The global energy crisis has had profound effects on many major economies, especially in Europe, forcing us to scramble to diversify our energy supply and end our reliance on Russian gas. The result was an unprecedented rise in energy prices, sending inflation soaring across the European Union (EU) and beyond. Countries have announced fiscal support packages of 2% to 7% of GDP to protect consumers and businesses from high energy bills, with the UK spending the largest share. But cutting ties with Russia isn’t just costing the government—it’s costing the planet too. Global use of coal, one of the dirtiest fossil fuels, has been on the rise this year, with more coal-fired power plants coming back online in Europe. The UK is also turning to unconventional forms of energy, such as hydraulic fracturing, while doubling down on what is left of North Sea gas.
But in the UK, a key dilemma has not been adequately considered: the need to reduce energy demand and improve energy efficiency. The European Commission has urged all EU governments to reduce peak electricity demand by 5%, total electricity demand by 10% and natural gas demand by 15% by March 2023. Six-month annual electricity consumption in Spain.
However, the UK has no such target, instead announcing a freeze on unit prices for energy, capping it at £2,500 for a typical household over the next two years. Expected to cost between £7.2 and £140bn over two years, this energy price guarantee has an unclear target, reducing the incentive for high-energy-consuming households to reduce their energy needs. The new system of free basic energy proposed by the New Economy Foundation (NEF) could both reduce household costs and increase the incentive to reduce energy demand. It will work by ensuring that while the average bill is lower than under the Ofgem price cap system, the marginal price of additional energy consumption is higher.
If the government is serious about energy efficiency and upgrading our housing stock, the government needs to spend less to maintain the energy price cap. To predict the huge energy saving potential, we modelled the savings that would be implied if all housing stock in England and Wales had been upgraded to a decent energy efficiency standard (Energy Performance Certificate C or higher) by October this year. The government has set targets for all fuel-starved households by 2030 and the entire housing stock by 2035. If the insulation rate remains at the highest point in 2012, this target has now been largely achieved.
Analysis shows that if all homes were upgraded to EPC C, government spending would be reduced by £4.3bn (based on current forecasts for energy prices) in the first year of the price cap freeze alone, reducing pro-rata costs. 10% relief for plans in England and Wales. On top of that, families will also save a lot on their bills. By moving all homes to EPC Band C, households in England and Wales could save a cumulative £6.4 billion over the next year, with an average saving of £470 per upgraded household.
Thus, in the first year alone, the total savings would be £10.6 billion. This government intervention is particularly misleading when you consider that the government itself estimates that the cost of upgrading all homes in the UK to an Energy Performance Certificate (EPC) C could be as low as £35bn – meaning almost a third of the cost It can be recovered in just one year.
The benefits also include reduced greenhouse gas emissions, which we estimate will save 9,200 kilotonnes of CO2e per year – equivalent to the annual carbon footprints of Leeds, Bradford and Bristol combined. It will also reduce the UK’s reliance on gas imports, reducing gas demand in England and Wales by 41,200 GWh, or 7% of the UK’s total gas imports last year. This is more of a priority than ever, with energy regulator Ofgem recently warning that the UK could face the risk of severe gas shortages this winter.
This ‘The “mini-budget” announced in September did include an additional £1bn over three years to expand the Energy Company Obligation (ECO) scheme, which requires suppliers to provide energy efficiency measures for certain households. The program remains the primary energy efficiency policy, and it’s no surprise that the government is turning to it again. This additional support represents a 30% increase in the program’s annual spending allocation and is expected to be delivered through two key mechanisms. The first focuses on narrowing the eligibility criteria for the ECO program to provide low-income and fuel-starved households with well-funded, cost-effective measures such as attic and cavity wall insulation. The second is by offering grants of up to £1,500 to target the least efficient homes in the lower council tax range.
However, the £330m energy efficiency support is paltry given the size of the energy price guarantee, which simply transfers a lot of public money into the pockets of energy suppliers, and highlights a key missed opportunity to capitalise on the crisis As a way to engage the public in broader energy efficiency and demand reduction programs. Crucially, the policy won’t even start until April next year: the EU aims to reduce electricity consumption by that date to a size comparable to what Spain currently consumes.
Image: iStock/artursfoto
