Energy efficiency and energy services

Micro-generation could act as an important catalyst for demand reduction and consumer behaviour change. One way in which this could be achieved is by changing the way in which energy suppliers interact with citizens. This would build on the current incentives they have to implement energy efficiency measures. There is clear evidence that energy efficiency is the most economic way to reduce energy use (DTI, 2007a), but unlocking this potential can be difficult in practice. In addition to the EU-wide labelling scheme for white goods, the UK government has introduced policy instruments to encourage energy efficiency within households.

One of the key policy instruments for encouraging energy efficiency in the UK and addressing emissions from the household sector has been the Energy Efficiency Commitment (EEC) which requires energy suppliers to implement measures to save specified amounts of GHG emissions. This was introduced in 2002 and runs in three three-year phases until 2011. Energy efficiency measures that qualify under EEC include cavity wall and loft insulation and energy efficient lighting. At least 50 per cent of the savings under EEC have to come from priority groups, mainly low-income households who receive certain benefits or tax credits, and many of whom live in 'fuel poverty'. EEC thus acts as a two-way measure in delivering government policy by reducing carbon emissions and by helping those citizens who struggle with their energy bills.

The first two phase of EEC (2002-5 and 2005-8) were very successful in meeting their targets. The third phase of EEC - which has now been renamed the Carbon Emissions Reduction Target (CERT) - runs from April 2008 to 2011. It extends measures under the commitment to also include micro-generation, including biomass heating. One shortcoming is that EEC has been under an obligation to implement technical solutions rather than taking into consideration how people actually use energy in their houses (DTI, 2006c). Moreover, despite EEC's success, approximately nine million cavity walls still remain to be insulated in the UK, while there are several million houses with solid walls which also require better energy efficiency measures. Ideally energy efficiency policy should take a 'whole house' approach, attending to both the 'bricks and mortar' and to incentives for energy saving behaviour within the house.

The UK government announced in the Energy White Paper 2007 that its commitment to energy efficiency is long term, with some form of obligation on energy suppliers until 2020. The aim is to shift the energy market from a supply-dominated model to one based on services to consumers. The idea that consumers are interested in energy services such as heating and lighting rather than in energy itself has been recognised for a long time. It is an approach commonly used in businesses and other large organisations, but it has not taken hold in the household energy market. Furthermore, it had not attracted much ministerial attention until recently. In a speech to the Fabian Society in June 2006, Trade and Industry Secretary Alistair Darling highlighted why he thought energy services could now be important: 'we are looking at how to create a shared incentive between consumers and energy suppliers to reduce energy use. We must look at how [energy suppliers] can change from just selling units of electricity to providing energy services - heating and lighting homes - making it their business to increase energy efficiency and cut demand' (Darling, 2006).

Despite this rhetoric, the route to a domestic energy service market is uncertain. It has been suggested that beyond 2011 a new 'cap and trade' scheme (see Chapter 11) will be set up for the energy supplied to households. This approach could provide a particularly appropriate framework for a household energy service market, and might be more successful than EEC in accommodating behavioural measures since the impact of these would not have to be quantified separately (NERA, 2006). If a cap were placed on the amount of energy supplied to households, suppliers would have a direct incentive to implement a range of energy saving actions and micro-generation in people's homes. Of course, the extent to which these measures would be implemented in practice would depend on how ambitious the cap on suppliers is. An initial scoping study for a domestic cap and trade scheme was completed for the UK government as long ago as 2000 (Macklon, 2000). While admittedly there is an evident need for much more work on the details of the regulatory changes required, it is puzzling that the UK government is waiting until at least 2011 to implement it.

Another way in which trading might stimulate citizens to think about their energy use in a holistic way is 'personal carbon allowances' (PCAs). This would provide an allocation of emissions rights to all adults. These rights would be surrendered when citizens buy petrol, electricity or gas. Those who use more than their allocation would be able to purchase extra allowances from those who use less. However, as Chapter 11 points out, it is questionable whether such a scheme would be the best way to stimulate emissions reductions. A number of important aspects of PCA schemes remain uncertain such as political (and technical) feasibility and costs. Moreover, there are alternatives such as an 'upstream' trading scheme that covers emissions that are not already within the EU Emissions Trading Scheme. This idea is developed in Chapter 11.

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