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Department for Environment, Food & Rural Affairs

Consultation on Energy Efficiency measures
under the Climate Change Levy Package:
Response

Forward

The Department would like to extend thanks to everyone who responded to this consultation. The following report summaries the main messages from these responses.

In light of representations received to the consultation paper, the Budget of March 2000 announced some changes to the above package:

Government plans to expand the Energy Technology List to include refrigeration equipment, pipe insulation materials and thermal screens in addition to the five technologies (CHP, boilers, motors, variable speed drives and lighting systems) proposed in the consultation document.

In order to avoid distorting the timing of investment decisions, the Government intends to allow investments in approved products and systems made after the publication of the list to qualify for the enhanced allowances, rather than only those made after the start of the next financial year (April 2001) as originally proposed.

The Government proposes to update the list of qualifying technologies regularly to take account of and act as stimulant for new and developing energy saving technologies, subject to cost constraints. In particular, the list could be expanded over time to include investment in developing renewable technologies such as solar and wind power.

The exact cost to the Exchequer of the enhanced capital allowances (ECAs) scheme is estimated to be around £100 million in 2001-02, rising an estimated £140 million in 2002-03.

Views were also sought in the consultation paper on the Government's detailed proposal for using the £50 million fund. The final decisions on the use of the fund will be made in the 2000 Spending Review.

Analysis of responses to consultation document

The Government issued this consultation document on 9 December 1999, asking for responses by 4 February 2000. 183 different organisations or individuals responded. A list of the respondents is attached in Annex A.

The document gives a summary of the responses, based on the questions posed in the consultation document. Responses have been categorised according to the sector they come from or represent.

This list does not include the respondents who asked for their responses to be kept confidential. These responses have been included, however, in the statistical summaries that follow.

Main points

The main messages of the consultation process were as follows:

Details of responses

Responses were received from:

The table (below) presents the responses by these broad sectors. Copies of individual, non-confidential, responses can be obtained by writing to the DETR Library, G/H 24, Second Floor, Ashdown House, 123 Victoria Street, London SW1E 6DE.

Sector Number of respondents As percentage
Energy supply industry 26 14%
Energy intensive users 18 10%
Industrial or commercial energy users 17 9%
Energy saving industry 36 20%
Alternative and renewable energy suppliers 17 9%
Environmental groups and NGOs 25 14%
Academics and consultants 19 10%
Local Authorities 20 11%
Financial service companies 3 2%
Individuals 2 1%
Total 183 100%

Summary of questions in consultation document

The consultation document contained the following questions and proposals.


1.  The £50m fund and the initial £100m set aside for Enhanced Capital Allowances (ECAs) are separate; the latter is tax relief, and the former is public spending. To operate effectively, a fiscal incentive under the ECA scheme need to be fully integrated into a wider package of energy efficiency polices and measures. Synergy between the proposed polices and measures adopted by the £50m fund has been commented on by the various respondents.

2.  In order to implement the objectives of the £50m fund, a new integrated, low carbon programme is proposed to run the ECA scheme and expand current levels of effort in RD&D, on training and education, and on energy audits and advice etc. 

3.  Views are also sought on the merits of the intention to allow some of the £50m fund to be used to promote the development of “new” sources of renewable energy. Particular emphasis is placed on those technologies whose contributions towards a low carbon economy are likely to be significant in the longer-term.

4.  Smaller businesses face special barriers in implementing energy efficiency measures. However experience suggests that some smaller business can be reluctant to pick up energy efficiency opportunities, even when accompanied by advice, guidance and financial support. Consequently, the Government proposes to ensure that a basic level of support is available to all SMEs. However eligibility for more comprehensive follow-up support, such as site energy audits and consultancy advice, will be targeted towards businesses where their energy bills are a significant proportion of their costs and where greater savings are possible.

5.  The Government also intends to make elements of the programme available to public organisations on the grounds that public sector managers and staff have very similar needs and barriers to the private sector in implementing energy efficiency measures.

6.  The scheme of Enhanced Capital Allowances (ECAs) has a number of important objectives including defining complete certainty over which expenditure qualified for ECAs, ensuring the scheme encourages innovation and delivers long lasting and measurable environmental benefits. 

7.  The Government proposes to set up an Energy Technology List, starting with five technology categories where the link between the investment and the energy efficiency benefit are thought to be clearest. These are motors, combined heat and power, boiler systems, lighting systems and, possibly, variable speed drives. Views were sought on the technologies chosen and the potential take-up for each of these sectors.

8.  Certification of eligibility of investment for ECAs should be identifiable and measurable. Views were sought on what approach will place least burden on business while providing clear-cut proof of the energy saving achieved and certification of the qualifying expenditure.

9.  In order to meet the above objectives of the ECA scheme it is important to set clear consistent qualification criteria. The Government requested views on the appropriate criteria to be applied. If satisfactory methods of certification can be developed, additional technologies could be added to the List in later years. 

10.  The Government welcomed views on the strength of the business case for extending ECAs to landlords and energy service companies (ESCOs).

Summary of responses to the questions

1.     The £50m fund and synergy

1.1   Proposals for a balanced, integrated programme of support, and particularly close integration between all elements of the £50m fund and the ECA scheme, was supported by a large majority of respondents as very important if the package was to accelerate the take-up of low carbon technologies and other measures effectively.

1.2   A number of respondents, particularly from the energy supply and energy intensive industries recommend that the priority should be for energy efficiency measures, as they believe that this was the most cost effective way of reducing carbon emissions in the shorter term. However there was a general view that renewables should be included for the programme to cover the longer term development of a low carbon economy.

1.3   Intensive energy users thought that the programme should be directed to where they will make the biggest savings and that all companies should be eligible. However a significant number of respondents from a number of key sectors argued strongly that the package of measures, and particularly the £50m fund, should be targeted towards organisations outside the Climate Change Levy agreements.

1.4   Some respondents would prefer even more than £50m to be made available, particularly representatives from the energy saving and alternative energy sources sectors. Take-up of "new" sources of renewables such as off-shore wind was believed to need significant capital grant support.

1.5   Several respondents from the industrial and business energy user sector requested that the timing of support for energy efficiency savings be brought forward so as to avoid potential delay to investment in energy efficiency measures. They also argued for a greater level of certainty over the long-term plans for energy efficiency, rather than just for the first year.

2.     Elements of the Programme

2.1   There was broad support for the mix of programme elements and especially for the need to ensure synergy between them so that the programme was more than a sum of its parts.

2.2   The majority of respondents noted energy efficiency education and training of the senior management both and the finance professionals of organisations as important. However a small number of respondents argued that direct support for business should take precedent over longer-term measures such as training and R&D.

2.3   The energy supply industry stated that the £50m fund should support the SME sector and non-profit making organisations, as they seem the least likely to undertake energy efficiency measures without direct assistance.

2.4   Strong support was received for the focus on on-site advice in a form appropriate to the end-user. However several respondents stressed that the programme should encourage action and not simply provide information (see paragraph 6.4 below). They argued that similar schemes in the 1980s had not addressed this issue properly.

2.5   The expansion of IT support for the implementation of all the elements of the programmes was greatly supported. Application suggestions included using computer-based audits and energy savings assessments.

3.     Renewables

3.1   Many respondents said that the Government targets for renewables imply action on a scale well in excess of the £50m fund.

3.2   A large number of respondents, primarily from energy intensive users, equipment manufacturers and energy supply sectors, favoured supporting energy efficiency measures rather than renewables. The renewable energy industry also recognised the limits to the fund and in some cases recommend that investment in renewables comes from another source.

3.3   However a smaller, but still significant number, from a variety of sectors - not just the renewable energy industry - proposed that renewable technologies be included in the context of an integrated programme aimed at promoting low carbon technology in the longer term. Elements that could be addressed are:

3.4   Other comments and suggestions included a number from wind energy associations, which considered this fund suitable for the promotion of wind energy and information dissemination activities. A proportion of respondents would also welcome marketing, training schemes and R&D in the renewable energy sector.

3.5   Various renewable energy sources were recommended to be eligible for both the £50m fund and the ECAs. These suggestions came mainly from the energy saving/alternative energy industry in support of a particular technology or product and are as follows:

4.     SMEs

4.1   There was broad agreement that all business (large and small) should benefit from the £50m fund and the ECA scheme. There was particular support for the proposal of an integrated programme of fiscal incentives and a wider package of energy efficiency polices and measures.

4.2   Some respondents commented that because SMEs benefit from lower corporation tax rates, they might be less encouraged to take advantage of the ECAs. Grants were proposed to offset this problem.

4.3   The majority of respondents backed proposals for a basic service and follow-up support for SMEs. However there was strong concern that "targeting businesses where energy bills are a significant proportion of their costs" for follow-up support could overlook SMEs with modest energy bills who were still willing to make savings.

4.4   There was support for the regional element of the proposed programme. Many respondents directly involved with SMEs felt that this element should be used to help local business networks and local/regional government target SMEs with advice and support.

4.5   Options varied on the requirements of SMEs. Some respondents believed that SMEs have a wealth of information already available and would benefit more from direct financial support. Some respondents said that SMEs can be suspicious of consultants, as they believe they do not understand their needs.

4.6   However a large proportion of the respondents stressed the fundamental importance that SMEs should have access to audits and on-site advice, as it is believed that the majority of SMEs do not have the resources - particularly people - to start energy management. Training and education are also considered important.

5.     The Public Sector

5.1   A large number of respondents felt strongly that the public sector should benefit from the incentives available, as they are also subject to the Climate Change Levy. These comments came from the wider sector and not only the public sector itself. It was also noted that the public sector should be seen to set an example.

5.2   However some respondents also noted that supporting the public sector should not be at the expense of business. Respondents from the financial service sector suggested that elements of the programme should be available to public sector, but with stringent financial controls.

6.     Enhanced Capital Allowances - General

6.1   A number of respondents mentioned that they though that the first year allowances should be greater than 100% in order to provide a larger stimulant for investment, especially amongst SMEs.

6.2   Although there was widespread support for ECAs many respondents wanted reassurance that they would be available for a considerable period of time to stimulate a shift in investment practice. Some - especially from the energy supply industry - felt that the tax was going to be difficult to administer.

6.3   A small number of respondents argued that ECAs should be targeted on organisations not subject to Climate Change Levy agreements. A number of respondents wanted alternatives - grants, interest free loans or VAT exemption - in place of ECAs.

6.4   A number of respondents offered suggestions on the design of the ECA scheme and proposed that before qualifying for an ECA, organisations must give a commitment to incorporate the advice obtained from audits funded by the £50m fund.

6.5   There were suggestions from industry on awarding ECAs on outcomes e.g. reduction in energy use rather than a specified list of equipment. This would require independent assessment pre and post the investment such as scrutinising utility consumption records. They suggested that ECAs should be awarded in proportion to the energy savings made.

6.6   Respondents from the financial sector were concerned about the length of time a particular technology should stay on the list. Some respondents proposed that if any company should carry out energy efficiency measures for legislative reasons these measures should not qualify for ECAs.

7.     ECAs - Technology Categories

7.1   The five categories to be included on the Energy Technology List received widespread support. Certain respondents were concerned that the list should act as a stimulant and should not limit flexibility. Respondents also emphasised the need to encourage innovation.

7.2   Industry strongly supported the promotion of CHP technology including small-scale CHP applications. There was also support for the focus on "Good Quality" CHP schemes provided the classification of CHP systems was not over complicated. This approach was set out in the proposed CHP Quality Assurance programme (CHPQA), which was part of a separate consultation exercise. The responses to the CHPQA consultation are currently being considered and a Government response is due to be issued in May 2000. One respondent from the energy supply sector commented on the promotion of advanced boiler technology in the context of competing with CHP systems.

7.3   The inclusion of lighting on the technology list was also strongly endorsed. Respondents from the lighting industry proposed the inclusion of integrated lighting systems, bulbs and wiring and installation costs.

7.4   Variable speed drive (VSD) suppliers strongly supported their inclusion on the grounds that the average savings might be as high as 25%. A few respondents made proposals on how certification problems could be solved.

7.5   A large proportion of respondents recommended additions to the list of technologies. There were several proposals from the building insulation industry including injected cavity wall insulation, loft insulation, pipe insulation, draught proofing, lagging equipment and insulated render and cladding. Of these, only the pipe insulation industry suggested ways of overcoming certification problems.

7.6   Some respondents argued that air conditioning units could be included. The refrigeration industry supported the inclusion of refrigeration, claiming that 50% of retailers' energy usage is due to refrigeration. Other proposals include:

One respondent recommended allowing the cost of equipment and upgrades essential for individual repair to be eligible for ECAs.

8.     ECAs - Certification

8.1   The majority of respondents supported certification and agreed that it should be the responsibility of the manufacturer to demonstrate that products meet the criteria. The "kite-mark" was supported by the energy using industry to be the simplest approach.

8.2   There was also broad support for the proposals on process certification. However respondents mainly from the energy saving sector, the commercial energy users and the financial service sector were concerned about placing unduly onerous burdens on manufacturer or supplier.

9.     ECAs - Criteria for Inclusion and Development of the List

9.1   There was broad agreement for the proposals on qualification criteria for products and processes, comments included:

9.2   Upper and lower thresholds for investment were criticised by the majority of respondents as they could exempt large installations and SMEs respectively when there was no need to do so. Some respondents felt that market penetration criteria could be difficult to administer and that energy efficiency criteria served the same purpose.

9.3   There was widespread support for the proposals on development of the list, particularly so that new technology groups could be added if they could meet the requirements. Several respondents suggested that the list should be updated more frequently than annually to remove established technologies and bring on new ones.

10.     Landlords and ESCOs

10.1  A number of respondents from a variety of sectors commented on these issues. The complication of the landlord-tenant issue was recognised. Respondents generally felt that ECAs and energy efficiency advice should be available to landlords. Sub-meters in multi-tenanted offices was a suggested solution which would help increase incentive for energy efficiency.

10.2  There was also a strong view that ESCOs should benefit from ECAs and the £50m fund. Respondents claimed that ESCOs serve to open markets and increase uptake of qualifying technology by providing a comprehensive package of energy services. There was a general feeling that many of the problems identified in the consultation document could be overcome.

Annex A: List of respondants (in Alphabetical order) - (.rtf 9kb) rich text file format.

Published 12 April 2000
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