Memorandum submitted by the Energy Retail
Association (CIT 36)
TERMS OF
REFERENCE
This inquiry will examine how the ordinary citizen
can change his or her lifestyle to minimise the impact of climate
change and to mitigate its effects.
The Committee welcomes written evidence on all
aspects of how individuals can be encouraged to help tackle climate
change, with case studies and examples where relevant. As part
of the evidence-gathering for this inquiry, Committee Members
will evaluate the opportunities available for citizens to reduce
their climate impact.
INTRODUCTION
The ERA, formed in 2003, represents Britain's
domestic electricity and gas suppliers in the domestic market
in Great Britain. All the main energy suppliers, operating in
the domestic market, in Great Britain are members of the association—British
Gas, EDF Energy, npower, Powergen, Scottish Power, and Scottish
and Southern Energy. Since its inception, the ERA has ultimately
focused on finding ways to continually improve customers' experiences
with their electricity and gas suppliers. This means that we lead
on issues such as:
— Tackling fuel poverty and protecting
vulnerable customers.
— Delivering energy efficiency schemes.
— Ensuring good sales practice.
— Developing hassle-free systems for
changing electricity or gas supplier.
— Developing industry standards for
customer billing.
— Preventing debt and disconnections.
The Energy Retail Association (ERA) welcomes
the opportunity to respond to the Environment, Food and Rural
Affairs Committee's inquiry into climate change and the citizen's
agenda. This is a particularly timely inquiry what with the recent
publication of the Energy Review, the review of the Energy Efficiency
Commitment (EEC) and an Energy White Paper due for publication
around the turn of the year.
In addition, there has been a noticeable increase
in the Government's activity in this area. Proposals which have
been floated in the past few months include: household carbon
allowances; calls for more energy efficient brown goods; and a
call for microgeneration and smart metering trials. This coupled
with the Prime Minister calling for household energy audits points
to a realisation on behalf of the Government that action has to
be taken, and quickly, if the UK is going to manage and contain
the increase in domestic energy consumption.
As you will see below we have answered your
questions in the order you have set them out. If you wish for
us to expand in any way, please do not hesitate to contact us.
THE ERA RESPONSE
1. What is the real scope for individual
and local community action to contribute to tackling climate change?
Some areas for possible consideration include:
— increasing energy efficiency, in
particular the delivery of the Energy Efficiency Commitment;
— reducing energy consumption—not
only electricity, but also energy used in heating and transportation;
— the provision of desirable low carbon
alternatives, such as energy saving lightbulbs or using public
transport;
— the potential for, and barriers to,
microgeneration;
— the potential for "smart metering";
and
— awareness of climate change and availability
of information about the role of the individual in tackling the
problem.
The Energy Efficiency Commitment
(i) The ERA has led the movement for the revision of
EEC. In terms of targets, it was clear that between 2002 and 2005,
EEC was a policy success, given that the targets were exceeded,
and an estimated 0.4 MtC will have been saved by 2010. However,
the current EEC2 programme has resulted in measures such as lighting
measures, charitable schemes, boiler upgrades and DIY loft insulation
being deemed less attractive and more costly to suppliers due
to additional requirements imposed by Ofgem and DEFRA. In essence,
there has been a predisposition towards cavity wall and loft insulation
under EEC2 and little flexibility for suppliers to make a telling
contribution from other products.
(ii) In addition, the ERA has called for
the Government to separate the twin goals of EEC (achieving carbon
reductions and reducing fuel poverty) as this leads to conflicting
priorities which has only served to reduce the effectiveness and
success in each of the aforementioned policy areas. It would be
fair to say that the ERA now believes that given the greater emphasis
on promoting domestic energy reductions and incentivising households
to embrace energy saving measures, the EEC model is nearing the
end of its effective shelf life.
(iii) In the short term the ERA recommends
that the Government should introduce additional incentive mechanisms
(whether within or separate from EEC) to support the roll-out
of new technologies (ie microgeneration or ground source heat
pumps) which could include multiple EEC credits in the early years
to subsidise the initial start-up expenditure. In addition, suppliers
should be given the latitude to innovate and experiment (for the
long term) in order to fully take advantage of technological advances
and the evolving marketplace. This should be undertaken in conjunction
with Government and related stakeholders.
(iv) In the longer term the ERA would like
to see the Government embark on a project, along with industry,
to ascertain the best vehicle for driving forward domestic energy
efficiency in the next decade. It is only by engaging in such
a process that the Government will fully appreciate the needs
of the market, along with the complexities that will need to be
overcome. To date the policy formulation process has been limited
in its scope and only adequate in its outcomes. The energy retail
industry strongly believes that the Government cannot afford to
miss the opportunity given to it by the surging public interest
in climate change and the forthcoming Energy White Paper to make
a demonstrable, practicable and unequivocal up-shift in the roll-out
of energy efficiency measures and policies. The ERA is pleased
to note that a will be holding an EEC consultation event in late
September.
Reducing energy consumption
(v) Too much emphasis is placed on the efficiency of
houses compared to the potential of energy demand reduction by
households and this should also be addressed by Government in
any policy review. With new technologies constantly being developed
the ERA believes that the Government has to be more willing to
experiment in the field of energy reduction—especially in
heating systems and other energy-intensive domestic appliances.
Low Carbon emitting lightbulbs should now be the norm and not
the exception and the ERA are disappointed that this is not yet
the case, especially given that by replacing every light fitting
in the home with a low-energy bulb, the average family could save
up to £240 per year. In addition the EST has calculated that
if every UK home installed three compact fluorescent lights (CFLs)
it would save enough energy to pay for all street lighting in
the UK.
(vi) However, issues over cost and apparent
consumer reluctance have to be overcome and the Government could
play a role by subsidising the cost of CFLs and promoting the
benefits they offer more widely.
(vii) Similarly, the Government should increase
pressure on manufacturers to do more to make their products more
energy efficient. This should include:
— Introducing minimum standards for
standby power consumption.
— The statutory removal of the least
energy efficient products from the market on a regular basis which
would incentivise manufacturers to routinely innovate and improve
their products.
— The widespread use of energy saving
recommended labeling.
— Voluntary agreements with retailers
(though the ERA are aware that work on this has begun within DEFRA).
— Tightening a wide range of product
standards in conjunction with the EU.
— Taxing luxury or grossly inefficient
products at a higher rate.
Low carbon Alternatives and microgeneration
(viii) The Government has a significant role to play
in the promotion and widespread take-up of low carbon alternatives.
As mentioned above, the tax system is one vehicle that could be
used. Other initiatives could include the development of an innovation
fund which could encourage the development of low carbon alternatives
to current day products.
(ix) The new market in microgeneration has
also brought new opportunities and the ERA are pleased that the
Government has been pro-active in its support and promotion of
the technology—especially with its backing of the Climate
Change and Sustainable Energy Private member's Bill (which has
now become law). However, more still needs to be done and the
average cost needs to be lowered in the marketplace or better
subsidised if it is going to attract mass-market appeal. Nevertheless,
as with many new developments, it should not be viewed as a "one
size fits all" and the Government should do more to promote
specific products to the appropriate markets and not be overly
simplistic in its targeting strategies.
(x) Similarly, smart metering has received
a fair degree of publicity over the past few months. The ERA welcomes
the idea of smart meters and it is now principally a question
of "how" rather than "when" they are introduced
to the British market. However, there are some difficult questions
that still need to be answered—most importantly, who is
going to pay for them and what impact will they have on consumer
behaviour.
(xi) Smart meters could potentially transform
energy use in UK homes but research suggests that only 3% of people
say they will change their long term energy use if they had a
smart meter. The introduction of smart metering would require
a significant change to the existing metering infrastructure and
substantial investment to support sustainability. The ERA has
established an expert group of advisers which is currently working
towards agreeing a viable commercial framework to encourage investment
in smart metering—although it should be stressed this is
at an embryonic stage. The group has agreed a set of fundamentals
for smart metering to be introduced:
— a need for industry agreements and
standards of interoperability to ensure that assets and services
are sustainable;
— additional refinements to the regulatory
regime that is currently in place;
— solutions to support prepayment metering;
and
— solutions to allow access for gas
and dual fuel customers.
2. What are the barriers to uptake of climate
change mitigation strategies at the level of the individual, and
how can they be overcome? Are current incentives such as the energy
efficiency commitment or graduated vehicle excise duty sufficiently
strong to affect behaviour?
(i) Barriers to the uptake of climate change
mitigation strategies at the domestic level include the following:
— Inertia amongst householders in the
role they can play.
— Cost of undertaking energy efficiency
action (including short-term costs v long-term benefits and cost
savings).
— Lack of knowledge regarding the energy
efficiency measures available in the marketplace.
— Lack of knowledge regarding the amount
of energy which could be saved by installing energy efficiency
measures.
(ii) The ERA has recently called on government
to redouble its efforts to modify consumer behaviour in the light
of recent pronouncements on the need to reduce domestic energy
consumption. The energy retail industry has already spent £800
million on energy efficiency measures over the last three years,
which avoided 15.5 million tones of carbon emissions. Over the
next three years, the sector is expecting to spend a further £1.2
billion on energy efficiency measures in households across the
country.
(iii) We feel that the need to challenge
and change consumer behaviour should be viewed as a core aspect
of any strategy planned for the future. A dedicated research-based
energy efficiency consumer awareness campaign to tackle the status
quo is much overdue from Government and although we welcomed the
2006 Budget announcement that funding would be provided for local
authority-led publicity and incentive schemes, we believe this
should be viewed as only a part of the solution.
(iv) The ERA also welcomed the announcement
on Home Information Packs (incorporating Energy Performance Certificates)
and believes this will be a policy in driving home the need for
properties to be as energy efficient as possible. The onus will
fall on the property owner and as they have a vested interest
in obtaining the best price for their property it is logical that
they should be the group that are incentivised to carry out the
work. In addition, we recommend that the Government work closer
with the EST, local government, community groups and other relevant
stakeholders to fully address the ambivalence and ignorance surrounding
domestic energy efficiency and its benefits.
3. How can Government and other agencies—at
national, regional and local levels—encourage the uptake
of domestic emission reduction measures? What is the role of community
projects in schools and other public institutions?
(i) Government should once again explore
the opportunities presented by fiscal incentives in order to further
boost customer interest and willingness to invest in energy efficiency
measures. Such measures could take the form of a reduction in
stamp duty, or a reduction in council tax, for energy efficient
housing (the British Gas/Braintree Council trial is a useful example).
The ERA believes that the decision on these options should be
taken at a regional and local level, within a national framework,
in order to fully exploit the opportunities that currently exist
and recognise the demographic disparities in different parts of
the country. Central and local government should work in conjunction
on fiscal measures in order to develop a suitable position in
terms of what is required and how it can be delivered.
(ii) The ERA agrees that a wholesale shift
in public opinion must be achieved to ensure that individuals
and households are encouraged to install energy efficiency measures.
It should be acknowledged that fiscal measures in this area could
make a significant contribution to delivering the household portion
of the Government's domestic emission reduction targets.
(iii) The ERA would also urge the Government
to work with suppliers to create the necessary conditions where
customers are not only incentivised to purchase energy efficiency
measures tools but suppliers are encouraged to sell energy efficiency
solutions within viable market conditions.
(iv) Suppliers have undertaken a range of
initiatives to promote the importance of energy efficiency within
the community including activity in schools and view this as an
essential part of the education and endorsement process. In addition,
suppliers run a range of schemes targeted at the domestic market
but marketed and delivered through community groups, charities
and third-parties.
(v) The Energy Saving Trust are also recognised
deliverers in the field of emission reduction advice and run schemes
including Community Action for Energy (CAfE) and the Energy Certification
for Schools.
(vi) The ERA believes that the time is now
right for some of these schemes to be more closely-coordinated
and calls on Government to develop a strategy that would enable
this to happen. The ERA would like to see the Government undertake
a holistic approach to the issues regarding the promotion and
dissemination of energy efficiency advice and carry out research
in order to identify the models that would best deliver results
on the ground.
4. What is the role of NGOs in delivering
the "citizen's agenda" on climate change?
(i) The ERA believes that NGOs have a fundamental
role to play in the design, management and delivery of a framework
aimed at promoting personal responsibility in the area of climate
change. Organisations such as Greenpeace, WWF and Friends of the
Earth need to extend their role beyond lobbying government for
more action and resources to changing consumer behaviour.
(ii) Other organisations including the Sustainable
Development Commission and charities including Forum for the Future
provide a vital independent role to Government and have been vocal
over the past few years on the continuing dangers poised by climate
change and the need for individuals to recognise and respond to
their personal responsibility in combating its growth.
(iii) The ERA would like to see the relevant
NGOs taking more of a lead in the decision-making process going
forward and engaging more closely with suppliers in order to identify
opportunities and develop tangible solutions to the current barriers
which exist in the market.
5. Are Domestic Tradable Quotas (also known
as personal carbon allowances) a viable option? What other economic
and other incentives for behavioural change might also be considered?
(i) Although the ERA recognises the merit
in a personal carbon allowance policy it considers this to be
a long-term aspiration and a proposal that requires a sizeable
fiscal and logistical investment. However, within the right context
a model which combined the right balance of "carrot"
and "stick" and took into account the numerous variables
that exist—ie the infirmed who might be housebound and therefore
forced to use more energy or large families on fixed incomes—should
be welcomed if a feasible and workable model could be designed
that did not penalise sections of society unfairly.
(ii) The future model of EEC (or its replacement)
should be flexible enough to incorporate, and indeed promote,
trading across the carbon-reducing policy measures suite. This
could possibly include white certificate trading and its variations
as well as the exploration of personal carbon allowances and cap
and trade arrangements.
(iii) The government have to take time to
work out the practicalities of any such scheme as it could easily
be accused of sending out mixed messages because on the one hand
it is supporting the growth in the aviation sector by expanding
airports, and refusing to consider taxing aviation fuel, but on
the other hand, it wants to compel people to reduce their emissions
to combat climate change. In addition, the ERA believes that there
might be a genuine view held by some that a personal trading scheme
now would shift the responsibility to the individual and away
from government without offering them a legitimate choice.
(iv) Other measures that the ERA has tentatively
discussed include carbon loyalty cards, the use of carbon offsets
at the point of purchase, league tables (regional and national)
and appropriate carbon labeling on goods. However, as with personal
carbon allowances, the right framework has to be in place and
the appetite has to be generated for the policies to have any
chance of being successful.
Energy Retail Association
September 2006
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