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Energy efficiency investment is one of best ways to boost the economy – new research reveals

Published: 9 November 2012

A new report from Consumer Focus shows that investing money raised through carbon taxes in a major energy efficiency programme is one of the best ways to create jobs and boost the economy, while also tackling fuel poverty.1 The report2‘Jobs, growth and warmer homes’ – is published today (Friday 9 Nov). 

The research shows that significant Government energy efficiency infrastructure investment could:

  • Generate up to 71,000 jobs and boost GDP by 0.2 per cent3 by 2015 and create up to 130,000 jobs by 2027.
     
  • Lift up to nine out of ten households out of fuel poverty, reducing energy bills in all treated homes by at least £200 per year
     
  • Cut household energy consumption by 5.4 per cent by 2027 and quadruple the impact of the government’s energy savings schemes – Green Deal and Energy Company Obligation
     
  • Cut overall carbon emissions by 1.1 per cent, including household emissions reduced by around 5.6% by 2027

Today’s report shows that more jobs and greater economic growth could be generated through energy efficiency programmes than by an equivalent investment in other Government spending programmes, or by cuts in VAT or fuel duty. 

Investing in energy efficiency has other advantages over alternative options. It is fast to mobilise, and would stimulate economic activity and jobs in all regions of the UK. It employs workers in construction and related sectors, which have been hit hard by the recession. Consequently this sort of investment is less likely than other forms of investment  to ‘crowd out’ alternate economic activity. It would also reduce NHS expenditure on treating cold-related illnesses such as respiratory and coronary diseases and reduce dependency on imported gas. 

Fuel poverty currently affects over six million UK households, and levels are set to rise as energy prices go up.  This is predicted to grow to 9.1 million households – more than one in three homes. Increased investment is needed to make our energy supply cleaner and more secure. Energy consumers will pay an additional £4 billion each year in carbon taxes through their energy bills by 2020.4

From next year the main scheme to help fuel poor consumers will be the heating and insulation improvements provided by energy firms through the Energy Company Obligation (ECO).  But Government estimates show this will lift only 250,000 households out of fuel poverty, at most. 

Consumer Focus, and a coalition of organisations (The Energy Bill Revolution), argue that a proportion of funds generated by carbon taxes, should be used for targeted energy efficiency schemes. The new report details a range of funding options from using 35 per cent of carbon tax revenue to 95 per cent and how this could cut fuel poverty by 75 per cent to 87 per cent depending on the level of investment.5

Mike O’Connor, Chief Executive at Consumer Focus, said: 

‘We need to make heating our homes more affordable, cut carbon emissions and achieve economic growth. Using carbon taxes to ensure our homes leak less energy represents a triple-whammy. This would simultaneously improve the quality of life of millions of people, slash carbon emissions and generate greater economic growth than other measures. Consumers will be paying these taxes through their bills. They can and should feel the benefit. 

‘Fuel poverty leaves millions of households having to cut back on essentials like food and heating to make ends meet. The Government’s current energy efficiency and fuel poverty plans will only touch the tip of this iceberg. However, Government has the opportunity to use the large and stable revenues from carbon taxes to deliver the most breathtaking and transformative energy efficiency scheme that we have ever seen.’ 

Ed Matthew, Director of the Energy Bill Revolution campaign, said: 

‘The Energy Bill Revolution is the biggest fuel poverty alliance that has ever been formed in the UK. We are united by our conviction that there is a financial solution which can end the suffering and generate more jobs than any equivalent investment. This is the Marshall Plan the UK needs to slash the energy bills of the most vulnerable and re-build the economy.’

Consumer Focus is urging the Government to carefully review this new research and the existing evidence from the Energy Bill Revolution, and consider this policy approach on energy efficiency. It would both help our economic recovery and give vulnerable households ongoing benefits from warmer homes, lower energy bills and better health. 

ENDS 

Notes to Editors:

 

  1. The study assessed the effect of stimulating the economy through spending on energy efficiency in comparison to four other polices that injected the same amount of the money into the UK economy: 
     
    1) general government investment (or capital) spending programme;
    2) general government current spending programme;
    3) reduction in VAT; and
    4) reduction in fuel duty.
     
  2. Background on the research:
     
    Significant sums are due to be paid to Government through new carbon taxes – the modelling in this study shows £63 billion will be raised from electricity consumers between 2012 and 2027. Prompted by these twin problems of underutilised economic capacity and vulnerable people’s need, Consumer Focus commissioned Cambridge Econometrics and Verco to model the macroeconomic effects of investing revenue from carbon taxes into installing energy efficiency measures into fuel poor households.
     
    Central to the research is Cambridge Econometrics’ model of the UK energy-environment-economy system, MDM-E3. This covers the entire UK economy and uses official UK data for its inputs. It is widely respected and frequently used by Government and other stakeholders for economic and energy forecasts and scenario analysis.
     
  3. Compared to the alternative stimuli policies investigated, the improved performance of the energy efficiency programme is in part due to reduced gas and oil imports. This feeds directly into increased GDP as well as improving the country’s energy security. It also encourages consumer spend on other products and services, which are in part supplied domestically, due to the reduced spend on energy imports.
     
  4. Electricity generators have to pay the Government for any carbon dioxide (CO2) they emit. This is collected through the Carbon Floor Price (to be introduced 2013) and the EU emissions trading scheme (EU ETS). The two work in conjunction but together they will add £16 per tonne of CO2 to the wholesale price of electricity in 2013 and this will rise to £30 per tonne CO2 in 2020. The electricity use by a typical household results in 1.3 tonnes CO2 per year – so the cost to consumers will equate to around £21 per year per household in 2013 rising to £39 by 2020.
      
  5. This is based on predicted fuel poverty levels of 9.1 million affected UK households by 2016. The latest official Government figures from 2010 show 4.75 million UK households in fuel poverty.

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