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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