Leaving the EU: negotiation priorities for energy and climate change policy Contents

8Wider European legislation: energy efficiency and consumer protection

Introduction

129.Stakeholders highlighted many wider areas of EU energy and climate change policy that will be affected by Brexit. Energy efficiency, including the energy performance of buildings and products, was one of the most commonly raised issues. Prior to the referendum, EU policies were expected to achieve 50% of the UK’s emissions reductions needed from buildings between 2015 and 2030, to remain on track to meet cost-effectively our 2050 target.259 EU energy product standards were also expected to be the largest contributor to energy bill reductions over the period to 2020.260

130.The main EU laws governing energy efficiency are:

131.Many witnesses expressed a preference to retain the standards set out in these Directives, albeit with some proposed reforms.261 For example, energy-intensive users suggested that the Energy Efficiency Directive’s target-setting approach should be revised.262 A number of witnesses also proposed reforms to national measures that have been introduced in response to the Directives.263 For example, the Mineral Wool Manufacturer’s Association proposed revising the Energy Company Obligation, since it only targets fuel-poor homes,264 and TechUK proposed linking the Energy Savings Opportunity Scheme to financial incentives, citing concerns that it had been a “poor driver of action with high levels of non-compliance”.265

132.Professional and industry associations, as well as consumer protection groups, credited energy performance certificates with driving improvements in buildings energy efficiency,266 and the Ecodesign and Energy Labelling Directives with driving up the efficiency of electrical products and removing the least efficient from the market.267 BEAMA further highlighted the consumer protection benefits of standards, notably the avoidance of false performance claims, and non-compliant and counterfeit products.268 Stew Horne, Energy Regulations Principal Policy Manager at Citizens Advice, said that the UK has driven the development of European consumer protections in energy.269 He emphasised the need “to make sure that the current level of consumer protection is maintained and that British industry continues to be influential within the European forums”.270

133.The Government has said it will work with the British Standards Institution to ensure that our future relationship with the European Standards Organisations (which are not EU bodies) continues to support a productive, open and competitive business environment in the UK. 271

Opportunities and risks of diverging from European energy efficiency standards

134.We explored the potential opportunities arising from leaving the EU regime of energy efficiency standards. Several witnesses saw an option to revise the VAT regime.272 Others saw potential divergence on standards and loss of influence over their establishment as key risks.

Revisions to VAT

135.During the Vote Leave campaign Boris Johnson MP and Michael Gove MP said that once outside the EU, the UK would be able to scrap VAT on household energy bills.273 Witnesses disagreed about the social benefits of reducing VAT on energy bills. Stew Horne asserted that:

Removing VAT from energy bills is one of the most progressive tax changes that can be made, because it would largely benefit those on lower incomes, proportionately more so than those on higher incomes.274

136.On the other hand, Joanne Wade, Vice President of the European Council for an Energy Efficient Economy, argued that: “higher income consumers spend more on energy than lower income consumers. If you cut VAT, you give them more back”.275 She asserted that by cutting VAT on energy bills, the Government could “potentially end up with higher carbon emissions”.276 The Secretary of State told us that cutting VAT on household bills “is not something we [BEIS] have been actively looking at”.277

137.There was broad agreement that scrapping VAT on energy efficiency products would help to deliver emissions reductions and address fuel poverty.278 According to Stew Horne this “would really get to the heart of the problem, because you build in a year-on-year reduction and year-on-year savings on bills”.279 A reduction in VAT on energy efficiency products would support consumers in using less energy. This would help to address both fuel poverty and decarbonisation objectives. We recommend that the Government reduces VAT on energy efficiency products after the UK leaves the EU.

Divergence from European product standards

138.The Committee heard that the majority of European energy product standards have been driven by industry, with “only about 25% of the standards … derived from European legislation”.280 Many witnesses noted that weakened and divergent UK standards could reduce trade opportunities for manufacturers, increase production costs (if differentiated product lines are required for the UK and EU), and lead to less efficient products being dumped on the UK market.281 Witnesses further expected that European energy standards would be retained in practice, because UK manufacturers wishing to export to the EU will need to continue to abide by EU standards, and EU manufacturers are unlikely to develop new, lower-efficiency products specifically for the UK. This is already the situation for most goods sold in Switzerland and Norway.282 In general, witnesses were keen for the UK to retain European energy product standards, or to develop domestic standards that match and track these.283

139.Several stakeholders were concerned that the UK’s departure could reduce our role in determining European standards. This was because European Standards, which are developed separately from EU policies, in practice often seek to underpin and reflect them. They emphasised the importance of retaining influence, notably through ongoing UK presence inside European standards bodies.284 Stew Horne called on the Government to conduct a cost-benefit analysis of any potential divergence to ensure that consumers are not disadvantaged by any changes in protections.285

140.EU-derived polices have contributed to significant improvements in the energy efficiency of buildings and products, with benefits in terms of emissions reductions, reduced household bills and consumer protections. A small number of organisations have called for changes to EU energy efficiency policies, but in general there is widespread support for maintaining the status quo. The Government should consider retaining the majority of our EU-derived energy efficiency regulations, due to their economic, social and commercial benefits.

141.Industry would in particular prefer European energy product standards to be retained. These are likely to be applied in practice, due to the continuing need to trade with EU countries. If our formal standards diverge too far from those applying in European countries, there is a risk that the UK could become a dumping ground for energy inefficient products.

142.We recommend that the Government retains or mirrors European energy product standards for the immediate future at least, and should also, as far as possible, maintain routes to influence their development, for example through active UK participation in the European standards bodies. Any potential divergence from European energy product standards should be carefully evaluated, to avoid undermining consumer protection and competitiveness.


259 This figure includes emissions reductions from building-integrated renewables, as well energy efficiency measures applied to buildings and products. See: Committee on Climate Change, Meeting Carbon Budgets – Implications of Brexit for UK climate policy, (October 2016).

261 Max Fordham LLP (EUC0007); Mineral Wool Manufacturers’ Association (MIMA) (EUC0027); techUK (EUC0043); Chartered Institution of Building Services Engineers (EUE0040); Citizens Advice (EUE0032); Which? (LEU0037); Ricardo Energy & Environment (EUC0019); BRUFMA (EUE0045); Kingspan Insulation Ltd (EUE0046); Sustainable Energy Association (EUE0061); Energy Saving Trust (LEU0035); E3G (EUC0037), Chatham House (EUE0016), BEAMA (EUE0021), Energy and Utilities Alliance (EUE0039), Aldersgate Group (EUE0050), E.ON UK (EUE0073); Environmental Change Institute, University of Oxford (EUC0002); AECB the association for environment conscious building (LEU0014)

262 Energy Intensive Users Group (EUC0031); British Ceramic Confederation (EUC0013); Energy Intensive Users Group (EUE0036); Energy and Utilities Alliance (EUE0039); AECB the association for environment conscious building (LEU0014); Q100 [Isaac Occhipinti]

263 Energy Intensive Users Group (EUC0031); British Ceramic Confederation (EUC0013)

264 Mineral Wool Manufacturers Association, (EUC0027). See also Energy and Climate Change Committee, Home Energy Efficiency and Demand Reduction, Fourth Report of Session 2015–16, HC 552

265 techUK (EUC0043)

266 BEAMA (EUE0021); Citizens Advice (EUE0032); Ricardo Energy & Environment (EUE0035); Chartered Institution of Building Services Engineers (EUE0040); BRUFMA (EUE0045); Kingspan Insulation Ltd (EUE0046); Sustainable Energy Association (EUE0061); Energy Saving Trust (LEU0035); UK Green Building Council (LEU0025). See also DECC, An investigation of the effect of EPC ratings on house prices, June 2013

267 Committee on Climate Change, Meeting Carbon Budgets – Implications of Brexit for UK climate policy, October 2016; BEAMA (EUE0021); Energy and Utilities Alliance (EUE0039); Chartered Institution of Building Services Engineers (EUE0040); Energy Saving Trust (LEU0035).

268 BEAMA (EUE0021)

269 Q107

270 Q93

272 University of East Anglia (EUC0039), BEAMA (EUE0021), Valero Energy Ltd (EUE0030), Energy Institute (EUE0063); Which? (LEU0037)

274 Q107

275 Q108

276 Q109

277 Q278

278 University of East Anglia (EUC0039); BEAMA (EUE0021); Valero Energy Ltd (EUE0030); Energy Institute (EUE0063); Q107 Stew Horne; Q108 Philip Sellwood; Q109 Joanne Wade, Q111 Joanne Wade

279 Q107

280 Q93

281 E3G (EUC0037); Chatham House (EUE0016); BEAMA (EUE0021); Citizens Advice (EUE0032); Energy and Utilities Alliance (EUE0039); Aldersgate Group (EUE0050); E.ON UK (EUE0073); Environmental Change Institute, University of Oxford (EUC0002); AECB (EUC0056); Q93 Joanne Wade; Q95 Isaac Occhipinti; Q97 Isaac Occhipinti; Q185 Nick Winser

282 Chatham House (EUE0016); BEAMA (EUE0021); Citizens Advice (EUE0032); Energy and Utilities Alliance (EUE0039); Aldersgate Group (EUE0050); E.ON UK (EUE0073).

283 Environmental Change Institute, University of Oxford (EUC0002); Chatham House (EUE0016);
BEAMA (EUE0021); Citizens Advice (EUE0032); E3G (EUC0037); Energy and Utilities Alliance (EUE0039); Aldersgate Group (EUE0050); E.ON UK (EUE0073); Q92 Isaac Occhipinti.

284 Chatham House (EUE0016); BEAMA (EUE0021); Citizens Advice (EUE0032); Energy and Utilities Alliance (EUE0039); Aldersgate Group (EUE0050); Q93 Stew Horne.

285 Q107




4 May 2017