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Shifting the focus: 1 Introduction: why energy demand is important to a low carbon transition

05 July, 2019

Shifting the focus: 1 Introduction: why energy demand is important to a low carbon transition

Nick Eyre

Tim Foxon

Gavin Killip

Report   Policy & Governance

Nick Eyre, Tim Foxon and Gavin Killip

The aims of this report

This report sets out the critical role that needs to be played by changes to energy demand in delivering the ambitious goals of UK energy policy – a secure and affordable, low carbon energy system. Our analysis draws on current knowledge from the UK energy demand research community. We take as our starting point the ambitious goals of UK Government policy set out in the Clean Growth Strategy (BEIS, 2017), the Government’s most recent statement on the energy transition. In particular, this report considers the aim to accelerate the pace of clean growth, and we seek to build on the comprehensive, quantitative analysis of the Strategy done by the Committee on Climate Change (CCC, 2018). We agree with the Strategy that major improvements in energy productivity in businesses, transport and homes are crucial to achieving this goal. We set out a broad vision for how this might be achieved, and show that this requires attention to technical, social and institutional factors that drive energy demand. We argue that a stronger focus on demand will be required to address the greater action implied by a net-zero carbon target (CCC, 2019). We set out recommendations on the changes in policy required to deliver the goals of the Clean Growth Strategy, in relation to energy use.

The key role of energy demand

Energy use has been a key driver of economic and social development, by enabling production and consumption of goods and services and allowing people to lead comfortable and enjoyable lives. The industrial revolution began in Britain in the late eighteenth century, by harnessing first water power and then fossil fuels to provide heat and power. Energy use has driven the development of modern societies, and is critical to most aspects of our lives in homes, businesses and transport. Figure 1 shows the breakdown of energy use in the UK – broadly an even split between households, workplaces (industry and other) and transport.

Figure 1: Energy use in the UK by sector in 2017 (TWh). Based on BEIS 2018.

Image data

Industry 279.9 TWh in 2017; Transport 656.7 TWh; Households 466.5 TWh; Others 238.6 TWh.

However, the widespread use of fossil fuels has also driven major environmental problems, which has required action to mitigate by households, industry and Government. Although the worst excesses of urban air pollution have been addressed in industrialised countries, energy related pollution remains a major cause of ill health, even in the UK. In addition, a range of evidence has shown that stabilising the global climate will require the elimination of fossil fuel use within a few decades (IPCC, 2014, 2018).

The UK has led the world in adopting a strategic approach to doing this through the 2008 Climate Change Act. This sets progressively tighter carbon budgets for national emissions for successive five-year periods, at least 15 years in advance. Good progress has been made to date, with a 43% reduction in emissions since 1990 by 2017. However, the Clean Growth Strategy provides a clear warning that more needs to be done: “In order to meet the fourth and fifth carbon budgets (covering the periods 2023–2027 and 2028–2032) we will need to drive a significant acceleration in the pace of decarbonisation and in this Strategy we have set out stretching domestic policies that keep us on track to meet our carbon budgets” (BEIS, 2017, page 9). At the UK Government’s request, the Committee on Climate Change has recently concluded that even more stringent budgets will be needed as 2050 is approached, for the UK to reach net-zero greenhouse gas emissions and make its fair contribution to the goals of the Paris Agreement (CCC, 2019).

Addressing this challenge of achieving further and faster carbon reductions will require both widespread deployment of clean energy sources to replace fossil fuels, and reducing total energy demand, whilst continuing to deliver the services that people and businesses need. This requires much better understanding of the role of demand-side solutions in mitigating climate change (Creutzig et al, 2018).

Changes to the way that energy is used are critical to the development of a secure, affordable and sustainable energy system. In recent decades, more than 90% of the progress in breaking the relationship between carbon emissions and economic growth globally has come from reducing the energy intensity of the economy (IPCC, 2014).

By comparison, reducing the carbon emissions per unit of energy has, to date, been a relatively minor effect. Similarly, in relation to energy security, the International Energy Agency (IEA, 2016) showed that, in leading energy-importing countries, energy efficiency improvements have played a major role in reducing dependence on imported fuel.

These trends have been seen strongly across northern Europe, including the UK, where the decoupling of energy use and economic activity has been reflected in absolute reductions in energy demand. Primary energy demand in the UK has fallen by 20% since 2003. This has confounded official projections made at the beginning of this period, which projected slow but steady energy demand growth (McDowall et al, 2014). This decoupling has a longer history, with an annual improvement of the GDP/energy ratio averaging 2.5% since 1970, reducing current energy demand to one third of what it would have been with no improvement.

These changes in energy demand have been driven by a combination of three factors:

  • economic restructuring (away from energy intensive manufacturing and towards services)
  • technical energy efficiency improvements, and
  • a slowing in the growth of demand for many of the services provided by energy.

To some extent, the first of these factors is linked to the movement of manufacturing activity out of the UK, in particular to East Asia. This offshoring of economic activity has reduced UK industrial energy demand; its effect has been broadly similar in scale to that of technical improvements in industrial energy efficiency (Hardt et al, 2018). The Clean Growth Strategy aims to halt this trend of offshoring by retaining industrial activity in the UK. This implies that further reductions in industrial energy demand would need to come from technical or process changes that reduce energy demand per unit of material produced, or wider structural changes that reduce the demand for these materials, for example, through a greater focus on resource efficiency.

It is difficult to exaggerate the impact of the historical decoupling of energy demand from economic activity. It has contributed more to carbon emissions reduction than the combined effects of the UK’s programmes in nuclear, renewable and gas-fired power generation. It has made energy services more affordable to households and businesses. It has improved UK energy security, both by reducing energy imports and enabling peak electricity demand to be met with less generation capacity. Much of this impact has been driven by public policy. It is recognition of this effect across the world that has led to the International Energy Agency (IEA) to call for energy efficiency to be treated as “the first fuel” in energy policy (IEA, 2016).

Given this important role of energy demand, it features surprisingly little in public discourse about energy. The importance of demand is recognised in the Clean Growth Strategy, but the UK Government has not published an updated Energy Efficiency Strategy since 2013. Despite the evidence, many people still think that energy demand is inexorably rising and references to ‘increasing energy demand’ remain common in the mass media. This misapprehension applies even in parts of the energy sector, including, in one case, a serving Government Energy Minister (Carrington, 2015).

Another frequent misunderstanding is that energy efficiency is a short-term issue and that its potential for improvement will soon be exhausted. Historical evidence (NAS, 2010) is that the potential for cost effective efficiency improvement has remained relatively stable over 40 years. As efficient technology has been deployed, technological and organisational innovation has enabled new potential to be developed at broadly similar rates. Some options that are now widely used, such as LED lighting, represent a step- change in efficiency improvement, but were not even considered in analyses done 20 years ago. Energy using technologies and practices are still very far from their theoretical optimum (Cullen & Allwood, 2010). Moreover, as we discuss below, future energy supply- side changes will increase opportunities for improvement.

The Clean Growth Strategy provides a major opportunity to implement approaches to energy efficiency improvement that have already been shown to be effective, either in the UK or elsewhere in the world. This will involve a substantial shift in UK Government policy, which has become less effective in recent years (e.g. Rosenow & Eyre, 2016).

Energy demand in the UK energy transition

Delivering a secure, affordable and sustainable energy system, and particularly the goals of the Paris Agreement, requires an energy transition on the scale, for example, of the industrial revolution. Energy transitions are often described in terms of the change in dominant fuel (e.g. wood to coal, coal to oil), but this is a shorthand. Transitions have always been associated with major shifts in energy-using activities and therefore with wider patterns of economic development and social change (Foxon, 2017). There is no reason to think that the sustainable energy transition will be any different; it will not simply be a shift from unsustainable fuels to renewables, but also a change in how, when and where those fuels are used and what human activities they enable and support. Policy to promote the transition will need to take this into account.

Thus, the energy transition cannot be properly conceptualised without reference to questions about what energy is used for. People and businesses demand energy services (e.g. thermal comfort, mobility and industrial materials) rather than energy per se. Total energy demand is a function of this demand for energy services, as well as the efficiency with which that energy is used. The amount of energy needed to meet the demand for any given service therefore depends not only on the technologies used, but also on the wider social systems involved, including the user practices, business models, institutions and infrastructure associated with that service (Foxon, 2011).

This is why understanding energy demand is critical. But it is also complex. Active measures to change the demand for energy services can be controversial. In particular, in international climate negotiations ‘demand reduction’ can be interpreted to mean reducing the demand for basic services and therefore ‘pulling up the ladder’ on social development for developing countries. Similar issues apply to people living in fuel poverty in the UK. However, in advanced economies like the UK, improving human welfare no longer relies on massive expansion of energy intensive activities.

Not all consumption is useful: car dependence, unhealthy diets, over-heating and over-cooling of buildings; and use of new, rather than recycled materials, are obvious examples. So reducing the demand for energy services is a part of the agenda for change.

Achieving more significant energy demand reduction needs a focus on both efficiency and service demand. It is estimated that improvements in energy productivity, i.e. economic output per unit of energy used, of at least 3% per annum are needed to help achieve global carbon targets (ETC, 2017) by decoupling energy demand from economic output.

However, in the context of the energy transition, reducing demand is no longer the only issue. As the Clean Growth Strategy acknowledges, there are at least two other demand- side issues which need to be addressed – demand flexibility and decarbonisation of energy sources used at the point of demand.

Variable (intermittent) sources of electricity, such as wind and solar, will play the key role in decarbonising the electricity system, in the UK and globally. This will make balancing electricity supply and demand increasingly challenging. Integrating increasing levels of variable renewable energy focuses attention on temporal issues. A zero carbon electricity system will only be possible if demand is more flexible. Technologies and services for demand-side flexibility will be major growth areas in electricity markets. Demand response (shifting the timing of energy demand) will be important. The Clean Growth Strategy recognises the potential benefits and the role of a smart grid in delivering them. It focuses largely on opportunities based on energy storage, and therefore somewhat underplays the potential role of increasing the temporal flexibility in the demand for energy services.

Most analysis of the energy transition shows that electricity will be a key form of energy supply for heating and transport uses, as well as for power. But there is increasing recognition that it is unlikely to be a complete solution, as some categories of end use, notably industrial processes, freight transport and space heating, are difficult to electrify. In these sectors, other approaches to decarbonisation will be needed using other energy vectors. The best combination of options is not yet clear, and therefore there currently is no convincing storyline for complete decarbonisation. This implies development of solutions that deploy other zero carbon energy vectors and associated storage, notably hydrogen.

These multiple aims for demand change in the energy transition – efficiency, reduction, flexibility and a switch to sustainable fuels – cannot effectively be analysed separately. A sustainable, affordable and secure energy system will require all of them. Figure 2 sets out a simple representation of how we see them contributing to energy system transformation.

Figure 2. Contributions of the demand side to energy sustainability. With sustainable energy supply at the centre, four elements contribute to demand-side reduction: Level 1 changes energy using activities and level 2 improves energy efficiency – both important elements in reducing demand. Level 3 flexes energy demand in time to enable renewable energy, while level 4 switches fuels to sustainable energy.

Thinking systemically about the role of energy demand

In the context of this complexity, a systems approach is useful in understanding the role of energy demand in a transition to a sustainable low carbon society. Insights from past energy transitions suggest that systemic change involves not only new forms of energy supply, but also changes in the way that energy is used. In this report, we discuss in more detail the types of change needed in buildings, industrial processes and transport.

In contrast to micro-economic and behavioural approaches that focus on individual responses to incentives, a systems approach focuses on interactions between individual and societal choices and wider systems that both enable and constrain those choices. For example, energy use in a car-dominated system of personal transport depends not only on the technological features of the car, but also on occupancy of vehicles, the choice between car use and other modes and the need to travel (which is influenced by factors such as commuting distance and virtual communications options). In turn, these features and choices depend on wider systemic features, such as car and fuel supply networks, road infrastructures and traffic systems, patterns of land use, institutions and regulations governing car use, engineering skills and knowledge, political power of relevant interest groups, routine practices of users, and wider cultural norms associated with car use and other forms of transport (Geels et al, 2012). Changes to these systemic elements combine to create significant changes in energy demand needed to meet mobility or other service requirements.

None of this implies that user decisions do not matter, indeed the recent analysis of the Committee on Climate Change shows that changing technology alone is insufficient for most of the carbon emissions reduction required to reach a net-zero target (CCC, 2019). A systems approach argues that individual choices cannot be considered separately from the socio-technical system in which they are embedded (Schot et al, 2016). For example, choices as to whether to make a journey by private car, public transport or by cycling or walking depend on the availability, cost, convenience and safety of different alternatives. While it will require considerable change for socially ‘normal’ activities to be different in future, there are plenty of precedents (e.g. smoking in public buildings). Thinking systemically about energy supply and demand together points to new opportunities for interventions to achieve the goals of a low carbon, secure and affordable energy system. This report highlights some of these opportunities in relation to meeting demands for energy services in the built environment, industrial processes, mobility and electricity systems.


Socio-technical systems thinking also applies to innovation. It is not only about new technology, but also about the context of broader economic and social change. Innovations are only successful to the extent they are consistent with that broader change. The Clean Growth Strategy rightly emphasises the importance of investment in innovation, including to develop new technologies and bring down the costs of clean technologies. Energy innovation often focuses on supply technologies, but there are also major opportunities for innovation to deliver energy and resource efficiency improvements, in industry, buildings and transport, as well as to deploy low carbon end- use technologies.

However, we argue that this needs to be embedded in a wider understanding of the drivers of energy demand and the potential for changes in demand. Much research in recent years has argued for the need to think systemically about innovation and transitions, and that this can inform the difficult policy choices relating to demand reduction, flexibility and decarbonisation. If the goal of innovation is reframed from technological change to how those service demands can be met in a more sustainable way, we need to consider not only innovation in technologies, but also innovation in how energy is used, the business models for providing energy services and the institutional and regulatory frameworks that govern these systems.

Changes in energy use interact with wider social and technological changes, not least those associated with new technological and business opportunities created by smart systems and the digital economy. The increasing deployment of information and communication technologies (ICT) could enable economic value to be delivered in less energy intensive ways, but could also lead to the creation of new service demands (such as on-demand entertainment) that increase energy demand. Greater use of ICT linked to more distributed forms of energy generation could open up new market structures, such as via peer-to-peer energy trading, but this could create challenges for existing regulatory frameworks.

Recent research shows that ICT has large energy savings potential, but that realising this potential is highly dependent on deployment details, user behaviour and indirect effects that could either offset or amplify direct energy savings (Horner et al, 2016).

Implications for policy

It is well-established that demand reduction can support all three pillars of energy policy objectives – security, affordability and reductions in greenhouse gas emissions. Improving energy efficiency can play a major role in the goals for productivity, competitiveness and employment that are set out in the Clean Growth Strategy. Indeed, our analysis is that the goals of the Strategy are unachievable without a significant refocusing of policy effort towards energy demand.

Energy demand involves many actors – from households to major corporations and Government; it occurs where we work and where we live, it underpins the goods and services we purchase, the ways we travel and the public services we rely on. So addressing energy demand effectively will involve many technologies and stakeholders. Therefore we endorse the analysis of the Clean Growth Strategy (p59) that the move to a low carbon society needs to be a ‘shared endeavour between Government, business, civil society and the British people’.

Framing the challenge of changing energy demand in this way points to a move away from individualist and incremental policy approaches towards an approach more focused on long-term systemic change. This implies recognising that policy also needs to consider changes in infrastructures, institutions and practices, as well as the traditional instruments of energy efficiency policy such as price incentives, product regulations and information programmes. There are also multiple potential benefits from a greater focus on demand in areas not usually considered in energy policy (IPCC, 2018), for example in cleaner air, more comfortable buildings, less waste and more liveable urban environments.

Government has a critical and unique role in setting the vision for this shared endeavour. The Climate Change Act and proposals to increase the stringency of targets to ‘net- zero’ provide a good starting point. The commitment of Government, supported by an overwhelming majority in Parliament, sets the framework for the more detailed policy development by Government, but also provides the foundation for action by other actors – for corporate planning, and for the wider public discourse on energy systems and personal commitments.

Policy analysis traditionally relies heavily on cost benefit analysis. In energy, there are good reasons for this, as the energy system is a major, capital intensive infrastructure, with significant cost implications for households, businesses and Government. Limiting the costs of delivering any desired outcome obviously matters. However, many of the benefits of demand reduction (e.g. health) are uncertain and difficult to value, and therefore often excluded from analyses. Moreover, aggregate costs and benefits are not the only issue for two reasons.

First, the distribution of those costs also matters, both because it is an important outcome in its own right, and because perceptions of fairness constrain political feasibility. Secondly, as set out above, changes to energy service demands drive the energy system. These are determined by infrastructures, institutions, preferences and practices that lie outside the usual scope of incremental cost benefit analyses. A more pluralistic approach is required to these challenges.

This report aims to contribute to that approach. The CREDS team looks forward to working further with a wide range of stakeholders to examine how the ideas proposed in this report could be implemented, in order to contribute to the achievement of a sustainable net-zero energy transition.

Report structure

The following sections of the report set out our analysis, based on research evidence, of some key energy demand issues. These are structured along the lines of the major sections of the Clean Growth Strategy in which energy demand plays an important role, as follows:

  • Section 2 considers how we might reduce and decarbonise energy demand in buildings;
  • Section 3 looks at decarbonising industrial processes and using material resources more efficiently;
  • Section 4 covers travel demand and low carbon transport;
  • Section 5 addresses the role of shifting demand as time-of-use becomes more important because of increasing generation from variable renewable sources;
  • Section 6 looks at the challenges associated with demand for, and use of, zero carbon fuels;
  • Section 7 considers the governance and policy approaches that may be required; and
  • Section 8 draws together our conclusions.


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Publication details

Eyre, N., Foxon, T. and Killip, G. 2019. 1. Introduction: why energy demand is important to a low carbon transition. In: Shifting the focus: energy demand in a net-zero carbon UK. Eyre, N and Killip, G. [eds]. Centre for Research into Energy Demand Solutions. Oxford, UK. ISBN: 978-1-913299-04-0

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