is there is a whole range of things we could do in terms of technology and installation that will make the home more efficient but at the same level of comfort. In terms of how to incentivise that energy efficient behaviour, there is a whole range of things and fiscal incentives are a part of that package. It is very much, as I am sure you well know, the domain of the Treasury but we have worked very closely with the Treasury over the last couple of years and have had two consultation papers on using economic instruments in this field jointly between the Treasury and Defra, and there have been a number of announcements in Budgets about particular fiscal incentives to help with this, but they have been largely confined to VAT changes for particular products, they have not been of a major kind. Without the Treasury here I am not really in a position to speculate on what further possibilities there are but it is clear that fiscal incentives have potential and we have not ruled out examining how those might contribute.

  Q37Chairman: Have you looked at some of the tougher things like personal carbon allowances?

  Mr Eppel: We have not directly examined personal carbon allowances. It is an interesting idea. It is not something we have explored up to now. Thank you for the suggestion. It is not one that is ruled out a priori.

  Q38Baroness Platt of Writtle: Going back to the VAT you mentioned, of course you have probably got to take that through Europe because Europe does not like changes in VAT for one country?

  Mr Eppel: That is indeed one of the constraints and I think the Chancellor made that clear. There are a number of things the Sixth VAT Directive precludes us from doing on particular categories of product.

  Q39Lord Winston: Even though it makes sense, it is not realistic?

  Mr Eppel: To change the VAT Directive? I think it is the stated policy of the Government that we would like to see the VAT Directive changed so that we could have greater flexibility in relation to energy efficiency. That is something that was expressed in the last Budget so it is an ambition to try and do that. Without achieving that we cannot do so much on the VAT side.


 
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