Domestic Energy Efficiency: Gvt. Policy Failure, pt. 3

UK Government Progress Delivering Residential Energy Efficiency, Part 3

The UK government set out to deliver residential energy efficiency via the Clean Growth Strategy that set a target to upgrade as many houses to EPC (Energy Performance Certificate) Band C by 2035 where practical, cost-effective and affordable” and for all fuel poor households and as many rented homes as possible, to reach the same standard by 2030.  A full account of the progress (and lack of) to date by the government is contained in the report by the Committee on Climate Change (CCC) published July 2019.

Key points arising from the report on the UK governments performance to date are presented in a series of short notes.  Note 1 set out the background and note 2 set out the progress towards the 2035 target.  In this third note we continue with key points arising from the CCC July 2019 report, regarding who should pay for improving domestic energy efficiency.

the CCC believes those who benefit from energy efficiency measures should pay for them. However a combination of high upfront costs, long-term returns, split incentives between landlords and tenants, ‘hassle’ of retrofit works and a perception that energy efficiency investment is not captured by property prices means that asset owners are reluctant to invest in improvements, even when cost effective;

the external benefits of energy efficiency are not reflected in market prices, so government intervention is needed to stimulate investment;

evidence submitted to the CCC inquiry led to the following conclusions about how costs should be distributed across residential tenures and sectors:

as fuel poor/low-income households are often not able to pay for energy efficiency measures, costs should be covered by public investment to a significant/full extent

combination of central Government funding and social landlord investment should pay for energy efficiency in the social-rented sector

better off households and private landlords should pay for energy efficiency improvements themselves.  But, as discussed, the widely documented ‘market-failure’ of energy efficiency means that incentives and regulation are needed to induce ‘able to pay’ property owners to invest.

compared to the Devolved Nations, financial support provided by central Government for domestic energy efficiency installations in England is drastically less than that offered in the devolved nations;

the main public scheme funding domestic energy efficiency measures in England for low-income, vulnerable and fuel-poor households is the Energy Company Obligation (ECO), operating across GB.  The Government points to ECO as a show of its commitment to energy efficiency but the scheme does not constitute Government spending, and instead is supplier-led and funded via a levy on energy bills;

ECO has had funding cut by 50% in recent years, from £1.3 billion to £640 million per year, despite the Government accepting the link between the money made available for energy efficiency and the rate of installations.  

in 2017/2018 UK-wide public investment amounted to around £0.73 billion but the picture masks a stark difference in the public spend per capita between England and the devolved nations, who all operate their own schemes to support households to make energy efficiency improvements;

an independent climate change think tank advised that in 2017 the average annual per capita investment was £35 in Scotland, £23 in Northern Ireland, £17 in Wales and £8 in England.  The apparent Government indifferencetowards how the public per capita spend in household energy efficiency;

Scotland’s investment of four times more than England cannot be explained by a less efficient dwelling stock:  the latest housing survey data demonstrates that homes in Scotland actually have greater insulation levels than in England.  For example, in 2017, 49% of homes in England had insulated walls, compared to 60% of homes in Scotland.  For homes with lofts, 43% in England were properly insulated (200mm or more) compared to 63% in Scotland;

the disparity in per capita spending suggests that the governments of the devolved nations treat energy efficiency as a much higher priority than the UK Government; 

Verdict:  the CCC reports it is unacceptable for the Government to use the ECO to mask its lack of commitment towards energy efficiency.  The disparity between the public money invested per capita in England to support households make energy efficiency improvements, compared to the rest of the UK, implies the Government considers it less of a priority than the devolved administrations.

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