REVIEWARTICLE

Lessons from energy efficiency policy and programmesin the UK from 1973 to 2013

Peter S. Mallaburn & Nick Eyre

Received: 13 November 2012 /Accepted: 4 February 2013# Springer Science+Business Media Dordrecht 2013

Abstract The UK is in the process of implementingthe Green Deal, a finance-based energy efficiencypolicy. It is aimed, initially, at the domestic sector,but with plans to extend the scheme to the commercialand public sectors. The Green Deal represents a fun-damental reorganisation of policy because it places aconsiderable reliance on the role of markets to deliverthe required energy savings. After some initialGovernment funding, support programmes have beencurtailed or removed completely and role of govern-ment restricted to capacity building, accreditation andcompliance monitoring. Will the Green Deal succeed?This paper reviews the history of energy efficiencypolicy and programmes in the UK from 1973 to thepresent day, taking account of the political environ-ment and of the wider context of energy and climatepolicy development. This information is then analysedto draw out what is generally considered to be effec-tive policy, and applies this to the current policylandscape.

Keywords UK energy and climate policy . Policyimplementation . Green deal . Energy efficiencyand conservation

Introduction and aims

Energy efficiency policy in the UK is at a watershed.On January 28th 2013, the Green Deal formally beganoperation. The Green Deal is a market-based, demand-led financial mechanism providing up-front loans forenergy efficiency measures, which are repaid using theenergy savings. A new Energy Company Obligationwill run alongside the Green Deal to support vulnera-ble customers, poorer communities and higher costinsulation measures. A commercial sector GreenDeal is also planned.

The Green Deal takes a deliberately market-ledview, with the government expecting the private sectorto design and deliver the majority of programmes andservices. Funding for support programmes has beenwithdrawn from the Carbon Trust and Energy SavingTrust, and state intervention is being restricted to someearly capacity building and accreditation and provid-ing the regulatory framework for the scheme. Start-upfunding of £200m has been announced, of which aproportion has been earmarked for financial incentivessuch as cash-back schemes.

The Green Deal is building on a rich history of UKenergy efficiency policy. Will it deliver? This paperattempts to answer this question by reviewing anddrawing lessons from the UK’s experience from the1970s to the present day.

Energy EfficiencyDOI 10.1007/s12053-013-9197-7

P. S. Mallaburn (*)Institute of Energy and Sustainable Development,De Montfort University,The Gateway,Leicester LE1 9BH, UKe-mail: pmallaburn@dmu.ac.uk

N. EyreEnvironmental Change Institute and Transport Studies Unit,University of Oxford,South Parks Road,Oxford OX1 3QY, UK

Methodology

A timeline approach was used to describe the evolutionof energy efficiency policy in the UK. This was done (asopposed to a thematic approach, for example) because itreveals the connections between energy efficiency andthe prevailing political environment. This is importantfor two reasons. Firstly, the development of the policy islargely defined by what the government is doing, so itmakes sense to tell the story in this context. Second, andmost importantly, a key objective of this paper is to helpinform the implementation of current policy, and a his-torical perspective has much more resonance for a non-academic, civil service audience.

For the literature review, a number of written infor-mation sources were used. First, there are governmentpapers and other official publications. These are infor-mative, but inherently subjective because they reflectthe official government position. Unfortunately, thereare few academic papers looking at policy implemen-tation in the UK. Those papers that do exist tend tofocus on the underlying economic theory. Most reflec-tive discussion is in the “grey” literature such as re-ports from non-governmental organisations, governmentagencies and international bodies. There are, fortunately,a few reference books that specifically deal with thepolicy.

Because no single information source covers thetimeline completely, we were careful to triangulatebetween the various sources whenever possible so thatthe material we outline below had more than onecorroborating source. We also backed this up andfilled any significant gaps using our own recollection(both authors were actively involved in the policyprocess for a number of years) and interviews withstaff from the principal agencies and governmentdepartments.

The “Results” analyses the information set outin the timeline and draws out the features thatmake up what is generally considered to be effec-tive policy and applies this to the UK situation. Wehave not attempted to compare different programmesbecause they have used different impact assessmentapproaches and metrics. The impact of policy on thewhole economy, for example using energy intensitymetrics, is also difficult to assess because it is hard todisentangle the impact of efficiency measures from oth-er drivers such as technical innovation, structural changeand fuel switching.

The “Conclusions” compares the current (early2103) policy landscape with the findings shown in“Results.”

Results

1973–1979

The idea that government had a strategic role in man-aging energy demand started with the first oil crisis in1973. The Organization of the Petroleum ExportingCountries raised prices from $3 to over $12 a barreland instigated an oil embargo on the USA and othersdeemed to be helping Israel during the Yom Kippurwar. This caused fuel shortages in many Westerncountries followed by severe economic instability.

In the UK, the Conservative government had taken arelatively pro-Arab line and, as a result, escaped a directembargo. However, the price shock caused serious fuelshortages, compounded by a miners’ and rail workers’strike raising the price of coal, the main fuel used inelectricity generation. On December 13th 1973, PrimeMinister Edward Heath announced a 3-day workingweek to ration electricity use. Parliament was recalledon January 9th 1974 to hear that a new Department ofEnergy was being set up to co-ordinate the govern-ment’s response. However, the crisis brought down thegovernment the following month. The incoming Labourgovernment, under Harold Wilson, settled the miners’dispute, and the new Energy Secretary, Eric Varley,ended the 3-day week on March 7th 1974.

The energy crisis prompted a flurry of governmentactivity. Two government reviews recommended thatthe government develop a strategic role in managingenergy demand (Central Policy Review Staff 1974;National Economic Development Office 1974;Bending and Eden 1984). However, there was virtual-ly no expertise available inside government, so theEnergy Department set up a new Advisory Councilon Energy Conservation (ACEC) in June 1974,chaired by eminent engineer and academic SirWilliam Hawthorne.

The Department of Energy launched a new energyefficiency programme on December 9th 1974, timed toreduce winter fuel use, but also anticipating a review bythe House of Commons Science and Technology SelectCommittee (Patterson 1978; Anderson 1993). This “12point plan”, as the programme was called, included:

Energy Efficiency

& A £3m (worth £25m in 2013 prices) loan schemefor industry to ease cash flow problems and a100 % capital allowance scheme.

& A doubling of domestic energy conservation stan-dards in the Building Regulations.

& Cuts of 20 % in energy use by the governmentestate.

& Reductions in vehicle speed limits on single anddual carriageways to 50 and 60mph respectively(but not motorways).

& A compulsory maximum temperature of 20 °C forall non-domestic buildings and restriction on elec-tricity use for daylight advertising.

& The “Save It” advertising campaign launched inJanuary 1975 at a total cost of £7.8m (£65m).

The programme was strongly interventionist, evenby 1970s standards. However, the Select Committeereport (House of Commons 1975) said that they were“deeply concerned at the general lack of urgency”.They made 40 recommendations, including a 15 %,3-year energy saving target, mandatory heating systemcontrols and insulation standards for offices and shops,and pilots for town centre traffic controls. Most of therecommendations were seen as unrealistic and ig-nored, but the report did force the government toassemble the expertise to be able to respond.

Tony Benn became Energy Secretary in June 1975.He was familiar with the brief (as Minister ofTechnology in 1969) and enthusiastically supportedby Minister of State Jack Cunningham. However, therest of government was not so enthusiastic, and theresponse to the Select Committee report was muted(Department of Energy 1976).

It was the visit of US President Jimmy Carter inMay 1977 that brought matters to a head. Carter hadjust launched a major energy saving programme, andthe Prime Minister, James Callaghan, did not want tobe outdone. ACEC were asked to design a newprogramme, and with Prime Ministerial support Bennwas able to “bang heads together” in Whitehall. OnDecember 12th 1977, he announced a £470m, 4-yearprogramme (worth £2.7bn today), with the aim ofsaving £700m pa (£4bn) and cutting energy demandby 10 %. The highlights were the following:

& A 10-year programme to bring housing up to abasic level of insulation, supported by the HomeInsulation Scheme, coupled to a loan sanction

releasing £100m (£570m) for Local Authorityprogrammes.

& Continuation of the “Save It” campaign.& £100m for improving insulation and heating con-

trols in public sector and government buildings.& More funding for industrial demonstration and

energy management schemes, with funding risingto £18m (£70m) pa in 1980.

Technology was the driver of these early programmes,run by the Energy Technology Division in theDepartment of Energy. In 1977, Benn renamed it theEnergy Conservation Unit, and promoted it so it had thesame importance in the departmental hierarchy as energysupply policy. The two main programmes run by theECU were the following:

& The Energy Survey Scheme (ESS, 1976–1989)provided grants to industry for energy surveys,simple advice and energy management support.

& The Energy Conservation Demonstration ProjectScheme (1978–1989), later renamed the EnergyEfficiency Demonstration Scheme (EEDS),addressed the UK’s poor record of exploiting emerg-ing technologies by providing companies with 25 %of the capital cost in return for access to the site andthe right to monitor and disseminate the results.

The government outsourced the programmes to theEnergy Technology Support Unit (ETSU) set up inApril 1974 within the Atomic Energy Authority inHarwell. ETSU focused on renewable energy, industrialprocess technology and energy management. In 1978,the Department of the Environment set up an equivalenttechnology unit to ETSU, called the Building ResearchEstablishment Energy Conservation Unit (BRECSU)within the Building Research Establishment at Watford.

The Department of Industry ran two programmesusing the National Physical Laboratory in 1976. TheIndustrial Energy Audit Scheme mapped out energyflows across industry to identify energy saving oppor-tunities. The Industrial Energy Thrift Scheme provid-ed confidential energy surveys to help individualcompanies realise this potential.

These programmes produced significant amountsof specialist technical information. They also stimulat-ed a new energy conservation market pioneered by anew breed of “energy managers” emerging from theranks of facilities managers. New techniques appearedsuch as monitoring and targeting and occupancy

Energy Efficiency

modelling. The market also began to organise itselfthrough professional bodies like the Institute ofEnergy, set up in 1979 (now part of the EnergyInstitute), the Building Services Research andInformation Association (1975) and the CharteredInstitute of Building Service Engineers (1976).

1979–1983

In May 1979, the Conservatives under MargaretThatcher won the general election with a commitmentto reducing state interference in markets. EnergySecretaries David Howell and Nigel Lawson, bothfree-market enthusiasts, advocated the role of energyprices, which were rising again following the secondoil shock, to reduce energy demand. The argumentwas that industry and householders, as rational eco-nomic actors, would install energy conservation mea-sures without subsidy because they were costeffective. Unfortunately the same argument was ap-plied in reverse when prices fell in the early 1980s: Ifenergy conservation was no longer cost effective,there was no point in government second-guessingthe market.

The civil service view was initially somewhat atodds with the new political orthodoxy. Senior officialshad become convinced of the value of energy conser-vation once the impact of the 1977 programme be-came clear (Bending and Eden 1984). Official reportswere produced that argued that energy pricing alonewas not enough to deliver energy conservation andproposed a range of new interventions (Department ofEnergy 1979, 1983a).

Some, but not all of the Labour government’s policies,were wound down. Popular schemes like EEDS contin-ued, as did household loft insulation grants. However,official advice soon began to swing behind the politics,with the department completely reversing its view:

…the explicit role of market prices in determiningenergy demand removes the need for a separateallowance for energy conservation” (Departmentof Energy 1982a).

Advice that contradicted the official line was notwelcome especially if coming from corporatist struc-tures like ACEC, which was disbanded in 1983. It didnot go quietly, saying in its last report (Department ofEnergy 1983b):

“Leaving the matter to energy pricing signalsand market forces alone is unlikely to have theimpact desired because there are too many otherconstraints—institutional, political, financial andbehavioural - that prevent adequate operation ofmarket forces”.

1983–1989

Following the Conservative Government re-election inthe 1983 General Election, Peter Walker was appointedEnergy Secretary. Walker was on the left of the partyand an energy conservation enthusiast. He was particu-larly concerned that the UKwas falling behind industrialcompetitors such as Japan and the USA. The ECU wasremodelled into a new Energy Efficiency Office onOctober 31st 1983 with a budget of £10.9m (£30mtoday) and a remit to “provide a focus for the govern-ment’s energy conservation policies”. This was partly aresponse to one of Whitehall’s periodic tidying up exer-cises (Department of Energy 1982b), which called forenergy efficiency to be in one department.

Walker’s time at the Department of Energy led to whatmany described as a “golden age” of energy efficiency(Owen 1999). Regional energy efficiency offices were setup. Over a little more than 2 years 20,000 people came toenergy management meetings hosted by Ministers andsenior officials: Walker himself hosted a series of busi-ness breakfasts around the UK. The year 1986 was des-ignated Energy Efficiency Year, marked with an £11.8mcampaign called “Get More for your Monergy”.

The energy efficiency industry became robust enoughto take on the energy supply-side lobby that dominatedthe Energy Department. The Association for theConservation of Energy (ACE) was set up in 1981 andin 1984 ACE formed the British Energy EfficiencyConfederation, a trade association group that operatedas a semi-independent government/industry advisorycommittee, jointly chaired by Andrew Warren, theDirector of ACE, and a senior EEO official.

Walker also presided over an important shift in em-phasis away from “energy conservation” to “energyefficiency” (Patterson 1978; Owen 1999). Conservationmeant doing without things, which in a consumer-ledeconomy was bad. Efficiency was good because it meantdoing more. It was also easier to sell in Whitehall and tothe public because it emphasised the economic andsocial benefits—warmer homes, lower bills and greaterproductivity. However, energy efficiency was a more

Energy Efficiency

subjective term. Total energy use (and carbon emissions)could still rise in a growing economy even if energyefficiency was improving.

In 1987, the Conservative government secured a thirdterm and Cecil Parkinson became Energy Secretary.Parkinson, another free-market enthusiast, cut theEEO’s budget from £24.5m to £15m in 1989/90 andstarted a number of programme reviews (BRECSU andETSU 1989; Lees and Brown 1989). As a result, ESS andEEDS were cut, and the rest of the EEO’s programmeswere constrained to interventions that did not directlyinterfere with the operation of free markets, such asinformation and advice. In response, on April 1st 1989,the EEO launched the Energy Efficiency Best PracticeProgramme (EEBPP). The focus was best practice infor-mation and benchmarking, with research, developmentand demonstration retained, in reduced form, as “future”and “new” practice elements.

The privatisation of the electricity industry in 1989presented an opportunity for energy efficiency. Increasedsupply-side competition boosted the use of combinedheat and power (CHP) plants for high-energy users(Owen 1999). The less carbon intensive natural gas waspromoted over coal: the so-called “dash for gas”. TheElectricity Act gave the Director General of Supply aduty to “promote the efficient use of electricity by con-sumers” and a rather vague power (but not a duty) to set“standards of performance” for suppliers relating to con-sumer energy efficiency.

This power was to prove to be pivotal particularly forhousehold energy efficiency. Unfortunately, the newprice control regime set up under the 1989 ElectricityAct discriminated against energy efficiency. Price con-trols operating on the Public Electricity Suppliers(which managed both energy supply and distribution)contained volume drivers that allowed increased reve-nues with higher sales. Also tariff structures encouragedhigher energy users approaching a tariff boundary toconsume more energy so they could benefit from loweroverall unit prices above the tariff boundary.

1989–1992—the rise of climate change

Scientific concerns over global warming were build-ing towards the end of the 1980s. The Prime Ministerwas persuaded that the problem had to be tackledfollowing a meeting in Downing Street in 1988 withthe UK’s leading climate scientists. The first outlinesof a climate change programme emerged after a

Cabinet seminar in 1989 at which ETSU presentedthe case for energy efficiency (Currie 1989).

On June 15th 1989, in the European Parliamentelections, the Green party secured 15 % of the vote.The political establishment was severely shaken, andWhitehall scrambled to catch up with the popularmood. On July 24th, Chris Patten was madeEnvironment Secretary with a brief to develop a newenvironmental strategy. The outcome was the UK’sfirst environmental White Paper “This CommonInheritance” (Department of the Environment 1990).At the time, it was criticised for being too aspirational.However, it embedded environmental policy acrossgovernment and committed to returning CO2 emis-sions to 1990 levels by 2005. It also began to positionenergy efficiency as the central means of deliveringemission reductions.

The European Economic Community (EEC) wasbeginning to exert influence as it gained competenciesin environmental policy. Appliance energy labelling,which allows customers to choose between efficientand inefficient products (Weil and McMahon 2003),was initiated in 1989. The Energy department resisted,under pressure from UK manufacturers who feltthreatened by more efficient foreign imports.

However, in late 1989, the EEO commissioned re-search that showed that demand for efficient applianceswould not increase without regulation (Department ofEnergy 1990). The UK’s EEC negotiating positionchanged and the Energy Labelling Directive was agreedin 1992 (Council Directive 92/75/EEC). Implementationwas initially voluntary. However, after mandatory stan-dards were introduced for refrigeration appliances in1999, market penetration of “A” rated appliances in-creased from <5 % in 1997 to >50 % in 2005 (IPCC2007).

Another significant Directive (92/42/EEC) set mini-mum energy performance standards of at least 84 % forhot water boilers fired with gas or liquid fuels. The EECalso introduced the SAVE Directive (93/76/EEC),which required Member States to set up and report onenergy efficiency programmes and provided funding forresearch, demonstration and policy benchmarking.

The rising profile of climate policy meant that theEEO budget rose from £26m in 1990 to £59m in 1992(£100m today). It adopted a new target of generatingindustry savings of 5 MtC (3 % of the UK total) and£800m (£1.4bn) per year by 2000. A set of newprogrammes were launched:

Energy Efficiency

& The Home Energy Efficiency Scheme (HEES)providing insulation and central heating grantsfor poorer households (April 1991).

& An interdepartmental Ministerial Group on EnergyEfficiency to deliver 15 % energy savings acrossthe government estate (October 1991).

& Jointly with DoE a £10m (£17m) advertising cam-paign aimed at households called “Helping theEarth begins at home” (November 1991).

& Jointly with Department for Trade and Industry(DTI) the “Making a Corporate Commitment”(MACC) campaign aimed at large company direc-tors (October 1991).

& A new Energy Management Assistance Scheme(EMAS) giving advice to smaller businesses(April 1992).

Academic research began to challenge free marketorthodoxy at around this time. The task was to explainthe “efficiency gap” between what was possible andwhat was actually delivered (Grubb 1990; Hirst andBrown 1990; Eyre 1997; Brown 2001). This rangedfrom 10 to 30 % and was seen in most sectors andmost western countries (IPCC 1995). It implied asystematic misallocation of resources in the way ener-gy is used, and from this, the existence of a number ofmarket barriers or failures that reduce economicefficiency:

& Financial barriers, such as lack of capital orunhelpful discounting rules that reduce the valueof energy cost savings

& Fiscal barriers such as the disparity between thehigh rates of VAT on energy saving measures andthe lower rate on energy supply

& Hidden cost barriers such as senior managementtime, and also hidden benefits, such as improvedcomfort and productivity

& Market misalignment barriers, where the personwho makes the investment does not benefit fromit, such as the (in)famous landlord/tenant split

& Behavioural barriers where people, both as indi-viduals and in organisations, make choices thatmitigate against energy efficiency.

The fundamental problem was that, in the realworld, people do not optimise their investment deci-sions in response to price signals alone. They areirrational economic players. The new academic

discipline of “behavioural economics” showed thatcontext and experience influence how people respondto financial incentives (Pollitt and Shaorshadze 2012).Earlier research shows that decisions are not deter-mined by incentives alone (Stern 1986) and are takenin social rather than narrowly individual contexts(Shove 1998). In other words, behavioural and socialresearch revealed the central fallacy of the free-marketpolicies of the 1980s and provided the basis for thepolicies that developed in the late 1990s.

1992–1996

The Conservatives, under John Major, won a fourthterm in May 1992. A separate Department of Energy,with the energy market privatised, was deemed unnec-essary and mostly absorbed back into the Departmentof Trade and Industry. However, the EEO was trans-ferred to the Department of the Environment to inte-grate energy efficiency and CHP with climate policy.

Climate change mitigation was also about to becomea legal obligation. Under the new UN FrameworkConvention on Climate Change (UNFCCC), signed inJune 1992, the government agreed to return UK CO2

emissions to 1990 levels by 2000, 5 years earlier thanplanned. This meant finding an additional 10 milliontonnes of carbon (MtC), equivalent to 6 % of totalemissions (Department of Trade and Industry 1992).The government had promised a new Energy SavingTrust (EST) as a central part of its climate changeprogramme. However, there was no money to fund it.

The idea of a levy on energy bills to fundutility energy efficiency programmes was first pro-posed by Sir James McKinnon, the Director ofOFGAS, the gas market regulator. Domestic priceswere strictly controlled, but the cost of new gassupply capacity could be passed on to the custom-er. McKinnon wanted energy efficiency to qualifybecause saving energy was more cost effectivethan supplying it: This echoed the so-called“least-cost planning” investment model pioneeredin the US electricity sector.

The new levy was announced in June 1992.OFGAS released £2m in start-up funding for theEST. It would be set up as a not-for-profit company,jointly owned by British Gas, the Regional ElectricityCompanies and the government. It started work inApril 1993 with four programmes (Owen 1999): con-densing boilers grants, a compact fluorescent lamp

Energy Efficiency

discount scheme, a Local Energy Advice Centre pilotand residential CHP schemes.

In December 1992, the government consulted on adraft Climate Change Programme that assumed the ESTwould deliver about 25 % of the UNFCCC target cost-ing £150–300m pa (Department of the Environment1992). However, Clare Spottiswoode, who replacedMcKinnon at OFGAS, questioned the legality of thelevy (House of Commons 1994a, 1994b). She declaredit was a tax and outside her remit and cancelled theEST’s pilot schemes.

The government came under pressure to find othersources of funding for the EST. Unfortunately, undernew projections (DTI 1995), the UK was easily meet-ing its UNFCCC target thanks to the recession andincreased use of gas for power generation (the “dashfor gas”). However the EST survived because of apiece of political opportunism. The 1994 budget im-posed an 8 % VAT rate on household fuel, rising to17.5 % in 1995, with the twin justification of savingenergy and raising revenue. This proved extremelyunpopular and threatened to bring down the govern-ment, which abandoned the second VAT rise. Thislowered the expected CO2 savings, which JohnGummer, the Environment secretary, exploited to se-cure £25m for the EST for 1996/1997.

The electricity regulator, OFFER, designed a differ-ent system for funding based on the “Standards ofPerformance” (SOP) requirement in the ElectricityAct. The Director, Professor Stephen Littlechild, ap-proved £100m over the period 1994–1998 to fund so-called energy efficiency SOP schemes (EESOPS) aslong as they reduced electricity costs. The EST initiallymanaged most of the £25m pa of this funding, althoughsubsequently the utilities delivered programmes to theircustomers directly. Nonetheless, the EST had developeda strong reputation for providing effective, independentadvice and continued to receive around £25m pa ofgovernment funding until this was withdrawn in 2011(Eyre et al. 2011).

In April 1996, the Home Energy Conservation Act(HECA) came into force. HECAwas originally intendedto give domestic energy saving targets to LocalAuthorities with housing responsibilities. However, itoriginated as a Private Member’s Bill and was fiercelyresisted by the government. In the end, the originalproposals were diluted so that there was no legal dutyto deliver savings, only to consider measures and reporton measures in place, based on periodic “guidance”

from the government. The EST’s HECA Actionprogramme provided £14m of support over 3 years,but once this ran out, HECA quickly slipped off theagenda for most councils.

The year 1995 saw a tightening of Part L of theBuilding Regulations, following similar exercises in1985 and 1990. A new compliance methodology wasintroduced called the Standard Assessment Procedure,which allowed energy performance to be measuredand compared. The English House Condition Survey,a five-yearly review of the state of the housing stockstarted in 1967, began to report on the energy efficien-cy of the stock for the first time in its 1996 report (seeDepartment of Communities and Local Government2009a).

1997–2001

In 1997, Labour returned to power. The Departmentsof Environment and Transport were merged to formthe Department of the Environment, Transport and theRegions (DETR), with John Prescott as Secretary ofState. After 18 years of market-led policies, officialshad to be specifically briefed that interventionist mea-sures such as taxes and regulation were back on theministerial agenda.

The Labour Manifesto promised a 20 % cut in CO2

emissions by 2010, around twice as stringent as theUK’s Kyoto Protocol target, agreed at the end of 1997.This was compounded by official projections that hademissions rising sharply as the economy recoveredand a Manifesto commitment to cut VAT on householdenergy bills. The government consulted on a newclimate change programme in October 1998(Department of the Environment, Transport and theRegions 1998).

It was not short of advice. A report in June 1997 bythe Socialist Environment and Resources Association(SERA) proposed a tax on business and a levy to funda major home insulation programme (SocialistEnvironment and Resources Association 1997), atheme echoed by the EST. Most influentially, in June2000, the Royal Commission on EnvironmentalPollution (RCEP) published its seminal report on en-ergy policy (Royal Commission on EnvironmentalPollution 2000), which argued for a reduction in UKemissions of 60 % by 2050 and a key role for energyefficiency. Whilst such a conclusion now seems rathermodest, at that time, it was very ambitious.

Energy Efficiency

The row over VAT kept the domestic sector out ofbounds for new taxes, so the initial focus was onindustry. The Advisory Committee on Business andthe Environment (ACBE), a joint DTI/DETR body,supported a carbon tax if UK competitiveness wasprotected and the revenue recycled to business(Advisory Commit tee on Business and theEnvironment 1998). The Treasury supported the pro-posals and in March 1998 Sir Colin Marshall, thechairman of BA, was asked to review the use ofeconomic instruments on business energy use. Hecame out in favour (HM Treasury 1998) and a newClimate Change Levy (CCL) was announced in March1999 (HM Treasury 1999), due to begin in April 2001.

To address ACBE’s concerns, small businesses be-low the VAT threshold would be exempt and energyintensive companies would get an 80 % rebate if theyagreed to energy efficiency targets in a series of new,sectoral Climate Change Agreements (CCA). Most ofthe £1.0bn annual revenue from the CCL would berecycled to fund a 0.3 % cut in employer’s NationalInsurance Contributions (NICs), a tax levied on em-ployment. The rest, around £150m pa, would be spenton two new programmes (Department of theEnvironment, Transport and the Regions 1999):

& £100m for a new scheme of accelerated capitalallowances for energy saving technologies, wortharound 10 % of the cost of the measures

& A new Carbon Trust to deliver businessprogrammes including RD&D, advice, grants andsupport for new technologies.

The Carbon Trust (CT) was formally announced inthe new climate change programme (Department ofthe Environment, Transport and the Regions 2000).Like the EST, the CT almost did not get off theground. There was growing political pressure for asingle Sustainable Energy Agency and the EST lob-bied hard that it should be given this role. However,business, working through ACBE (ACBE 2000), wonthe argument because they persuaded ministers thatthe CCL revenues belonged to them and that the ESTdid not have the skills to deliver programmes forbusiness. The new company was launched on March20th 2001 with a similar corporate structure as theEST and start-up funding of around £50m pa.

The CT set up two types of programmes, withfunding split equally between them. The first, basedon the EEBPP (which the CT inherited from

government), was renamed “Action Energy” andreconfigured to deliver services according to the car-bon saving potential of the company and the transac-tion cost of reaching it. Small companies would getinformation and advice, whereas larger companieswould get on-site support and consultancy. This ap-proach was revolutionary for government, which hith-erto had felt obliged to provide the same services foreveryone.

The second set of programmes was aimed at emerg-ing technologies and technology companies. The LowCarbon Innovation Programme (LCIP) differentiatedthe support according to need. Some companies need-ed grants, but others needed less tangible support suchas specialist Board expertise. LCIP also developedanother innovative intervention: direct equity invest-ment in start-up companies struggling to attract privatefunding—the so-called “Valley of Death”.

2000–2005

The Labour government was re-elected in May 2001.DETR was broken up and environmental policy wastransferred to the Ministry of Agriculture Fisheries andFood, creating the Department for Environment, Foodand Rural Affairs (DEFRA), with Margaret Beckett asSecretary of State.

The 2001, the Blair government was perhaps thebusiest in terms of energy efficiency policy. First, theRCEP report had to be responded to. Unwilling toallow either DTI or DETR to take the lead, the PrimeMinister asked the Policy and Innovation Unit (PIU)in the Cabinet Office to take this on. The final report(Cabinet Office 2002) confirmed the RCEP conclu-sions, proposed a big push on renewables and rejectedthe Prime Minister’s preference for nuclear power.Energy efficiency emerged strongly, with a call forstronger policies to accelerate the reduction in carbonintensity of the economy from 0.75 to 2 % pa.However, the report did not advocate specific policiesbecause of strong resistance from the Treasury toexpressing a preference between taxes and cap andtrade schemes.

The 2003 EnergyWhite Paper “Our Energy Future—creating a Low Carbon Economy” was the first energypolicy statement for 20 years (DTI 2003). The RCEPtarget of 60 % by 2050 was enshrined as one of fourenergy policy themes alongside security, affordabilityand competitive markets. There was strong support for

Energy Efficiency

renewables and energy efficiency (Eyre and Staniaszek2005), but nuclear power was kept on the sidelines. TheWhite Paper floated the idea of extending the domesticEESOP programme to cover the commercial and servicesector, which was emerging as an important policy gap.The original EESOP (1994–1998) had included busi-nesses with a demand up to 100 kW, making up close to10 % of the total target. However, the non-residentialcomponent was confined to small businesses only inEESOP2 (1998–2000) and removed entirely inEESOP3 (Ofgem and the Energy Saving Trust 2003).

The government spent the 3 years after the WhitePaper trying to pin down energy efficiency policy. The2004 Energy Efficiency Action Plan (Department of theEnvironment, Food and Rural Affairs 2004a) attempted,with mixed success, to set out a coherent framework.The Energy Efficiency Innovation Review, published in2005 (HM Treasury/DEFRA/Carbon Trust/EnergySaving Trust 2005), set out the business case rather moresuccessfully, finally persuading the Treasury to takeenergy efficiency policy seriously. This was reinforcedin 2006 when the Treasury published the Stern Reviewon the economics of climate change (HM Treasury2005). Stern defined three key themes of climate policy:carbon pricing, innovation and, crucially, programmesto correct market failures.

Development of new policies accelerated. For busi-ness, in April 2002, a new UK Emissions TradingScheme was established. The UK ETS was relativelysmall and ultimately it saved very little carbon.However, the rationale was to build capacity in indus-try, and confidence within the Treasury. It worked.Within months of blocking a similar recommendationin the PIU report, the Treasury allowed the UK to signup to the EU Emissions Trading Scheme (EU ETS).The first phase started on January 1st 2005 covering11,000 sites with a thermal input of 20 MW or more,or about 40 % of EU CO2 emissions. The cap wasinitially relatively weak and the second phase tight-ened the scheme considerably.

The Energy Performance of Buildings Directive(Council Directive 2002/91/EC) came into force onJanuary 4th 2003. It set minimum energy performancestandards for new buildings and major renovations over1,000 m3 and required owners or landlords to provideEnergy Performance Certificates, showing the modelledenergy performance, when the building is sold or rented.Public buildings would also have to show DisplayEnergy Certificates (DECs), demonstrating to the public

the actual, operational energy performance of the build-ing using an A–G scale modelled on the applianceenergy labels. The intention was to try to close the gapbetween the predicted and actual energy performance,which can be as much as five times worse (Bordass et al.2001). DECs were, however, not applied to commercialbuildings and so were very limited in their impact.

The 2004 Energy Efficiency Action Plan had intro-duced the idea that government and local authorityprocurement and operations, particularly of their ownbuildings, could drive market change. This triggered aflurry of “public sector leadership” initiatives of whichthe most prominent were a commitment to procure“top quartile” energy performing buildings and atough set of performance targets for central govern-ment. On the back of all this, in 2004, the CarbonTrust span out a new company, Salix Finance, toprovide loan capital for public sector energy efficiencyand renewable energy projects with short paybackperiods (initially 3 years or less), attracting £20m ofDEFRA funding in 2005.

The 2000 Utilities Act integrated gas and electricityregulation and redefined “competition” as a means ofsecuring consumer benefits rather than an end in itself.The Act placed the duty to set SOPs on ministers toavoid a repeat of the policy confusion of theSpottiswoode era. The government now began totighten the obligation significantly, with the newlyrenamed Energy Efficiency Commitment or EEC1,running from 2002 to 2005, delivering four times asmuch carbon as EESOPS3 (Rosenow 2012). Twofurther 3-year tranches of EEC were planned to con-tinue this trend up to 2012.

In the household sector, towards the end of the1990s, the fuel poverty lobby was gathering pace,culminating in a Private Members bill passed intolaw as the Warm Homes and Energy ConservationAct 2000. This required the government to produce afuel poverty strategy, which was duly published in2001 (Department of the Environment, Food andRural Affairs 2001). The Home Energy EfficiencyScheme, in 2001, was rebranded as “Warm Front” inEngland, with similar programmes operating in theDevolved Administrations. Warm Front was given asignificant funding increase from around £70m pa to£150m in 2004 rising to £400m pa at its peak in 2008.The Decent Homes Standard, introduced in 2000 as anenergy performance benchmark for social housing,was tightened in 2006.

Energy Efficiency

Condensing boilers were made mandatory for mostapplications in 2005, following a commitment in the2003 White Paper. Delivering this policy change wasbrokered by the EST. It was well known in researchcircles that the UK lagged behind other Europeancountries primarily because of a lack of skills andawareness by gas fitters (Weber et al. 2002). TheEST recognised this and persuaded government tosupport an intensive training programme that builtsector capacity sufficiently for the policy to beimplemented in the 2005 Buildings Regulations.

2006–2010

The Labour government was re-elected with a reducedmajority in May 2005, and David Miliband was madeEnvironment Secretary. Energy security had become amajor policy issue because the UK was moving rap-idly to be a net energy importer with the decline inNorth Sea oil and gas. The 2006 Energy Review (DTI2006) and the subsequent 2007 Energy White Paper(DTI 2007) reflected this change of emphasis. It alsoreintroduced nuclear power as a policy option, subjectto consultation.

In 2004, the government reviewed the 2000 climatechange programme (Department of the Environment,Food and Rural Affairs 2004b). The Carbon Trustproposed a new emissions trading scheme to addressthe commercial sector gap (Carbon Trust 2005). Thegovernment consulted on the idea (Department of theEnvironment, Food and Rural Affairs 2006) and, inthe 2007 Energy White Paper, announced a new ini-tiative that eventually became the Carbon ReductionCommitment Energy Efficiency Scheme (CRC).

The government began preparations for theCRC in 2008, but the scheme only started formal-ly in April 2010 when its enabling legislationcame into force. It applied to all organisationswith electricity consumption over 6,000 MWh,covering around 5,000 sites and 10 % of totalUK emissions. Participants have to measure andreport emissions and buy allowances from the govern-ment equivalent to their previous year’s emissions at£12/tC. A cap and trade scheme would follow and aperformance league table would be published. The rev-enue from the sale of allowances would be recycledback to participants, with a bonus or a penalty, risingto 50 % of the total, depending on their position in theleague table.

On paper, the CRC scheme addressed a number ofbarriers to energy efficiency. Measuring and reportingemissions raised awareness of energy use. Buyingallowances elevated the issue to board level throughthe finance director, who suddenly had a set of newfinancial risks to worry about: a typical organisation,with carbon emissions of 50,000 tonnes would have tofind £600,000 in the first year. The performanceleague table allowed companies to be compared totheir peers, introducing a strong reputational driver.

In November 2008, the Climate Change Act be-came law, which for the first time anywhere in theworld introduced national, binding greenhouse gastargets. The Act sets a target of “at least” an 80 %reduction by 2050 (compared to 1990) and made pro-visions for a series of 5-year carbon budgets to ensuresufficient progress is made towards the target.

The Act also established an independentCommittee on Climate Change (CCC) to advise onthe level of the carbon budgets and to monitor prog-ress towards achieving them. The CCC advised on thefirst three carbon budgets (2008–12, 2013–17, 2018–22) in 2008 (Committee on Climate Change 2008),and they were made mandatory in May 2009, requir-ing emission reductions of 35 % by 2020 on a 1990baseline. In 2010, the CCC produced recommenda-tions on the fourth budget (2023–27), which becamelaw in June 2011, requiring a 50 % cut by 2025. Thegovernment published the Low Carbon TransitionPlan in July 2009 setting out how it intended to deliverthe first three carbon budgets (Department of Energyand Climate Change 2009a).

The CCC produces annual progress reports toParliament, the first of which was in December 2008(Committee on Climate Change 2009). On energyefficiency, the theme of these reports has been consis-tent: A step change is still needed. Emissions are onlyfalling by 0.6 % pa, a rate that needs to accelerate to2–3 % to meet the 2020 target. Energy efficiency inbuildings and industry were identified as key areaswhere new polices were needed.

In October 2008, the energy team from the industrydepartment and the climate policy team from DEFRAwere joined together to form a new Department ofEnergy and Climate Change (DECC). Climate adap-tation policy stayed behind in DEFRA. DECC markedthe end, at least in machinery of government terms, ofthe split between energy supply and energy efficiencythat occurred in 1992 and brought climate policy, and

Energy Efficiency

energy efficiency with it, to the Cabinet table for thefirst time.

In 2006, DCLG published proposals for all new hous-ing to be zero carbon by 2016 (Department ofCommunities and Local Government DCLG 2006). In2009, DCLG announced that non-domestic buildingswould need to be zero carbon by 2019 (2018 for mostpublic buildings, Department of Communities and LocalGovernment 2009b). Both sets of targets were widelycriticised as too difficult to meet, partly because theytreated each building as an isolated unit. The definitionwas subsequently diluted to allow off-site renewables andother low carbon schemes to contribute.

In 2008, Carbon Emissions Reduction Targets(CERT) replaced the EEC. The obligations were againwere increased significantly, with CERT from 2008 to2012, raising £1.16bn annually for energy efficiency pro-jects, roughly three times as much as EEC2 (Rosenow2012). A new Community Energy Saving programme(CESP) was launched alongside CERT. CESP is also anobligation on energy suppliers and electricity generators,funded through energy bills, targeted at low-incomeneighbourhoods.

In May 2009, DECC announced plans to install smartgas and electricity meters in all 26 million UK homes by2020 (Department of Energy and Climate Change DECC2009b). DECC calculated that the programme woulddeliver a net benefit of £7bn given the impact of themeters on household energy use.

AT EU level, the Energy Services Directive wasagreed in 2006 (Council Directive 2006/32/EC). It wasbroadly similar in scope to the SAVE Directive that itreplaced, with an indicative energy efficiency improve-ment target of 9 % by 2016 and measures to build marketcapacity. This time, there was a stronger emphasis onpublic sector leadership including new requirements onpublic procurement for goods, services and buildings.

In 2010, the EU tightened up (or “recast”) theEPBD (Council Directive 2010/31/EU) with a newrequirement for near-zero carbon buildings by 2020,stronger public sector leadership requirements andmore effective Energy Performance Certificates.

2010–2012

A Conservative/Liberal Democrat coalition won theMay 2010 general election, and Chris Huhne wasmade DECC Secretary of State. Prime MinisterDavid Cameron announced that his would be “the

greenest government ever”. The coalition publishedits programme for government on May 20th (CabinetOffice 2010), which set out four main energy efficien-cy policies:

& A “Green Deal” to improve home energy efficien-cy paid for by savings from energy bills.

& Measures to improve energy efficiency in busi-nesses and public sector buildings.

& A Green Investment Bank to encourage privateinvestment in green technologies.

& A programme to reduce central government car-bon emissions by 10 % in 12 months.

As details emerged, it was clear that energy effi-ciency policy was going to be fundamentallyoverhauled. The Green Deal would initially coverdomestic buildings, with businesses to follow. A newEnergy Company Obligation (ECO), running along-side the Green Deal, would replace CERT, CESP and,ultimately, Warm Front. To implement all this, thegovernment published an Energy Bill in December2010, which became law in October 2011. A CarbonPlan (Department of Energy and Climate Change2011a), setting out policies to deliver all four of thecarbon budgets, was published in December 2011. Theelectricity market would also be reformed, but in alater Bill in 2012, thereby disconnecting energy effi-ciency policy from discussions about the need for newgenerating capacity.

The coalition also had a commitment to reducingthe number of arms-length bodies, partly to save mon-ey but also because of a strong desire to bring policyadvice and programme management back in house(Hansard 2010; Department of Energy and ClimateChange 2011b). The RCEP and the SustainableDevelopment Commission were wound up andfunding withdrawn from the CT and EST on April1st 2012. Both would have to bid for DECC funding,which was now focused on delivering the Green Deal.

A new Office of National Energy Efficiencywas set up to co-ordinate energy efficiency deliv-ery and strategy, soon renamed to the EnergyEfficiency Deployment Office. EEDO drew onstaff from existing teams in DECC and wascharged with drawing up a new energy efficiencystrategy by the end of 2012.

The domestic sector Green Deal provides for mar-ket actors to offer a long-term loan to the householder

Energy Efficiency

or landlord to pay for energy efficiency measures. Thepolicy is also intended to address the landlord/tenantbarrier by allowing the benefit of the energy savings toaccrue to whoever installed the measures: Either partycould apply for the Green Deal as long as they re-ceived permission from the other.

The measures to be supported under the Green Dealwould be restricted to ensure that the total, estimatedenergy savings were equal to or greater that the loanrepayments (the “Golden Rule”). The repaymentswould be guaranteed against the property rather thanthe occupant on the basis that future householderswould benefit from the measures. A number of ele-ments were proposed to deliver all this (Department ofEnergy and Climate Change 2010):

& A Green Deal Plan carried out by a Green DealAssessor that sets out the energy saving measures.

& Green Deal Providers who would provide the fi-nance at commercial interest rates and install, orco-ordinate the installation of, the measures.

& Green Deal Installers who will actually install themeasures.

& The electricity provider would reclaim the loan onthe Green Deal provider’s behalf in instalmentsfrom the monthly electricity bills.

& A Green Deal Oversight Body and Ombudsman tomonitor and regulate the scheme.

& A new telephone advice service for householdersand, eventually, businesses and the public sector.

A new Energy Company Obligation would operatealongside the Green Deal. The ECO will be roughlythe same financial size as CERT (£1.3bn pa), operateon a similar basis and share some features of thescheme it replaces. It has two objectives: to supportinsulation measures in any household that are tooexpensive to meet the Golden Rule, such as solid wallinsulation, and to provide support for a wider range ofmeasures to vulnerable customers, largely people onbenefits who would be expected to be unable to takeon Green Deal finance.

The powers needed to implement Green Deal andthe ECO were provided by the 2011 Energy Act. TheAct also contains provision to ban, from 2018, therental of inefficient commercial or domestic proper-ties, with “inefficient” likely to be defined as an EPCrating of F or G.

For business, the government left the CCL in place.The CRC Energy Efficiency Scheme was simplified in

response to concerns from business that it was tooexpensive to comply with. The number of fuels cov-ered was reduced and the interaction of the schemewith CCAs and the EU ETS was smoothed out. Theleague table and flat-rate sale of allowances were leftin place, although the first sale was delayed until 2012.However, controversially, the cap and trade and reve-nue recycling elements were removed, with the pro-ceeds going directly to the Treasury. The scheme hadbecome a complex carbon tax.

In 2007, the EU agreed a new climate policy pack-age with 20 % targets for renewable energy consump-tion and greenhouse gas reductions, and an indicativetarget of 20 % for energy efficiency improvement, allto be delivered by 2020. In 2012, the EU agreed anEnergy Efficiency Directive that introduced a non-binding 10.5 % energy efficiency target, a new re-quirement on Member States to renovate, each year,3 % of the total building floor space owned or occu-pied by their central governments, and a new annualutility target to generate efficiency savings worth1.5 % of sales. Mandatory national targets would beconsidered in 2014 depending on progress towards the20 % efficiency target.

The negotiation of the new directive was accompa-nied by calls from the Carbon Trust, the CBI andothers for Display Energy Certificates to be rolledout to commercial buildings (Carbon Trust 2009).CLG consulted on the proposal, but plans werederailed by the retail sector, which feared a negativecustomer reaction if poor energy performance ratingswere displayed in stores. There was also a more gen-eral concern from business that DECs were expensiveand overcomplicated. However, the Energy EfficiencyDirective has a requirement for large companies tocarry out energy audits, which could be used as thebasis by which the coverage of DECs could beextended.

Discussion

Drawing out the lessons for the present day requires abenchmark of “good practice” in policy terms. An ex-post evaluation of UK policies is not possible becausedifferent programmes have used different metricsthrough the years, if they have used them at all. Forexample, until the 1990s, government used “inputs” tomeasure performance such as total programme spend

Energy Efficiency

or number of leaflets produced. Output-based mea-sures, and particularly carbon accounting, onlyemerged in the late 1990s to measure compliance withthe Kyoto Protocol. Even now, UK programmes—often the same one—use different metrics to measuredifferent things, for example annual CO2 emissionreductions for statutory compliance and lifetime£/tCO2 for policy appraisal.

However, for the purposes of this paper, it is possibleto derive a subjective view of good policy practice fromthe literature based on the effectiveness of an interventionin overcoming barriers to energy efficiency. There are nostudies specific to the UK but are a number of interna-tional reviews including the UK (Grubb et al. 2013;Harmelink et al. 2008; Tanaka 2011) that can be used.Taking the findings of these studies and applying them tothe UK story reveals five main features of successfulpolicy to consider.

The role of markets and government

Energy efficiency will not happen without market forces.But some ministers, regulators and public officials haveperiodically claimed that market forces on their own willdeliver all cost-effective energy efficiency savings. Thisis simply not true. But unfortunately, these claims tend tobe driven by ideological assumptions rather than by anyserious examination of the scientific evidence orestablished practice.

On the other hand, too much, or the wrong type ofgovernment intervention can be just as bad. Governmentadvertising campaigns have generally not been very suc-cessful. The EEO’s early focus on technologies and en-ergy professionals ignored the people who took theinvestment decisions so that much of the advice theyprovided did not get acted upon. CERT programmesresulted in the market being deluged with compact fluo-rescent light bulbs because the suppliers found that theycould deliver their targets most easily by doing so.Condensing boiler uptake was very slow before the in-troduction of EESOP incentives in 2000 and the an-nouncement of a mandatory standard requiring them in2003 Programmes prior to 2005 failed because gas fitterswere not trained or incentivised to recommend and installthe new technology.

In reality, the right approach is well-designed poli-cy working with the grain of the market. Most rapidimprovements in energy efficiency result fromprogrammes with a carefully managed combination

of government intervention (which is generallyregulation-led) and market support (see Chai and Yeo2012). Examples in the household sector are condens-ing boilers after 2005 and appliance labelling andminimum energy performance standards since themid-1990s. In the business sector, examples are thedevelopment of the Carbon Trust’s carbon manage-ment programmes in 2003 to exploit reputational andcompliance risk drivers arising from regulatory andconsumer pressure.

Linking costs and benefits

Energy efficiency requires capital investment, and lackof up-front capital is an important barrier in all sectors.Unfortunately, public spending will always be limited,so government has to prioritise. However, unlike otherpolicies, energy efficiency policy does create a returnon the investment, which, with creative policy design,can be used to offset the cost.

Some policies are very effective in doing this.Technology standards and labelling schemes are goodexamples, such as EU energy labelling and minimumperformance standards for domestic goods and thegovernment’s Energy Technology List for industrialprocess equipment eligible for accelerated capital al-lowances. The role of government is restricted tocompliance monitoring and putting in place measuresto minimise “free-riders”. The evidence (Sovacool2009; Tanaka 2011) is that, with good policy design,end-user costs are negative as long as the energysaving benefits exceed the costs and the market isgiven time to adjust.

Energy labelling of buildings has the potential todrive change by exploiting both behavioural and costdrivers. Commercial buildings with energy efficiencylabels in the USA and The Netherlands have beenshown to attract a market premium compared tounlabelled buildings (Eichholtz et al. 2010; Kok andJennen 2012), as do similarly labelled domestic prop-erties in The Netherlands (Brounen and Kok 2011).However, there is no clear evidence that this effect isoperating in the UK in either sector. This may becomeclearer as data from EPCs and DECs is analysed.

Loan programmes can also be relatively inexpen-sive, primarily because, unlike grants, the funder getsthe money back, less the cost of administration, de-faults and interest on the loan. Recycling loans, wherethe energy savings are reused to provide more finance,

Energy Efficiency

such as those offered by Salix Finance to the publicsector, are amongst the most cost-effective energyefficiency delivery programmes (Carbon Trust 2012).The domestic Green Deal is based on this principle,but with private lenders and commercial interest rates.

In contrast, grants are very expensive. However, forpeople with no disposable income, they can be theonly option. The Warm Front programme has beenreviewed a number of times (NAO 2009) and found,with some reservations, to be effective. The sameapplies to CERT and its predecessors, and the signsare that the obligation model is likely to continue forthese sectors. The UK is unique amongst the countriesthat use energy company obligations in restrictingthese to the household sector. There is a good casefor broadening their scope, for example to SMEs.

The main concern about this approach is that obli-gations programmes are funded out of energy bills.This attracts criticism that they increase energy costs,but this has been shown to be invalid (Committee onClimate Change 2011a) as long as the measures arecost effective. Unfortunately, the costs and the benefitsdo not appear on energy bills so a strong behaviouralsignal is lost. But the most problematic issue is distri-butional: cross subsidy from the consumers that do notbenefit to those that do. However, programmes can bedesigned (as CERT and its predecessors always havebeen) to ensure that lower income households receiveat least a fair share.

Technology and people

The early energy efficiency programmes focused ontechnologies. But developments in social and behav-ioural science show that policies need to address thedemand-side as well: energy efficiency is about peopleas well as products. Information, advice and engage-ment are the principal tools for influencing people, andthe UK has a great deal of experience in this field.People, when faced with a choice of technology op-tions, need unbiased advice on which one to chooseand why. This is clearly a role of government, aprinciple that has been accepted by even the mostfervent free market ideologues.

Large business face technological complexity, ei-ther in the processes they operate or in the buildingsthey occupy. Different people in the hierarchy needdifferent information: The finance director has verydifferent drivers to the facilities manager. The EEBPP

produced over 1,200 different guides and manuals, butthese were focused on energy professionals. One ofthe successes of the Carbon Trust, when it took thisprogramme over in 2002, was to make energy effi-ciency a strategic issue for companies and the publicsector through its Carbon Management Programme. Itdid this by targeting information directly at directorsand shareholders, highlighting the compliance andreputational risk for the organisation.

In contrast, for householders, tenants or small busi-nesses, simple, clear information is usually best. TheEU energy label has the level of detail needed, andindeed, the even simpler Energy Saving Trust “EnergySaving Recommended” approach may be better still.However, information also has to be relevant. EnergyPerformance Certificates, as originally implemented in2007, were too complex, and the information in themhad little relevance for most householders (RICS/CLG2010) because the information they contained was notrelevant to householders: It did not set out what was init for them if they improved the energy performance oftheir homes.

Institutions and delivery bodies

There have been two key institutional trends: the lo-cation within government of policy responsibility andthe mechanisms for delivering the outcome.

Energy efficiency policy was coupled to “main-stream” energy policy in the Department of Energybetween 1974 and 1992. After that, it was relocated tosit alongside climate policy in DETR and its succes-sors. Some view this separation as a demotion forenergy efficiency. But, possibly with the benefit ofhindsight, it is possible to argue that the oppositewas true: Energy policy was diminishing in impor-tance as privatisation took hold and energy efficiency,as a key element of any future climate programme,needed to be protected.

Whatever the motivation the policy gradually grewin importance following the 1990 Environment WhitePaper and once again for the 2000 Climate Changeprogramme. In 2008, energy efficiency was reunitedwith energy policy with the creation of DECC, al-though it is still firmly located with the climate sideof the department.

Until recently, delivery of energy efficiency wasgradually being spun out of government. The EEO,part of the Department of Energy, outsourced its

Energy Efficiency

programmes to government laboratories under con-tract, which were replaced by the “arms-length”Energy Saving Trust and Carbon Trust. Why did thegovernment do this? The main reasons were thefollowing:

& Government administration budgets were reducedif programme management was devolved to thenew body.

& Arms length organisations can respond to chang-ing market conditions without the “dead hand ofgovernment”.

& They could run discretionary programmes on meritrather than political expediency.

& They had the freedom to recruit and pay peoplewith the right skills and experiences to run theprogrammes.

& They could use techniques not available to gov-ernment, such as venture capital funding and in-novative marketing campaigns.

& Government got a useful source of market intelli-gence and policy advice from which it could dis-associate itself.

The two Trusts grew in size and influence in theboom years up to 2007. However, when the recessionhit they were encouraged to seek external fundingbecause the government felt that the market shouldbe paying. The coalition government disliked theTrusts’ tendency to provide unwelcome policy advice,and in April 2011, core government funding was with-drawn. Now, with the creation of the EnergyEfficiency Deployment Office, the cycle has come fullcircle with responsibility for delivery back in thehands of central government.

The other aspect of institutions that merits someconsideration is the need for local delivery. Wherethe mechanism for delivering policy is national, e.g.for research, awareness-raising in industry or the de-ployment of specific technologies, a national approachis best. However, for smaller businesses and house-holds, local delivery can be much more effective.Local businesses, government and community groupsare more widely trusted than national government andtrans-national energy companies, who are seen as re-mote, inflexible and, in the latter case, part of theproblem especially when energy prices are rising.

Effective engagement with the majority of house-holders remains a critical challenge, and there is agrowing consensus this will require local action.

Unfortunately, most local authorities remain marginalplayers, although in 2012 the government publishednew guidance under a revitalised Home EnergyConservation Act to help local authorities play theirpart in delivering the Green Deal.

The current discourse of the “Big Society” points toa role for the burgeoning number of communitygroups active on low carbon issues. However, despitesome funding, for example under the Low CarbonCommunities Challenge and the Local EnergyAssessment Fund, their capacity currently is too lim-ited to allow a major role.

The energy efficiency “offer”

Another consideration is how policy is “sold” to thepublic, business and Whitehall. In the early years,there were real concerns that oil would run out soconserving stocks by using less energy was an obviousresponse. However, when the oil shock wore off peo-ple realised that using less energy meant doing less ofthe activities that energy made possible. This waspolitically unacceptable so the concept of energy effi-ciency—doing more with less—took hold.

For business, energy efficiency policy has alwaysbeen associated with industry policy, unsurprising giv-en the close links between the Energy and TradeDepartments. This also kept the Treasury on board,or at least helped to protect the budget line.Reputational drivers became important in the 1990swhen the “Triple Bottom Line” approach to businesspolicy became fashionable, conflating environmental,social and economic performance. The EEO began toreflect this in their marketing with the “win–win–win”strap lines. The Carbon Trust refined this approach byappealing to institutional shareholders concernedabout the risk to their investment if directors took noaction.

Other important, and often overlooked, customersfor energy efficiency policy, are other departments,both to build support for funding and to decarbonisetheir policies. Unfortunately DECC and its predeces-sors have not, on the whole, made the case for energyefficiency very effectively to the rest of Whitehall.DECC focuses on carbon savings, which are usuallynot a priority for other departments, and particularlythe Cabinet Office, responsible for cross-Whitehall co-ordination. The obvious approach—to sell energy ef-ficiency as a way of delivering another department’s

Energy Efficiency

core business more effectively—is not usuallyDECC’s first instinct. Energy efficiency thereforecompares unfavourably with other cross-cutting poli-cies like social exclusion that have had more success.

Conclusions

In many ways, the UK has led the world on energyefficiency policy. The library of technical informationthat we have accumulated is probably the most com-prehensive anywhere in the world. In 1994, the UKwas the first EU country to use the Standards ofPerformance model to fund energy efficiencyprogrammes and the first to try out carbon emissionstrading. The Climate Change Act was the first of itskind anywhere in the world. The EST and CarbonTrust delivery models have been copied around theworld. At some point in the last 40 years we have triedevery kind of energy efficiency programme that thereis. So what has the UK made of this legacy?

With the Green Deal, the government is putting alot of faith in the role of markets. There are a numberof genuinely innovative elements, notably a concertedattempt to integrate and stimulate a notoriouslyfragmented and conservative market that has beendependent on government subsidy for many years.The central financial model, tried and tested in busi-ness and the public sector, is a major innovation forthe UK domestic market.

However, the Green Deal is predicated on overcom-ing financial barriers using loans. Unfortunately, theseare not the only barriers constraining demand. Forexample, awareness of the scheme is low but thegovernment is relying on the private sector to promotethe scheme. Installing the measures still creates con-siderable disruption. Even assuming that the costs andbenefits even out the financial package is deeply un-attractive. The interest on the capital could be as highas 9.5 %, eating into the benefits. The government hasalso introduced an adjustment to take account of thefact that the real energy savings will be different fromthe theoretical ones, further lowering the benefit. Asignificant, long-term risk is placed on the property,which could influence mortgage lending in the future.Finally, the Green Deal is entirely voluntary.

DECC’s own Impact Assessment (Department ofEnergy and Climate Change 2011c) predicts that de-mand for elements of the Green Deal will be so low

that only 10–30 % of the potential for loft and cavitywall insulation will be realised. The shortfall will notbe fully taken up by the Green Deal’s sisterprogramme, Energy Company Obligation. The ECOis based on CERT, and so compels energy supplieractivity (but not consumer interest). But its primaryfocus is affordable warmth for the fuel poor and hard-to-treat issues such as solid wall insulation and non-standard cavity wall insulation. There will be a degreeof cross-subsidy between the schemes for measuresthat do not meet the “Golden Rule”. But conventionalcavity and loft insulation are severely restricted be-cause the government is worried that people who wantto insulate their walls and lofts anyway would ignorethe Green Deal and “free ride” on the ECO scheme.

This places the government in a curious position.The Green Deal was designed to ease people offsubsidy using the market to exploit financial drivers,but then the government accepts that a voluntaryscheme would not be enough to stimulate demand atanything like the required rate. In economic terms, thisstrongly supports the case for a subsidy element, butthe subsidy programme is designed to largely excludethis option on the basis that potential Green Dealcustomers would “free ride”.

The government’s proposals were fiercelycriticised, particularly by the Committee on ClimateChange (2011b), but the final Green Deal proposalspublished in June 2012 (Department of Energy andClimate Change 2012a) only made marginal changes.The government appears to recognise some of theproblems it faces by setting aside £200m to stimulatetake-up of the scheme. More than half of this will be inthe form of one-off cash-back payments, but it is clearthat public expenditure constraints are unlikely to al-low this to be a sustained approach. Government isalso supporting some marketing and training.

In January 2012, CLG published proposals forchanging the Building Regulations to include “conse-quential improvements” for domestic conversions andextensions. This would require the installation of cost-effective energy efficiency measures in the wholeproperty, supported by the Green Deal loan. The pol-icy would not be enforced if the measures broke theGolden Rule. The idea was to create demand for theGreen Deal. However, the Daily Mail, a popular UKnewspaper, orchestrated a campaign against the pro-posal, calling it a “Conservatory Tax” (Daily Mail2012). The Prime Minister was driven to speak out

Energy Efficiency

against the policy, and it is therefore very unlikely togo ahead in the short term. However, such a policy mayhave to be implemented under the recast EU EnergyPerformance of Buildings Directive.

For business, there is, as yet, no comprehensive GreenDeal on the domestic model. However, unlike house-holds, there are a number of freestanding policies alreadyin place. The government has announced that theimpending Carbon Floor Price will operate only in thepower sector. The CCL has a limited impact, but theassociated Climate Change Agreements continue to drivesavings, again at the more energy intensive end of themarket. Companies listed on the London Stock Exchangewill have to report their greenhouse gas emissions fromApril 2013. The Green Investment Bank will fund com-mercial energy efficiency projects as one of its firstpriorities.

The CRC Energy Efficiency Scheme survives, al-though with the removal of the revenue-recycling ele-ment, a strong financial driver has been lost, leaving themeasure as little more than a complex carbon tax.Business, through the CBI, is lobbying for a propercarbon tax, or an extension of the CCL, coupled tomandatory carbon reporting. The Treasury is threateningto scrap the scheme if the compliance costs cannot bereduced, which is ironic given that it was the Treasurythat caused the problem in the first place. Interestingly,early results show that emissions from the scheme partic-ipants fell 10 % in 2011/2012 (Environment Agency2012), although it is unclear what caused this fall.

For commercial and public buildings, especially thosenot covered by the CRC scheme, the policy landscape isthin. The evidence is strong that simplifying andextending Display Energy Certificates to cover commer-cial buildings will drive significant change (Carbon Trust2009). This prompted DECC and DCLG to insert acommitment to do this in the Draft Carbon Plan inMarch 2011. However, the commitment had been dilutedto a voluntary initiative by the time the final Carbon Planwas published in December 2011. At present, only EPCswill be required in commercial buildings.

There is a significant policy gap for smaller busi-nesses wanting to invest in energy efficiency.Previously, they were able to apply for a CarbonTrust interest free loan, which proved to be one ofthe CT’s most cost-effective ways of tackling thesector (Carbon Trust 2012). However, the loan schemewas closed down when the government removed theTrust’s public funding. In March 2011, the Trust

launched a new £550m loan scheme partnering withSiemens, but so far, only 4,500 companies have re-ceived loans, possibly because interest rates are set at9 %, making quite a dent in the energy savingpayback.

In summary, at the time of writing, energy efficien-cy policy in the UK is, at best, confused and at worst,in danger of unravelling. This is a great shame be-cause, at the 2010 election, there was considerablecross-party support for a new approach to energyefficiency, based on adding the pay-as-you-save ap-proach from new market entrants to the considerablelegacy the UK had built over the last 40 years. Underpressure from the Treasury, a number of new policyinnovations are being shelved or compromised andpublic funding withdrawn from programmes and ser-vices that have proved their value in driving the mar-ket effectively over the years. A new energy efficiencystrategy has been produced (Department of Energyand Climate Change 2012b). This provides a usefulfocus but consists largely of a reanalysis of knownbarriers and a restatement of existing policy.

Indeed, with the removal of Energy Saving Trustand Carbon Trust funding, there are signs that theinformation and advice legacy built up over the yearsis in danger of dissipating. Householders only haveaccess to a phone line. Businesses no longer haveaccess to any free, impartial advice and support. Thelibrary of publicly funded technical information is nolonger easily available, and the government has noplans to take it over, saying in public that the privatesector will seek out and provide the information itneeds. It is hard to read this in any other way than asignal that the government is stepping back towards anapproach based on neo-classical economic dogma,without having learned or retained the lessons of thepast 40 years.

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