Central Government

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 efficiency—low-energy appliances, better insulation, and so on—any 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 apathy—rather, 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".[33] 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".[34] 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.[35]

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" (QQ 705-706).

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 502).

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 structure".[36] We agree.

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 … and Part L of the Building Regulations … We have had regular rebranding of schemes with similar goals—Home 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.

Local Government

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 exceptional—although 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 enterprising—indeed, 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 staff—who 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 annually.

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."[37] 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 local initiatives.

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,[38] 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 legislation—the 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 are respected.

34   See http://www.dti.gov.uk/about_dti_ministers.html.  Back

35   Renewable Energy: Practicalities, paragraph 2.18. Back

36   HL Deb, 23 June 2005, col. 1798. Back

37   See http://www.lga.gov.uk/PressRelease.asp?lSection=0&id=SXC593-A782CE00. The text of the "8 messages" can be found at http://www.ccre.org/img/8_message_final.pdf.  Back

38   European Union Committee, The EU and Climate Change, 30^th Report, Session 2003-04 (HL Paper 179-I), p 43. Back