Shifting the focus: 9 Detailed recommendations

Nick Eyre

The complexity of energy demand means there is no ‘silver bullet’ solution or policy: a range of policy instruments is required to meet energy policy goals. These involve many sectors, institutions and stakeholders, with a range of different timescales for action. We list a large number of recommendations in this report, and bring them together in this chapter. They can be considered under six broad headings.

1 Prioritise energy demand solutions

Energy demand change can support all the key goals of energy policy – security, affordability and sustainability – with more synergies and fewer trade-offs than supply- side solutions. For this reason, treating demand reduction as ‘the first fuel’ is already the policy of the International Energy Agency (IEA) and the European Union. Demand-side solutions also form a key part of implementing sustainable supply, through using zero carbon fuels and enabling greater use of variable renewables. In UK energy policy, there has been a tendency to focus on energy supply options. We recommend that this is reversed and demand-side solutions are given at least equal weight, and that Government should:

• work swiftly to turn proposals in the Clean Growth Strategy into policies with specific targets, dates and budgets, including setting sectoral targets or envelopes (BEIS)
• reassess the relative priority given to supply and demand policy and adopt the principle that energy efficiency improvement and other measures that reduce demand are considered as ‘the first fuel’ (BEIS)
• develop a long-term framework for incentivising demand-side investment in all sectors that at least matches the priority assigned to supply-side policy. This should cover demand reduction, demand response and fuel decarbonisation (BEIS, DfT)
• review the fundamentals of electricity and gas retail markets, and whether their focus on commodity sales is fit for purpose in the context of the energy transition (BEIS)
• develop a policy for demand-side response to maximise the flexibility potential of electricity demand (BEIS, Ofgem)
• reform settlement in electricity markets to enable consumers to benefit from half- hourly pricing (BEIS, Ofgem)
• increase storage and demand participation in the Capacity Market by extending the duration of contracts (BEIS)
• reform the current system of double charging for electricity storage (BEIS).

2 Consider and promote all the benefits of demand-side solutions

UK policy with respect to energy demand tends to focus on the benefits of lower carbon emissions and lower bills for energy users, often using the latter as an argument for minimal intervention. Reduced demand, improved energy efficiency, greater flexibility and decarbonised fuels have a much wider range of benefits, notably for health and employment. Addressing energy demand is generally more likely to promote sustainable development than increasing energy supply. As importantly, recognising all the benefits is more likely to motivate action. We recommend that all the benefits of demand-side solutions are considered in developing and promoting policy, and that Government should:

• assess the scale of public benefits from potential energy demand change (BEIS)
• improve understanding of how to exploit the value of the multiple benefits of energy efficiency in buildings (BEIS)
• institute a new approach to transport prices and taxes to reflect a fuller range of costs and benefits (DfT, HMT)
• analyse and consider equity and fairness issues in delivering the Clean Growth Strategy (BEIS)
• assess the effectiveness and impacts of policy design and delivery in relation to specific groups, including householders, intermediaries and SMEs (BEIS, DfT, MHCLG, devolved governments)
• reconsider the requirement for short-term win-win outcomes from energy saving options (BEIS, HMT).

3 Scale up policies that work

UK energy demand policy has featured numerous policy changes in last decade. In some cases, such as Carbon Emissions Reduction Target, the Carbon Reduction Commitment and the proposed Zero Carbon Homes standard, policy instruments that were well-designed and effective have been modified, or much reduced in scale. This has significantly reduced the effectiveness of UK energy policy. We recommend greater consistency in demand-side policymaking and, in particular, scaling up policies that have been shown to work, and that Government should:

• use a mix of policies, regulatory and market-based, in developing its more detailed plans (BEIS, DfT, Defra, MHCLG, HMT)
• develop plans to ensure low-cost capital is available for infrastructure investments in energy demand reduction (BEIS, National Infrastructure Commission).
• focus policy on the ‘as built’ energy performance of buildings (BEIS, MHCLG, devolved governments)
• for household heating, focus on actual rather than modelled heat loss from the buildings (BEIS, MHCLG, devolved governments)
• for non-domestic buildings, introduce a performance-based policy framework based on successful overseas experience (BEIS, MHCLG, devolved governments).
• introduce measures to deliver rapid, low-cost emission reductions from existing technologies and systems, for example using product labels to reflect operational boiler efficiency (BEIS)
• continue financial support for heat pump heating systems, giving greater attention to the building heating supply chain (BEIS)
• increase the ambition of energy demand and emission reductions goals in industry (BEIS)
• commit to ensuring a continued framework of increasingly ambitious product standards, as part of a portfolio of policy instruments (BEIS, DfT)
• adopt policies to lock-in recent changes in reduced travel demand (DfT, devolved governments)
• develop a cascading framework of national and local support for car clubs (DfT, devolved governments)
• provide systematic support for the very lowest energy modes of transport (DfT, devolved governments)
• improve the efficiency of vehicles in use, particularly through increased occupancy (DfT)
• regulate to reduce the availability and sales of large cars (DfT).

4 Develop long-term plans for demand-side innovation

There has been a tendency in policymaking to see the demand side as having the potential to provide quick wins, but not to have a major role in the transition. Our analysis indicates that this is unhelpful. Energy demand reduction, flexibility and decarbonisation will need to play a critical role and this should be recognised in energy innovation policy. We recommend that Government should develop long-term plans for demand-side innovation, including:

• energy innovation support that gives equal priority to energy supply and energy demand (BEIS, UKRI)
• stronger policies on switching away from carbon-intensive fuels (BEIS)
• a comprehensive programme of innovation support for decarbonisation of difficult sectors (BEIS)
• restructuring of ultra-low emission vehicle (ULEV) targets to include phasing out hybrid cars (DFT)
• regulatory frameworks to steer emergent travel innovations to deliver societal benefit and avoid high travel lock-in in the future (DfT)
• industrial energy-use goals that include energy efficiency, fuel switching, process decarbonisation, carbon capture use and storage, and reducing the demand for materials and products (BEIS, Defra, devolved Governments)
• a comprehensive industrial energy demand policy, providing support and incentives for innovation and deployment of new technology and business models, including for energy efficiency and material efficiency by final consumers (HMT, BEIS, Defra, devolved Governments)
• extending the analyses underpinning the UK industrial roadmaps to include material efficiency options (BEIS, Defra)
• a long-term policy framework to decarbonise buildings based on successful experience overseas and the latest research (BEIS)
• an overall policy framework for the building sector that provides a clear signal of Government ambition and intent in the medium and long-term that will deliver the buildings element of future carbon budgets (BEIS)
• credible roadmaps for the deployment of emerging technologies such as heat pumps, district heating and solid wall insulation in new and existing buildings (BEIS).
• a comprehensive strategy for heat, including heat networks and other options (BEIS)
• greater attention to energy conversion devices and energy storage in the analysis of heat decarbonisation (BEIS)
• analysis of hydrogen as a heating fuel that covers questions of end use and storage, as well as production and networks (BEIS, CCC)
• assessment of the potential for alternative approaches to providing energy services in overall decarbonisation (BEIS).

5 Build effective institutions for delivery of demand-side solutions

Energy-using activities are diverse, and therefore the policy agenda set out above involves influencing a wide range of stakeholders, including both specialists and the general public. Doing this effectively will require a major increase in activity in demand-side policy delivery in Government at a range of levels. This will require better coordination across departments, more capacity and clearer responsibilities for specialist agencies, devolved Governments and local government departments.
We recommend that Government should reform the existing delivery structures and develop an institutional framework designed for delivering the energy transition. This should include:

• the development of policies for demand reduction, flexibility and decarbonisation in an Energy White Paper (BEIS)
• evaluation of the case for energy efficiency programmes to be delivered by a new Energy Agency
• joined-up policy on all aspects of decarbonisation of heating, prioritising policies to ensure high standards of efficiency of the new and existing building stock (BEIS, MHCLG, devolved Governments)
• development of a national, long-term energy performance dataset for buildings (BEIS, UKRI)
• more effective collaboration to maximise the value of research and demonstration investments (HMT, BEIS, MHCLG and devolved countries)
• a cross-Government approach to energy, climate, waste and industrial strategy (Defra, BEIS, Devolved Governments, HMT)
• commitment to a leadership position internationally on energy-intensive material supply chains (BEIS, Defra, DIT, FCO, DfID)
• development and sharing of better industrial energy and materials data, working with industry and the research community (BEIS, Defra)
• clearer frameworks, mandates and metrics to support further, faster local authority action to reduce energy demand through local and regional energy planning (BEIS, MHCLG, devolved Governments)
• incentivisation of coordinated transport and planning objectives to reduce the need to travel (DfT, devolved Governments)
• a zero-growth objective for traffic or transport energy growth and incentives for local authorities to achieve it (DfT, devolved Governments).

6 Involve wider stakeholders to build capacity across society

A transformation in the way that energy is used needs to be led by Government, but cannot be delivered by Government alone. There is some good practice on which to build, but there needs to be a concerted effort to engage, enthuse and empower stakeholders across business and civil society. We recommend that Government should develop a strategy for Involving wider stakeholders to build capacity across society. This should include:

• a systematic approach to engagement on energy demand across all sectors of the economy as part of the next Energy White Paper (BEIS)
• a long-term national conversation of citizen engagement, addressing both the personal impact of policy measures and wider issues (BEIS, devolved Governments)
• ensuring that the implementation of the Hackitt Review addresses the energy efficiency performance gap on the evolution of and compliance with buildings standards and in the development of skills, standards, procedures and capacity within the building sector (BEIS and MHCLG)
• accepting the need to address questions of lifestyle and behaviour change to deliver energy and material efficiency (HMT, BEIS, Defra, devolved Governments)
• making practices among end users and throughout supply chains more central to the decarbonisation innovation agenda (BEIS).

References

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