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Past seminars

Labour Party Conference 2005

Fiscal Incentives for Home Energy Efficiency

18.00 - 19.30, Wednesday 28 September 2005

Venue: Russell Room, Royal Albion Hotel, Brighton

Speakers:

Chair

Sponsor:

Overview

This SERA fringe event was focused on the role that fiscal incentives have to play in the achievement of greater home energy efficiency. After introductory presentations by the keynote speakers, the floor was laid open for questions. The discussion covered the following topics:

The importance of home energy efficiency

It was agreed that energy efficiency has a great role to play in achieving the government's climate change targets and should be seen as an integral part of energy policy. Since households are responsible for around 30% of total UK energy use, household energy efficiency will be vital for the achievement of those targets. John Healy MP stressed his and the government's commitment to 2010 targets and argued that they are still achievable, but agreed that new measures need to be implemented if this is to be possible.

The products

There are a number of energy efficiency measures available for homes. Insulation, particularly cavity wall insulation, is one of the measures that have the greatest potential for efficiency savings. Neil Marshall of the National Insulation Association pointed out that at the moment one third of all cavity walls are insulated and 420 million tonnes of carbon could be saved (over the life time of an average building) if insulation were installed in all cavity walls in buildings in the UK. In order to reach the government's energy efficiency targets another 2,1 million cavity walls need to be insulated by 2008. Duncan Sedgewick of the Energy Retail Association argued that this will be very difficult to achieve in the current market environment.

Efficiency gains could also be achieved with the replacement of older boilers. Although the market is nearly saturated with up to 80% of older, energy inefficient boilers having been replaced, the replacement of the remaining 20% with A and B rated new ones can make a huge difference to energy savings.

Another potential energy efficiency measure discussed was the introduction of new metering technology. In this area the UK has much to learn from Europe. In the Netherlands they have a system of smart metering that has been very successful.

The problems of consumer demand

It was agreed that a huge barrier for the achievement of greater home energy efficiency is a lack of consumer awareness and interest in energy efficiency and consequently a lack of demand in the products discussed. The problem with insulation is that there are no natural triggers for its installation. The replacement of other products, such as refrigerators or boilers, is triggered by breakdown, but this is not the case with insulation. It was also suggested that insulation is not sexy enough as a product when compared to, for instance, micro wind turbines that can be shown off to friends and neighbours. This notion was however thoroughly rejected by Neil, who considered insulation very sexy!

One of the participants argued that something needs to be done to also encourage the A and B rated boiler market, in order to induce consumer to replace boilers even if they are not broken. It was argued that as whereas insulation can be installed at any time, when it comes to boilers and microgeneration this is only done once maybe every 15 years. So it is important that only the most energy efficient or micro generating boilers are installed now, since no one will want to rip out new appliances.

Duncan Sedgewick pointed out that something needs to be done now to stimulate demand and that the debate cannot wait until 2008. Creative and bold measures need to be implemented to encourage consumers to save energy if the government's targets are to be met.

What role do fiscal incentives have to play in achieving increased home energy efficiency?

One of the ways of stimulating consumer demand in energy efficiency products is to introduce fiscal measures. There was a general consensus on the desirability of this option, but less agreement on the specific measure to use. Nick Eyre of the Energy Saving Trust proposed that the council tax a viable tax to target, because of its visibility. A rebate on the council tax, which is a very unpopular tax at the moment, could induce consumers to install insulation or a new boiler. EST doing a survey on fiscal measures found that council tax rebates were a popular alternative with the public. Nick argued that the Treasury have been far too timid with the use of taxation measures in some areas and that whereas most people are not sensitive to energy prices, they are to tax. The money to finance this measure - in the region of £100 million - could be raised by increasing taxes elsewhere and this amount is at any rate less than the amount that industry is investing in the energy efficiency area. Another delegate raised the possibility of a rebate on stamp duty as an award for installed energy efficiency measures in homes. This incentive could tip the balance when deciding on buying a new home. He argued that both council tax and stamp duty rebates could be implemented as they target different consumers

John Healey MP informed the meeting of the existing government measures in place to encourage energy efficiency, such as grants, reductions in VAT and landlords' energy saving allowances. He admitted that fiscal measures have a role to play, but with the existing schemes unable to stimulate a shift in public opinion, he was unsure how big a role it should play. He further argued that rebates on council tax and/or stamp duty are not cost efficient measures. The council tax rebate is too expensive and a stamp duty rebate could not be generally applied, as many disadvantaged communities do not have a stamp duty threshold of £150,000. John put forward that a wholesale shift in public opinion must be achieved to ensure that people could/should/would do something about energy efficiency. Additional government measures are necessary for this to be achieved, but it is not only the government's job to do this.

Other measures to stimulate consumer demand

The introduction of fiscal incentives is only one way of stimulating consumer interest and demand in energy efficiency. There was general interest in a major marketing programme to educate the public about what they can do to save energy. Such a venture should be backed by the government, with industry stakeholders working together. There was hope that such a welcome proposal would be included in the forthcoming Climate Change Review.

How can energy efficiency help deal with the problem of fuel poverty?

Another issue discussed, tied in tightly with energy efficiency, is that of fuel poverty. It was argued that energy efficiency alone cannot solve the problems of fuel poverty and that perhaps the link should be severed to ensure that the problem is not exacerbated by an increase in energy prices. The issue must be seen as not only an energy efficiency issue, but also a poverty issue, in which industry has a role to play, but not alone. On the other hand, the splitting of fuel poverty from energy efficiency targets could be very dangerous and the coupling does ensure that fuel poverty is not being sidelined.

Microgeneration

Microgeneration was also discussed as a way of achieving greater energy efficiency. One of the delegates argued that micro power should be included in the energy efficiency targets. The new technology has increased potential of appealing to consumers as a tangible product in comparison to insulation. John Healy suggested that the government would be likely to incentivise micro CHP, if a viable product emerged on the market. The participants generally supported the upcoming Private Members' Bills on microgeneration.

Lack of flexibility

From an industry point of view, there was concern expressed about a lack of flexibility in the policies and regulations governing energy efficiency measures. Policies favouring insulation over other measures need to be changed. Certain EEC regulations regarding insulation are also at odds with the government targets.

What to do about private rental market

The government was praised for the introduction of the green landlords scheme, but one participant asked if more could not be done to reach the letting market with energy efficiency measures. It was agreed that this sector was incredibly difficult to reach, but that it is possible through 3rd party organisations at local level. A marketing campaign could also do much in this respect.