4.1. A large number of policy instruments and
incentives will be needed to ensure that energy efficiency is
effectively promoted. This presents both an opportunity and a
risk. If all elements of the chain linking primary fuel extraction
to end use of energy can be addressed in a coherent, holistic
manner, the potential reduction in greenhouse gas emissions is
huge. For this to happen, policies must be comprehensive, but
clear and consistent, and in particular avoid duplication, for
example in the application of capital grants. On the other hand,
if only some aspects of the energy cycle are targeted, or if the
policies are confused, there is every prospect that the benefits
of localised Government initiatives will be neutralised by losses
elsewhere. If policy focused, for example, solely on technical
efficiencylow-energy appliances, better insulation, and
so onany energy gains could be dissipated elsewhere in
the cycle, for instance, through behavioural changes, such as
consumers taking advantage of lower energy bills to install heated
conservatories and so on.
4.2. A further problem is that energy efficiency
is, in the words of the Energy Saving Trust (EST), "very
low down the list of priorities for most people, so low that it
is frequently not a factor in the choice of a purchased item and
rarely motivates discretionary investment". The EST's conclusion
was that no one approach will overcome this apathyrather,
a "range of policy instruments will be needed" (p 119).
In other words, a diverse but co-ordinated mix, described by participants
at our seminar in October 2004 as "carrots, sticks and sermons".
This must include incentives (for example, capital grants, differential
VAT rates or eco-taxes, which have been used successfully in Sweden
and Germany), regulatory requirements and penalties (notably building
regulations), and better information for energy users. In the
longer term new technologies will play an increasingly important
role, and we consider research in Chapter 11.
4.3. Our inquiry has demonstrated that there
is no shortage of activity and of policy initiatives regarding
energy efficiency: the question is, is this activity effectively
led and co-ordinated? Are all the Government's initiatives pulling
in the same direction?
4.4. At the highest level there is a fundamental
problem of leadership. In the course of our inquiry it appeared
clear that Defra led on energy efficiency, and we heard evidence
from the then Minister for Sustainable Energy in Defra, Lord Whitty.
Following the election the Government, along with an ill-fated
attempt to rename the Department of Trade and Industry as the
"Department for Productivity, Energy and Industry",
announced the appointment of a new Energy Minister within that
department, Malcolm Wicks MP, with responsibility for "secure,
sustainable and affordable energy".
Unlike his predecessors, Mr Wicks was not to be responsible for
e-commerce and postal services, and his appointment therefore
appeared at first sight to fulfil our recommendation in Renewable
Energy: Practicalities, that there should be a Minister of
State with sole responsibility for energy policy.
4.5. However, by 16 May Defra ministerial responsibilities
were announced, revealing that Mr Elliot Morley, the Minister
responsible for Climate Change and Environment, would be in charge
of "energy issues (including energy efficiency", while
Lord Bach, as part of his overall responsibility for Sustainable
Farming and Food, would be responsible for non-food crops, including
biomass. With this fragmentation of those aspects of energy policy
on which Defra has led hitherto, it is by no means clear who will
provide leadership on energy efficiency in future.
4.6. Nor are DTI and Defra the only departments
with an interest in energy policy. The Department for Transport
is vital, and its Secretary of State was a co-signatory to the
Climate Change Programme. Building regulations, a key area in
energy efficiency, are the responsibility of the Office of the
Deputy Prime Minister, while the use of the tax system to provide
incentives to investment is a matter for the Treasury.
4.7. A further complication is created by the
fact that the promotion of energy efficiency is devolved to the
administrations in Scotland, Wales and Northern Ireland (though
the latter is currently suspended). A useful summary of the responsibilities
and actions of the devolved administrations is provided in the
Action Plan, pages 54-58.
4.8. How well are these various activities co-ordinated?
Responsibility for co-ordination lies with the Sustainable Energy
Policy Network (SEPN), which brings together policy-makers from
across the departments and devolved bodies with an interest in
energy, and is chaired jointly by the Secretaries of State at
Defra and DTI. We have already, in our report Renewable Energy:
Practicalities, expressed our doubts as to the effectiveness
of SEPN, and recommended instead the appointment of a single Energy
Minister, bringing together the responsibilities currently shared
between these two major departments.
4.9. That recommendation was rejected by the
Government, and was again resisted by Lord Whitty in his evidence
to this inquiry. He not only argued that SEPN had "done a
pretty effective job so far", but suggested that the issue
of departmental responsibility was one "we can become too
obsessed by". He noted that even when there was a separate
Department of Energy some aspects of energy policy ("whole
swathes of transport and buildings") fell outside that Department.
He also noted that the recently constituted Swedish Ministry for
Sustainable Development, which brings together responsibility
for both the Defra and DTI aspects of energy policy, still did
not cover transport, which accounts for over a quarter of energy
use. In short, there was always going to be a "boundary line
somewhere"the key issue was "clarity of direction"
4.10. Some other witnesses were less sanguine.
The British Cement Association (BCA) said that "it is imperative
that public policy is overseen, co-ordinated and guided from one
point, rather than being scattered through a variety of government
departments, each with differing agendas and priorities"
(p 202). In oral evidence Mr Mike Gilbert, the BCA's Chief
Executive, went further, accusing ODPM, Defra and DTI of "all
pulling in different directions in terms of energy policy, particularly
energy efficiency in building" (Q 599). Professor Ian Fells
of Fells Associates also argued that "more joined up policy
is required, having energy under both the Defra and DTI banners
does not help matters" (p 290). Martin Wyatt, Chief Executive
of the Building Research Establishment (BRE), noted that the construction
industry is "regulated, leant upon, involved with, 13 departments
across government now. There is no focal point at all" (Q
4.11. We note, moreover, that Lord Whitty himself,
following his retirement from the Government at the General Election,
appeared to accept the need for greater clarity in energy policy.
In the course of a debate on our report Renewable Energy: Practicalities
he said, "we have not yet got complete cohesion in government
on the matter
I do not normally argue for changes in government
structure to achieve a change in government policy, but, in this
context, I think that, despite the relatively good co-operation
involving Ministers in the energy field, we need a more focused
4.12. Uncertainty over departmental responsibility
is reflected in the diversity of policies, programmes and agencies.
National Energy Action described current institutional arrangements
as an "obstacle" to energy efficiency: "The plethora
of different schemes, each with varying qualifying criteria, offering
a different range of measures, and sponsored by different private
and public bodies, is
a source of confusion". Professor
Oreszczyn confirmed the point:
"In terms of institutions and instruments, we
have the Energy Saving Trust, The Carbon Trust
L of the Building Regulations
We have had regular rebranding
of schemes with similar goalsHome Energy Efficiency Scheme
then Warm Front, Energy Design Advice Scheme and now Design Advice.
In research we currently have the Carbon Visions programme, Tyndall
Centre and the UK Energy Research Centre. This is confusing to
both professionals and the public" (pp 70-71).
4.13. When we visited Leicester we were given
a striking example of the effect of such institutional fragmentation.
The Council has sought support for the development of a biomass
generator for the city's district heating network from both the
Energy Saving Trust and East Midlands Development Agency. The
Agency's initial refusal to support the project, and the time
that would have been taken in resubmitting the proposal, meant
that the Council were unable to meet the deadlines set by the
Trust, with the result that the project stalled. We understand
that at the time of writing the Council is considering the possibility
of securing funding from the private sector.
4.14. Can the delivery of policy be simplified?
The most obvious first step would be to combine the Carbon Trust,
which promotes energy efficiency within the industrial, commercial
and public sectors, and the Energy Saving Trust, which deals with
domestic energy efficiency. The Carbon Trust itself acknowledged
that there were "areas of overlap" between the two bodies,
particularly where small businesses, operating in what were in
effect domestic premises, were concerned. The Trust accepted that
the idea of a "one-stop shop" was "intuitively
appealing", and could produce "some synergies and cost
benefits", but warned of a possible "loss of focus"
if the two existing bodies were replaced by one larger organisation.
Andrew Warren, Director of the Association for the Conservation
of Energy, on the other hand, said, "We simply do not see
why we need two different agencies
There is no need to
have two ways of telling the time." We agree, and believe
that the benefits of having a single organisation would outweigh
the risk identified by the Carbon Trust (p 55, Q 117).
4.15. The Government assert that the Strategic
Energy Policy Network (SEPN) ensures effective co-ordination across
Departments and agencies. The evidence we have heard does not
bear this out. While there will inevitably be boundaries between
different departmental responsibilities, the way these are currently
set is a recipe for confusion. We therefore recommend once again
that the Government bring together responsibility for those aspects
of energy policy currently handled by Defra and the DTI under
a single Energy Minister. We believe this to be a necessary first
step if the wide range of policies and agencies in the energy
field are to be rationalised and effectively co-ordinated.
4.16. We believe that the existence of two
agencies promoting energy efficiency risks overlap and confusion.
We therefore recommend that the Carbon Trust and the Energy Saving
Trust be merged.
4.17. Many of the most impressive initiatives
that we have witnessed in the course of our inquiry have been
the result of "bottom-up" local action. In Leicester
the City Council in 1990 set a target to reduce the city's emissions
by 50 percent by 2025. Since that time the city has, for instance,
upgraded the city's 50-year-old district heating scheme; invested
in solar power; installed a data collection and management system
to allow real-time monitoring of energy consumption; and opened
an Energy Centre for local businesses and people. In the course
of our inquiry into renewable energy in 2003-04 we visited Woking,
where the local council has a similarly impressive list of achievements.
4.18. However, Leicester and Woking, though not
unique within the United Kingdom, are certainly exceptionalalthough
the investment required for their initiatives is allowed under
"invest to save" rules, and both Councils have in addition
benefited from one-off grants, few other local authorities have
been as enterprisingindeed, Elizabeth Wilson, of the Planning
Officers' Society and Local Government Association, argued that
existing guidance on "Invest to Save" rules "needs
to be disseminated better" (p 312). In both Leicester
and Woking, progress has been achieved thanks to consistent, local
cross-party support, and to the passionate commitment of Council
staffwho in both cases commented on the lack of central
Government support, and the handicaps faced by local authorities,
for instance in not being able to run local utilities. In marked
contrast, Durham University, where the Vice Chancellor and his
staff have made every effort to improve the energy efficiency
of the estate, has had little or no support from the local authority.
4.19. We saw a very different culture in Germany
and Sweden, one in which local authorities are much more proactive.
The city of Berlin, for instance, has some 6,000 public buildings,
with annual energy costs of 250 million, and annual emissions
estimated at 0.8 MtC. The Berlin government created the Berlin
Energy Agency in 1992 as a public-private partnership, involving
the energy supply company Bewag, and the state-owned bank KfW.
Through the Agency, private third parties bid to manage the energy
requirements of, on average, around 20 buildings. They take on
all the initial investment costs involved in modernising systems
and services; in exchange they take 70-90 percent of any savings
realised over a contract period of 10-15 years. As a result of
the scheme the city has achieved savings of around 9 million,
and CO2 emissions have been reduced by 100,000 tonnes
4.20. In Sweden the tradition of private enterprise
at local level is equally strong. The city of Gothenburg, for
example, owns the local energy company, Göteborg Energi,
which generates and distributes heat via a 700 km district heating
network. Its largest customer, the municipal housing association
Poseidon, owns 23,500 apartments, and has overseen a fall in energy
consumption across its properties of some 15 percent.
4.21. Swedish central government has also acted
as sponsor of innovative local projects, through its Local Investment
Programme (LIP, now renamed the Climate Investment Programme,
KLIMP). According to Professor Thomas Kåberger, who was
commissioned to evaluate the programme, the key to its success
was the way it stimulated dialogue between municipalities and
local industry. Under the LIP, applications for grants were invited
to support innovative projects meeting a range of environmental
and social objectives. Government funding represented about 20-30
percent of total cost, and the programme as a whole cost some
£500 million over the duration of the programme. The resulting
projects had delivered emissions reductions at a cost of approximately
£10 per tonne carbon, and jobs at a cost of around £130,000
per permanent job.
4.22. The United Kingdom does not have the same
tradition of local independence and enterprise. Nevertheless,
on 17 March the Local Government Association, together with other
similar associations across Europe, launched "8 messages
for the G8 and EU", arguing that "local authorities
must be given the tools to change energy consumption patterns
and promote awareness of how people can tackle climate change
in their everyday lives."
This campaign is particularly pertinent given the British Presidencies
of both G8 and EU in 2005.
4.23. Local authorities are in many cases
better placed than central Government to bring together local
people and industry in developing innovative projects to promote
sustainability and energy efficiency. However, there is no consistency
of approach across local authorities, while the successes of authorities
such as Leicester and Woking appear to have been if anything hindered
rather than helped by central Government. We therefore recommend
that the Government both make more effort to disseminate the existing
"invest to save" rules, and explore new ways to promote
dynamic local action in pursuit of its energy policy goals. In
particular the Government should consider the model of the Swedish
Local Investment Programme, as a highly effective means to kick-start
The European Union
4.24. The EU plays a crucial part in the United
Kingdom's energy policy, both through the growing framework of
European legislation and through providing funding for research,
social programmes, and so on. A summary of EU legislation relevant
to energy efficiency can be found in a recent Report of the House
of Lords European Union Committee,
and we have therefore not duplicated the work of that Committee
by analysing EU legislation as such. We shall in later chapters
address particular issues in detail, such as the EU product labelling
scheme, the Energy Performance of Buildings Directive, which will
come into force next year, and the proposed Energy Services and
EcoDesign for Energy Using Products Directives. We shall also
touch on EU matters in considering the issue of differential VAT
rates for energy efficient appliances and for building refurbishment.
4.25. At this stage we merely offer the following
general observations, derived largely from our discussion with
Mr Meier, of the IEA. As he pointed out, in the field of energy
efficiency as in other areas, the EU "potentially has a tremendously
powerful role", but is largely dependent on individual member
states not only to formulate but to implement legislationthe
EU institutions themselves lack the staff, expertise and procedures
for effective, detailed implementation and enforcement. The result
is a degree of variation between member states, some of which
"have pursued more aggressively the implementation of the
energy efficiency policies inside Europe and have tried to complement
the implementation of those with other policies that make them
more effective". The implication is that some other member
states have been less enthusiastic, and that implementation of
EU legislation across the Community has been patchy (QQ 407, 404).
4.26. The European Union is already influential
in the field of energy efficiency, and is likely to become still
more influential in future. We look to the Government to ensure
that the United Kingdom uses the opportunity presented by its
forthcoming Presidency to promote best practice, negotiating effective,
enforceable legislation where appropriate, and at the same time
ensuring that the principles of subsidiarity and proportionality
33 This phrase is the title of a report commissioned
by Defra from Demos and Green Alliance in 2003: see http://www.green-alliance.org.uk/publications/PubCarrotsSticksSermons/. Back
See http://www.dti.gov.uk/about_dti_ministers.html. Back
Renewable Energy: Practicalities, paragraph 2.18. Back
HL Deb, 23 June 2005, col. 1798. Back
The text of the "8 messages" can be found at http://www.ccre.org/img/8_message_final.pdf.
European Union Committee, The EU and Climate Change, 30th
Report, Session 2003-04 (HL Paper 179-I), p 43. Back