'The inefficiency penalty': Government again urged to get a grip on underpowered energy efficiency policy

CBI leads fresh calls for ‘an all-out national effort’ to improve energy efficiency and accelerate decarbonisation efforts

Conservative in-fighting may be once again reaching one of its periodic crescendos, but there is another perennial occurrence evident in Westminster today: pleas for the government to do more to tackle the UK’s appalling levels of energy waste.

Both the UK’s largest business group and one of its most influential environmental think tanks will today call on Ministers to urgently address the “inefficiency penalty” that is driving up bills for millions of households and undermining efforts to both enhance the UK’s energy security and on deliver its climate goals.

The CBI is this morning set to place action on energy efficiency at the top of the agenda for its annual Net Zero Conference, which will bring together an audience of senior business leaders at the Science Museum in London. With speculation continuing to rage over the leadership of the Conservative Party and the government’s response to the cost-of-living crisis, CBI Director-General, Tony Danker, will again call on the government to make “an all-out national effort” on energy efficiency one of its top priorities.

In the three months since Russia’s invasion of Ukraine, the government has launched three separate attempts to address soaring energy bills, unveiling a support package to reduce household bills by around £200 and publishing a new long term Energy Security Strategy, before then returning with plans for a new windfall tax on oil and gas companies and a beefed-up support package to try and further take the sting out of spiraling household energy bills. But the various measures have been widely condemned by business and environmental groups, who have accused Ministers of failing to strengthen energy efficiency policies that could help curb both energy bills and carbon emissions in the long term.

This Danker will add his voice to this morning chorus of criticism, urgent calling on the government to further accelerate its decarbonisation efforts and greatly increase funding for energy efficiency programs in response to the energy cost crisis triggered by Russia’s invasion of Ukraine.

“Going green will cut people’s energy bills,” he will say. “By giving people more power to use less energy and limit the impact of rising fossil fuels prices on their lives. The government’s Energy Security Strategy commits to fresh targets on the supply side. But what it fails to do in this crisis is saying anything about the demand side. There are lots of ways to help people bring down their bills.

“The UK has some of Europe’s oldest, leakiest buildings. UK homes lose heat up to three-times faster than more energy-efficient homes in countries, such as Germany. It’s estimated that government cuts to climate policies over the last decade, including energy efficiency measures, have added around £2.5bn to the nation’s energy bills, costing households over £40 a year. efficient. That amounts to a split of around £1.7bn of public investment per year and £3.5bn private from landlords and homeowners able to pay.”

Danker will concede that such a multi-billion pound investment program “sounds expensive”, especially given the worrying economic outlook. But he will also argue that “higher energy bills and resulting inflation just cost the Chancellor £22bn’s worth of support in the Spring; £15bn in May; and we haven’t reached October yet”, characterising the choice facing the government as being between “a new normal of energy efficiency or a new normal of billion-pound bailouts every quarter”.

It is a point expanded upon separately today by a new report from think tank E3G, which calculates that the UK government has spent £37bn this year “to stand still on soaring costs of living, without meaningful investment in solutions which could permanently reduce bills” . The analysis calculates that those households living in the most inefficient homes are paying an “inefficiency penalty” of around £916 more per year on energy bills when the energy price cap rises to £2,800 this autumn. In contrast, if everyone living in homes below Energy Performance Certificate (EPC) band C were improved to EPC C today, the aggregate saving would be £10.6bn each year.

The think tank said that while the government has “failed to deliver” on energy saving measures at scale to date, a package of near term measures could deliver rapid progress that would save families an average of between £450 and £1,000 a year.

Specifically, the detailed report how delivering the outstanding £1.4bn of energy efficiency funding promised in the 2019 Conservative manifesto and putting the next phase of the Energy Company Obligation (ECO) program into legislation could slash bills for hundreds of thousands of homes over the next three years. Similarly, it is proposed that a new scheme delivered by energy companies to provide subsidized energy efficiency measures for families on middle and lower incomes, coupled with an ‘Olympic-style’ skills and training program for the retrofit supply chain and enhanced energy and retrofit advice programs could enable upgrades to well over three million homes over the next three years.

“With fossil fuel prices expected to remain sky high until at least 2030, the government must decide whether it wants to go on spending £37bn per year just to stand still – or to invest now in permanent solutions for lower bills, which will pay off multiple times over in the years ahead,” said Juliet Phillips, senior policy advisor at E3G and lead author of the report. “Until the structural drivers of the cost-of-living crisis are addressed, including the cold and leaky nature of our housing, the government could be left spending tens of billions on emergency financial support packages each year.”

The CBI will today step-up calls for a similar package of measures, urging the government to legislate to deliver the next phase of the ECO scheme before summer recess and commit £1bn annual funding for energy efficiency retrofits through a new ECO+ scheme. “We must fulfil the commitments this government made to close the investment gap in energy efficiency,” Danker will say. “Commitments in their manifesto, no less. Let’s learn lessons from where previous policies like the Green Homes Grant have failed. And get a plan in place. We can get started really fast. The ECO scheme has outlasted others. It supports fuel poor households to save through energy efficiency measures. As such, it’s the fastest tool we have to get thousands more homes upgraded before the winter.”

Specifically, he will call on the government to prioritise the delivery of the next phase of the ECO scheme that has been delayed in recent months. “The government has the opportunity right now to prioritise the legislation of the fourth ECO scheme before the summer recess,” he will say. “And we can also go further. We’re asking the UK government to commit an additional £1bn of support annually and create ECO+, to help more households get started on the journey. Under ECO+, government funding could be matched by customer contributions – and made affordable through government working with banks and employers to develop green finance options that help spread the cost.”

More broadly the CBI will urge Ministers to accelerate planning reforms to enable faster green infrastructure development, including new onshore wind farm projects, and deliver promised policy frameworks to enable the rapid expansion of the nascent hydrogen and carbon capture and storage industries.

And with the latest bout of Conservative Party in-fighting again providing a platform for those Tory MPs who want to ditch the net zero agenda, Danker will today reiterate his view that accelerating decarbonisation efforts can deliver multiple economic benefits for the UK. “Going green will bring the UK economy its first post-Brexit boom and allow us to genuinely outcompete the rest of the world,” he will say. “The UK prize on offer is already worth tens of billions of pounds and rising. The UK needs to be hungry and ready to compete for the lion’s share of that investment. That means green jobs across the country, helping hungry locals – not just the national bottom line – all the while strengthening our global competitiveness for decades to come.”

“At a time when growth is stalling in the UK and across the world, and the UK government is looking for solutions that won’t overheat the economy or break the bank. More than ever green growth is the growth bet we need. The money is green; and today we have a competitive advantage.But that position is under rapid attack from our competitors.

While the Department for Business, Energy, and Industrial Strategy (BEIS) was considering a request for comment at the time of going to press, Ministers have repeatedly argued that the new package of support for energy bills, plans to accelerate domestic energy generation, and wider net zero strategy will help to curb costs and bolster UK energy security in the long term.

But with the government engulfed in a leadership crisis, the various responses to the energy cost crisis having largely underwhelmed, and no date yet confirmed for when the next phase of the ECO scheme will be approved, concern is now widespread that Ministers risk squandering the chance to finally tackle the UK’s high levels of energy waste and turbocharge decarbonisation efforts in the near term. Business leaders and environmental campaigners will be hoping that once the latest round of Westminster drama is eventually resolved, action on energy efficiency can belatedly prioritised.


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