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COMMUNITIES AND LOCAL GOVERNMENT COMMITTEE INQUIRY: EXISTING HOUSING STOCK AND CLIMATE CHANGE
MEMORANDUM BY THE ASSOCIATION FOR THE CONSERVATION OF ENERGYIntroduction
The Association for the Conservation of Energy is a lobbying, campaigning and policy research organisation, and has worked in the field of energy efficiency since 1981. Our lobbying and campaigning work represents the interests of our membership: major manufacturers and distributors of energy saving equipment in the United Kingdom. Our policy research is funded independently, and is focused on four key themes: policies and programmes to encourage increased energy efficiency; the environmental benefits of increased energy efficiency; the social impacts of energy use and of investment in energy efficiency measures; and organisational roles in the process of implementing energy efficiency policy. ACE welcomes this inquiry into existing housing stock and climate change. Tackling the existing housing stock is a critical issue as 27% of the UK's carbon emissions come from the domestic sector. This is a big opportunity to reduce carbon emissions and to tackle fuel poverty.
ACE believes that current measures to adapt existing housing have had limited success and that more needs to be done. We will be examining this issue in more detail in our response to the individual questions below. Furthermore, the respective roles of homeowners, central and local government and the energy suppliers need to be rebalanced, as currently a disproportionate burden falls upon the suppliers and, as a consequence of increased fuel bills, upon householders (irrespective of income). ACE recommends that Government follows the examples of other countries, like Germany, and make available greater sums of Government money with which to tackle both its household energy efficiency and fuel poverty obligations.
Heating in the home is by far the largest source of carbon emissions. Space and water heating account for 41% of an average individual's annual carbon emissions, whereas lighting, appliances and cooking together account for under one fifth. It is therefore critical to tackle heating in the home as the top priority. The key issue should be dealing with the fabric of buildings (i.e. the building itself). Cavity and solid wall insulation, loft insulation, double glazing and boiler replacement should be the first measures implemented while lighting and appliances should be secondary. However this does not always happen as programmes tend to concentrate on the cheapest and easiest measures first.
A "whole house" approach is critical to the delivery of optimal energy efficiency. Currently the way programmes are structured means that households are approached in a piecemeal fashion. Low income homes can even have one measure installed by one programme and another measure installed at a later date by another programme. This type of approach is much more costly and time consuming. ACE advocates a systematic, integrated and coordinated approach in terms of the whole house and in terms of location. Programmes in France and Germany use a whole house approach and the UK could benefit from following their lead.
The housing stock is being increased, not only by new build, but by the subdivision of existing properties. This is increasing the proportion of households living in properties that may not be governed by current Building Regulations. By tackling existing stock an increasing proportion of households will be targeted.
It is vital that the carbon emissions from the existing housing stock are tackled and that all existing homes have sufficient energy efficiency improvements in order to prevent energy waste, reduce heating bills and help the UK reach its carbon emissions reduction targets. 1. How can improvements be achieved?
It is clear that existing approaches are not generating sufficient levels of demand from householders to meet UK household energy efficiency targets. In England the average SAP rating is around 54, in Scotland 58 and in Wales 52. ACE believes that fiscal measures can make a significant contribution to delivering the household portion of the Government's climate change targets. It must be a priority of Government to implement further complementary measures, which specifically include fiscal incentives as part of an overall package, in order to encourage consumers to save energy. There has been very slow progress towards introducing any substantial new economic instruments to improve households' energy efficiency - and ACE hopes that this inquiry will add a new impetus to transforming economic incentives. There are insufficient policies and standards that relate to existing buildings in the UK, and these need to be strengthened.
When faced with a UK building stock that is, from an energy efficiency standpoint, in very poor condition, activities targeting the householder (rather than the house, such as via the Energy Efficiency Commitment Priority Group) is effectively pock-marking the stock with improved homes, rendering the remaining stock unchanged and costly to identify and treat in the future. This effect is compounded as EEC effectively forces suppliers to compete with each other to install measures at least cost. This leads to myopic behaviour, precluding a more integrated, systematic stock-based approach, as suppliers are concentrating on reaching their targets with the cheapest approach instead of looking at the wider picture.
To mitigate this risk - and reduce transaction costs associated with the potential for multiple agencies supporting any given household (EEC, Warm Front/Warm Deal/Home Energy Efficiency Scheme, Low Carbon Buildings Programme, Local Authority support) - we strongly recommend area-based co-ordination where possible. In this way those in fuel poverty - as well as the able-to-pay and the entire building stock - can be addressed systematically and at least cost. This co-ordination could be done directly by Home Energy Conservation Authorities (district, borough and unitary councils), or by an external company, working for each HECA council under contract. Local knowledge could then be combined with external money to enable a systematic, targeted approach to improving the local housing stock, an example being the various Healthy Homes programmes being carried out in various forms in Cornwall, Westminster, Kensington and Chelsea, Eastbourne, Lewes and Rother.
An area-based approach can also save time and reduce costs. Some seven million homes have cavity walls that have not been insulated. Many of these houses will be semi-detached or terraced. If a road of houses is tackled together, more can be done in a shorter period, which reduces the costs and complexity of installation.
With regard to EEC, the depth of the loft insulation installed by Government programmes in the 1970s - when most was introduced - is inadequate by modern standards (one to two inches). There is also no guarantee that after 30 years this insulation has not been rendered far less effective by being moved or compressed by storage. ACE supports counting these lofts as effectively 'virgin', as this will help bring these lofts up to modern standards.
Currently energy saving measures are not installed where one more or occupant is ineligible for funding. ACE recommends that this be changed so that all those eligible for funding are reached and are not penalised just because they live with others who do not qualify.
ACE welcomes the Government's commitment, as set out in the 2007 Budget, that by the end of the next decade all householders will have been offered help to introduce energy efficiency measures with the aim that all homes will have achieved their cost-effective energy efficiency potential. The Budget Report outlines the following programmes and measures in order to achieve this aim: EEC, Warm Front and Decent Homes Programmes, Energy Performance Certificates, improvements to billing information, the roll-out of smart metering and visual display units over the next decade and improved energy advice and information.
However, these programmes and measures as they stand will not be enough to reach this aim. Warm Front and Decent Homes only concentrate on vulnerable groups with the rest of householders not being targeted. In the current phase of EEC, 50% of the energy saving target has to be achieved via measures installed in low income households. In the next phase of the programme - from 2008 to 2011 - the Government proposes that the Priority Group should still account for 40% of total energy savings. Meanwhile, the majority of the measures outlined in the Budget revolve around creating greater awareness and information on energy use, but unless these are coupled with actual financial incentives, the take-up of these measures will be minimal. ACE believes that consumers need direct help to install energy saving measures and that there is still considerable scope for the introduction of further fiscal and economic measures. Additional incentives targeting landlords, homeowners and energy suppliers are needed to encourage the uptake of energy improvements to homes.
The Budget announced that from 1 October all new zero-carbon homes will pay no stamp duty or receive a reduction in stamp duty of £15,000. While ACE welcomes this proposal, the number of houses affected will be minimal. We therefore strongly support a stamp duty rebate for house purchasers who make energy efficiency improvements to their home within a set time period, say six months to a year. Owner-occupiers account for 70% of the UK's householders. Very few of these households are taking steps to improve the energy efficiency performance of their properties. People are most likely to act at the time of selling or purchasing a house, and therefore this behaviour should be incentivised at the appropriate time. A rebate could be readily linked to Energy Performance Certificates.
Currently a reduced rate of VAT to 5% is offered for the supply and installation of certain energy efficient products or materials in non-grant schemes when householders employ contractors. ACE recommends that this should be extended to all measures and that the Government should intensify its calls for a change in EU VAT legislation to allow the reduced rate to apply when householders install the measures themselves. This will prevent discrimination against low income households who are more likely to install energy saving measures themselves than pay someone else to do it.
ACE welcomed the introduction in Budget 2004 of the Landlord's Energy Saving Allowance, which allows private landlords to claim investment in energy saving materials against profits. We also welcomed the extension of the allowance in the most recent Budget, so that it is now available to landlords per property, rather than per building - ensuring that landlords of smaller properties have access to the full allowance. However, we recommend that the amount of capital relief should be raised and that the range of technologies for which the allowance is available should be extended to the full range of energy saving technologies. ACE supports a requirement for domestic landlords to make energy performance improvements under landlord and tenant legislation at the termination or surrender of a lease.
ACE also supports a Council Tax rebate for householders installing energy saving measures. This is a way of reaching households who are not moving or taking out a new mortgage. It therefore has the potential to reach more households more quickly than a stamp duty rebate. In conjunction with British Gas, 16 local authorities have already committed to offer one-off rebates to their residents. There is enthusiasm for this scheme among other local authorities.
Homes that meet some sort of sustainability criteria should be eligible for Mortgage Interest Relief. This would effectively be a restoration of mortgage interest relief at source for sustainable homes and could be linked to Energy Performance Certificates and green mortgages. The relief could be given to homeowners when they move house and/or to those who are remortgaging their house but not moving.
ACE supports a Green Mortgage scheme. Three lenders already offer this to encourage their clients to be more energy efficient. However there needs to be a much more concerted effort by the major mortgage lenders to stimulate a serious focus on energy efficiency and environmental issues in general. As noted above, green mortgages can be a route into mortgage interest relief for sustainable homes.
ACE supports a reform of Winter Fuel Payments to create incentives to invest in energy efficiency measures. The relationship between winter fuel payments and energy efficiency should be reviewed and practical ways of ensuring that a growing proportion of the WFP expenditure is invested in energy efficiency should be developed.
Interest-free loans offered to homeowners who install energy efficiency measures in their homes would encourage uptake, especially for the more expensive technologies such as external wall insulation. This has certainly been the experience for SMEs benefiting from similar programmes.
Currently a boiler is only replaced if it breaks and is costly to repair. Many older boilers are inefficient and would benefit from replacement. Incentives such as interest-free loans, reduced VAT or Council Tax discounts need to be in place for replacing obsolete boilers.
2. Existing housing performance compared with new build
There are significant differences between the energy performance of existing housing and new build with older properties generally having a much lower energy performance. In principle buildings constructed since 2006 are typically 40% more energy efficient than those built in 1996, largely due to changes in Building Regulations.[1] Over 40% of properties built before 1919 have a SAP rating of less than 41, whereas 60% of properties built since 1990 have SAP ratings above 70.[2] If the UK is to reach its target of reducing emissions by 60% by 2050 then the existing housing stock will need to be made much more energy efficient. In 2050, 60% of buildings will still predate the last revision to Part L of Building Regulations, and 40% will predate the introduction of Part L in 1985.
Existing housing stock represents 98-99% of building stock at any one time and new build rates are very low with new buildings adding 1%-1.5% of building stock each year. Although the Government has set a target that all new houses will be zero carbon by 2016, new build will only account for 1% of homes in 2016.
3. Roles of residents, homeowners, landlords, local government, central government, energy industry
There is a need to strike the right balance between all stakeholders. As things stand, the principal policy mechanism to ensure greater energy efficiency in households is the Energy Efficiency Commitment (to be called the Carbon Emissions Reduction Target - CERT - from 2008), which requires energy suppliers to achieve targets for saving energy in the household sector. Furthermore, the Energy Efficiency Commitment - as opposed to the Government-funded Warm Front and Decent Homes Programmes - is the only programme that targets the able-to-pay sector.
In terms of comparative expenditure, the most recent figures show that the annual cost of EEC (borne by energy suppliers and ultimately, via increased fuel bills, the householder) is in the order of £384 million, whereas the Government's latest estimates of the combined cost to them of the Warm Front and Decent Homes Programmes is £450 million per year. In other words, 46% of the total spend on the UK's three principal household energy efficiency programmes is borne by the energy suppliers (and UK householders). This level of private sector expenditure is proportionately higher than anywhere else in Europe. Given that reducing household energy consumption is a public policy aim, surely it is right that proportionately greater sums of public money be spent on delivering it. 3.1. Role of central governmentThe Home Energy Conservation Act 1995, which came into force on the 1 April 1996, placed a requirement on local housing authorities, to be known as Energy Conservation Authorities (ECAs), to reach a 30 percent energy efficiency improvement in domestic housing stock over the 15 year period from 1996 to 2011.
The Department of Environment, Food and Rural Affairs has recently published the HECA figures for 2005-06. This reveals that only 41.2% of ECAs have reached their (proportional) target of achieving a 20% improvement in energy efficiency. The majority of ECAs who have not yet reached a 20% improvement will need to improve by more than 2% a year for the next five years in order to reach their 30% target.
Under Section 4(3) of the Sustainable Energy Act 2003 the Secretary of State may exercise a power to give an 'energy efficiency direction' to all or some of these authorities. Authorities must then comply with this direction. To date this power has not been used. The use of this power would compel the worst performing authorities to do better. An energy efficiency direction - as well as more financial support for councils, where appropriate - will ensure that more authorities get on track to meet their HECA target by 2011.
Government is not on course to meet its statutory target under the Warm Homes and Energy Conservation Act 2000 to alleviate fuel poverty in vulnerable households by 2010. ACE believes that more funding and resources need to be put into alleviating fuel poverty. ACE has informed the Secretary of State for Environment, Food and Rural Affairs that, if the 2010 target is not met, the Government may be subject to judicial review.
Furthermore, the reporting requirements - on fuel poverty and climate change targets under the Sustainable Energy Act 2003 and on the targets set in the Housing Act under the Climate Change and Sustainable Energy Act 2006 - have not been properly carried out by the Government. Under the latter, the Secretary of State is required to publish an annual progress report on achieving the target for the energy efficiency of residential accommodation in England as set out in the Housing Act 2004, namely that by 2010 the general level of energy efficiency of residential accommodation in England has increased by at least 20 per cent compared with the general level of such energy efficiency in 2000. It is vital that these reports are published to order to gauge whether the targets are likely to be met, and if not, what needs to be done in order to meet them. The largest proportion of applications for planning permission are for residential extensions. The last revisions to Part L of the Building Regulations were originally intended to include a requirement that when an extension was agreed for a building, it would give rise to consequential improvements to the original building in order to minimise its overall carbon footprint. However, immediately before the revisions were announced in September 2005, last-minute changes were made which limited this requirement to larger commercial buildings over 1000 square metres.
The Government's draft regulatory impact assessment on these improvements to Part L concluded that introducing such a requirement would be extremely cost-effective and 81% of respondents to the (then ODPM's) original 2004 consultation agreed with the concept. It has been estimated that improvements forgone could have delivered up to 500,000 tonnes of carbon saving, which would have made up 19% of the residential sector 2010 targets adopted in the 2004 Housing Act. ACE recommends that the 1000 square metre restriction be removed and that the requirement for consequential improvements should be applicable to all buildings.
The reduction (or abolition) of yet another 1000 square metre threshold would yield substantial further energy savings in the household sector. Under Article 6 of the 2003 Energy Performance of Buildings Directive, all buildings over 1000 square metres have to be upgraded to meet minimum energy performance requirements whenever they undergo major renovation. ACE strongly welcomes the proposal by the European Commission to "lower significantly" (in 2009) the 1000 square metre threshold to include "the majority of existing buildings". We have calculated that, if the threshold were abolished completely, the amount of carbon dioxide savings expected to flow from the Directive would roughly double. The abolition of the threshold would mean that the whole of the residential sector would be covered by Article 6. ACE therefore urges the Government to support in the strongest possible terms the Commission's proposal to reduce the threshold in 2009. Furthermore, we believe that they should be pressing for a complete abolition of the threshold.
There are currently limited policies and standards in the UK that relate to existing buildings, with the majority of emphasis being on new buildings. ACE supports energy refurbishing requirements and requirements for upgrading energy performance when buildings undergo renovation to be included in Building Regulations and planning policy. ACE believes that local planning authorities should be given the power to specify in their local development plans higher energy efficiency standards for new developments - both residential and commercial - than those required by Building Regulations. .
3.2. LandlordsThe standards of social housing have been raised by the Decent Homes Standard, but privately rented homes have been largely neglected. Although the private rented sector is relatively small, it contains a very high proportion of energy inefficient properties, and improvements to homes rented out by private landlords need to be undertaken.
The main barrier to energy efficiency improvements in the private rented sector is split incentives. A situation where the landlord pays the capital cost of energy efficiency measures and the tenant benefits through lower bills means that landlords currently have no incentive to install efficiency measures as they do not pay the heating bills.
A start has been made to address this with the Landlords Energy Saving Allowance which was introduced to provide an incentive for private landlords to improve the energy efficiency performance of homes that they let. However, this is very little used and only offers up to £1,500 for capital expenditure and only applies to certain technologies. Considering that many technologies can cost significantly more than £1,500, ACE believes that this amount of capital relief is insufficient and should be raised. We also believe that the range of technologies for which the allowance is available should be extended to the full range of energy saving technologies.
3.3. Role of the energy industryThe principal policy mechanism used by the Government to ensure greater energy efficiency in households is the Energy Efficiency Commitment. Currently suppliers are required to choose from a range of measures which means that programmes generally seek to concentrate on the 'low hanging fruit', i.e. the cheapest and easiest measures. Consequently there is limited scope for these programmes. EEC 1 focused heavily on offering householders compact fluorescent lightbulbs, as lighting presents few barriers and is the most cost-effective measure. Other common energy saving measures are cavity wall insulation and loft insulation as these are also among the cheapest and easiest.
Because programmes focus on the cheapest measures first, they have limited scope. This will soon have to change as upgrading the housing stock will become more expensive once the cheapest measures have been undertaken. There need to be enough resources made available for this eventuality.
Under current installation rates for Warm Front and the EEC Priority Group it would take over 1000 years to install external insulation in all applicable properties[3]. Ignoring solid wall insulation will only magnify the problem as still more expensive measures will be needed. In light of the number of homes with low SAP levels which have solid walls, it remains vital that the improvements in insulating technology for such walls be monitored, and that this be accompanied by sufficient flexibility to encourage take-up. Solid wall insulation has an important role to play and investment in this will be worthwhile so availability of funding is essential.
The major setback of EEC is that it does not carry out a whole house approach. Because the cheapest measures are carried out first, programmes may then have to return to the same home at a later date to install another measure. This piecemeal approach is costly and time consuming. ACE recommends that a whole house approach be adopted by energy suppliers via incentives.
4. Energy Performance Certificates
ACE welcomes the introduction of Energy Performance Certificates. We believe that it is vital that local councils receive the information provided on the energy performance of homes in order to improve knowledge of the state of their housing stock and also to enable them to carry out their statutory obligations more effectively. We do not think it appropriate that certificate information be placed on the public record for use by commercial entities. The EPCs should include information on the benefits homes could enjoy had they received a higher rating. A high energy performance will add value to the property as prospective buyers will be willing to pay more for a home that has low energy bills.[4]
5. Provision of information for households AND house buyers including EPCS
To facilitate behavioural change, householders need accessible, immediate and informative information about their energy use. Smart metering/real time displays can provide this. There needs to be a commitment from Ofgem to a national rollout of meters sufficiently 'smart' to allow householders to measure and compare their immediate and historical electricity consumption in monetary, carbon and kWh terms.
Until such time that smart meters are installed widely, informative billing can play an important role. Intelligible, frequent and accurate fuel bills can play a valuable role in encouraging households to reduce their energy consumption.
Article 13 of the Energy End-use & Energy Services Directive requires Governments to ensure that by May 2008 all energy bills are provided frequently, are based on actual, rather than estimated consumption, and are easily comprehensible. The bill should enable consumers to compare their energy use by providing information on past consumption levels as well as compare energy use with comparable premises. These bills must also provide contact details for energy efficiency advice and services. The Department for Business, Enterprise and Regulatory Reform is currently conducting a consultation on energy billing and metering and ACE recommends that there should be full and early implementation of this Directive.
6. Government efforts to reduce emissions from existing housing stock and other programmes including Decent Homes
More than half of fuel poor households live in homes that pass the Decent Homes Standard so in theory they have access to affordable warmth, but in practice they are still fuel poor. The Standard provides very little assurance to housing providers that a home is 'fuel poverty proof'. ACE recommends that higher energy efficiency standards need to be incorporated within the Standard and it needs to be re-specified to incorporate more stringent standards of thermal comfort so that more of these homes are captured by it. The same standard should be applicable to Houses in Multiple Occupation as it is to all other areas of the housing stock in England. Risks associated with damp and mould are considered to be much more likely in Houses in Multiple Occupation.
Currently the Thermal Comfort element consists of two main elements: controllable gas, oil, or LPG central heating or electric storage heating and cavity wall insulation and/or loft insulation. The latter recommendation is inadequate. ACE supports cavity wall insulation as well as loft insulation. The acceptable minimum for the loft insulation is set at 50mm which we believe should be raised to 250mm as this is the standard measure used by Warm Front: otherwise these homes will need to be revisited later.
7. Available technologies for reducing emissions and the government'S role in facilitating further development
There is the potential to reduce consumption from the average household by at least one quarter, using established technologies. Incentives are needed to give these technologies (e.g. solar water heaters, micro-wind turbines, ground source heat pumps, biomass stoves and boilers and micro-CHP) the boost that they need and to create the economies of scale that will enable them to become more affordable.
Micro-generation and other low carbon technologies have the potential to greatly reduce carbon emissions from homes. However these technologies are expensive to install. The implementation of feed-in tariffs would facilitate and encourage homeowners to install these technologies. This would reduce dependence on electricity from the grid which has a high carbon footprint. Feed-in tariffs were introduced in Germany in 1991. This has been extremely successful and has been responsible for a dramatic increase in growth in their renewable energy market. In 5 years the quantity of electricity fed into the grid from eligible sources doubled. At present, feed-in regulations for renewable energy exist in over 40 countries, states or provinces internationally. 8. Costs associated, who should meet those costs (in particular in respect of low-income households), interaction between emissions reductions and reducing poverty
Poverty reduction and reducing carbon emissions must be tackled together; it must not be seen as either-or. The imbalance between the proportion of costs falling onto Government and energy suppliers needs to be addressed. Currently a very small proportion of costs fall onto Government - the money it spends on household energy efficiency consists of the Warm Front Programme, the money it gives to local councils for Decent Homes and the money it forgoes by means of VAT reductions and allowances. In contrast, between 2003 and 2007 Government VAT receipts on fuel consumption have increased by £500 million per annum as a result of higher fuel prices. The majority of costs fall on to the energy suppliers, which in turn falls onto the customer via higher fuel bills.
ACE commends the German government programme which makes €2.4 billion euros available each year to stimulate investment in improving existing buildings. In contrast, UK Government spending is low. ACE recommends that more Government funding is made available. As noted above, as a result of the increased fuel prices since 2003, the Treasury is now raising an extra £500 million each year. ACE believes that this money should be spent on energy saving measures and tackling fuel poverty.
ACE is concerned that current policies aimed at reducing fuel poverty are poorly integrated, leading to duplication and unnecessarily high transaction costs. Programmes and standards for reducing fuel poverty and upgrading existing housing stock need to be more coordinated. The eligibility for financial and grant assistance needs to be re assessed, as many households do not qualify.
The Fuel Poverty Advisory Group Fifth Annual Report of 2006 recommended that energy efficiency standards for social housing need to be increased either by an improvement in the Decent Homes Standard or by a duty on landlords to provide minimum SAP ratings by say 2016. The report also identified that Government programmes lack co-ordination and that the responsibility for fuel poverty is dispersed across many different Government departments. The report recommended that the roles of all Government departments need to be clearly defined and that a significant contribution on fuel poverty could be made by a high profile cross-Departmental commitment.
9. Challenges in relation to housing of special architectural and historical interest
There are many barriers to installing energy efficiency in this sector of houses. The fabric of an existing building may present barriers to the adoption of some energy efficiency measures. For example, there are high costs in updating traditional sash windows with double-glazing. Some measures could change the building's appearance which may need to be preserved for listed buildings. However these buildings can not be ignored as historical buildings may be the least efficient.
Association for the Conservation of Energy 26 September 2007
[1] Royal Institute of Chartered Surveyors, Transforming Existing Buildings: The Green Challenge Final Report, March 2007 [2] Department of Communities and Local Government, Review of Sustainability of Existing Buildings, The Energy Efficiency of Dwellings - Initial Analysis, November 2006 [3] Fuel poverty - Mapping the Next Decade, The cost of alleviating fuel poverty in England and in managed housing, Association for the Conservation of Energy, March 2007 [4] The Desirability of Sustainable Homes Research Study, Sponge Sustainability Network, January 2007 |