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Energy Institute's 'Reducing Demand, Increasing Efficiency'

Malcolm Wicks MP,  Minister of State for Energy
Institute of Directors, 116 Pall Mall, London,  08 July 2008

It’s a pleasure for me to kick off this inaugural forum ‘Energy in Transition – Towards a Low Carbon Future’ and may I start by wishing the Energy Institute a very happy fifth birthday.

A professional and informed debating and discussion forum such as the Energy Institute provides here and elsewhere is essential and valued in guiding me and my colleagues as policy makers. I hope this forum and its five events over the next 3 days will quickly establish itself as a regular opportunity for us to evaluate and determine progress towards a sustainable energy future in the coming years, for time is not on our side and we can usefully reflect, review and redirect efforts on a regular basis to achieve our objectives.

I understand my colleague, Phil Woolas will close the event on Thursday by giving the final presentation after the Summer Lunch.

So let me turn to the topic of today. . .

Reducing demand and increasing efficiency are a central part of the solution. We know that global demand for energy is rising fast, largely as a result of the speed and the scale of growth of economies such as China and India. The International Energy Agency has predicted that, under current policies, by 2020 the world’s energy needs will have grown by 50%, with 80% of this from fossil fuels.

The cost of tackling climate change and the effect of global demand for energy is inevitably reflected in the energy bills that consumers pay, whether they’re domestic or business users. The UK is of course not alone in having to pay more for its energy. The effects of the rise in global demand for energy are being felt in all major economies. So every country now needs to find ways to be more energy efficient – and many, like the UK, are looking to diversify their energy supply.

We are working hard in the UK to move to decarbonise our energy supply – in January we announced our decision in favour of new nuclear power stations; last month we launched our proposals for a massive further increase in renewables, and we are leading the way on carbon capture and storage for fossil-fuel plants.

But reducing demand and increasing energy efficiency are just as important as those supply-side changes, and indeed they are more cost-effective. By improving the energy efficiency of our homes, businesses and public sector organisations as well as our transport, we can reduce our energy bills, cut carbon emissions, address fuel poverty and help ensure the vulnerable can afford to heat their homes.

So it is right that the European Commission’s target for a 20% reduction in EU energy consumption by 2020 is just as ambitious as the parallel target to source 20% of the EU’s energy from renewable sources by the same date.

Under current policies we expect to reduce energy demand by 152 TWh per year by 2020, and estimate that energy efficiency measures already in place will reduce the level of renewables we need to deploy by 2020 by 8.4%. In turn this will help reduce costs for consumers – as in many cases saving energy is more cost effective than investing in new renewables generation.

Household energy demand has fallen for the last three years running – a good sign our policies are starting to have an impact. But we know that there is still more we can do and significant savings we can make across all sectors of the economy. So later this year, the Office of Climate Change will launch a consultation on the potential for further energy efficiency measures with particular focus on low carbon homes.

While saving energy through improvements in efficiency can often be cost-effective, there are very often barriers to implementing them. Examples include access to capital; the fact that cost savings can occur over a significant period of time compared with the up-front investment; a lack of appreciation of, and information about, the true costs and benefits of efficiency measures; and sometimes a lack of motivation, awareness or even interest among consumers. These factors apply both to business and to home owners.

So what are we doing to address these barriers?

Firstly, we are providing strong financial incentives for industry to operate in a much more efficient way and reduce their demand through measures such as the Carbon Reduction Commitment. This ground-breaking scheme will bring emissions trading to large commercial and public-sector organisations, making it financially worth their while to cut emissions. The organisations that will be covered by the scheme are responsible for about 10% of the UK’s total emissions.

We are also proceeding with mandating a roll out of smart meters to medium to large businesses, helping them to reduce their energy consumption and cut their energy costs. Trials conducted by the Carbon Trust with a range of businesses have found that advanced metering, coupled with consumption data and advice, reduced a business’s consumption by an average of 5%. We expect this policy to be saving around 0.14 MtC per year by 2020.

We are also undertaking further quantitative and qualitative analysis of the costs and benefits to roll out smart metering to smaller business and domestic consumers.

Secondly, with household bills rising and purse strings tightening, home energy efficiency is crucial in helping reduce demand in the household sector. So we have placed obligations on the energy suppliers to help householders reduce the amount of energy they use at home and reduce their carbon footprint.

The Carbon Emissions Reduction Target will lead to some £2.8 billion investment by energy suppliers in reducing carbon emissions in the household sector, and will help over 5 million householders reduce their energy bills, for example through cavity wall and loft insulation. This is calculated to benefit consumers by £11.4bn over their lifetime, and to deliver net savings of 4.2m tones of CO2 by 2010 – equivalent to removing nearly 1.5 million cars from the road.

And in May we announced a package of measures to help consumers reduce their fuel bills further through schemes designed to improve home energy efficiency in the long term such as the Low Carbon Buildings Programme, ensuring the fuel poor benefit from the lower bills that modern technology can bring.

We are also continuing to raise energy performance standards for new homes, with the aim that all new homes will be zero carbon by 2016 and all new non-domestic buildings to be zero carbon from 2019.

Finally, in the transport sector, we are proposing that the EU adopt an ambitious target of reducing, by 2020, average CO2 emissions of new cars to 100 grammes per km, providing real incentives for the development of new low-carbon engine technologies. And in aviation, we are making progress in our efforts for emissions from flights to be fully included within the EU emissions trading scheme.

As I mentioned earlier, a key barrier to implementing energy efficiency measures is a lack of awareness of the true costs and benefits. So, over the next three years we will provide over £100 million to the Energy Saving Trust to develop an ‘Act on CO2 advice line’, which will provide advice on energy efficiency, recycling, greener travel and the full range of discounted and free offers available from energy suppliers and others.

For business and the public sector, similarly, the government-funded Carbon Trust helps businesses and the public sector cut carbon emissions and to exploit the potential of energy efficiency.

Through these and other mechanisms, we are ensuring that demand reduction and energy efficiency make a significant contribution to our energy and climate change goals.

Just as we are bringing about a revolution in energy generation, away from the coal and gas-fired past to a low-carbon future, so we need a revolution in energy efficiency – a revolution in which we can all participate. You don’t all look like revolutionaries from here, but I hope that in that sense you are, and I wish you a productive week.