Where next for energy efficiency, after the Scottish referendum?

Asks ECCI Executive Director Andy Kerr.

Advocacy groups, such as WWF Scotland, argue that the current Scottish Government plans to spend £79 million in the next financial year (2015-16) on energy efficiency funding is “inadequate”[1]. Scotland has missed its first three annual greenhouse gas emissions targets and is likely to miss its fuel poverty targets without “substantial additional policy effort”, according to the statutory advisory body, the UK Committee on Climate Change[2]. This plea for additional public support for energy efficiency follows a well-worn course. Indeed, a stuck record might be a better description. But if the advantages are so obvious, and if a little additional money (in the context of a Government budget) would create such a step change in energy efficiency, why have so many countries found energy efficiency so hard to deliver?

Another Approach?

Perhaps we should think of another approach. Recently I asked a group of people attending a cross-party energy group meeting in the Scottish Parliament to think of a couple of adjectives (descriptors) to describe themselves to others. Then I asked if anyone had used the word “efficient” to describe him or herself. Not a single person admitted to using that term. If it is used about people at all, it is used pejoratively. So we exhort people to be efficient, with energy or with resources, despite the term having no resonance with us or with the way in which we live our lives. And then we’re surprised when we don’t see the results we expect. In other words, we need to rethink how we frame the notion of energy efficiency so that it matters to people. Similarly, if we were to describe the economic opportunity for energy efficiency in our economy, we would usually end up with something akin to a marginal abatement cost curve (MACC)[3]. This economic tool seeks to describe the relative cost of delivering different options to meet some target, such as a proscribed reduction in greenhouse gases. Invariably, at the left hand end of the curve lies a series of “negative cost” options – meaning that there is a net economic benefit – associated with energy efficiency measures. Yet despite the apparent economic benefit, we find that investment in energy efficiency is far lower than investment in apparently more costly activities such as energy generation. For example, in 2011, energy efficiency constituted less than 10% of clean technology investments. As various experts have noted, energy efficiency is “cheap but hard”. Slide2

So what is missing from these economic toolkits? The short answer is people. We apply tools that start with the assumption that all people are, in the jargon, utility maximising and rational. Tools that assume that time does not exist, where activities are carried out instantaneously and without hassle. Where we have perfect foresight to choose the right option that will deliver the least cost outcome. Yet we also know, from sociology and other behavioural economic studies, that we don’t always “maximise utility”; we are creatures of habit. We are inherently biased. We have short memories. We can be influenced by how problems are framed. And we are terrible at complex calculations – such as the net present value calculations at the heart of any energy efficiency offering: we pay upfront but save money over the next few years to our overall benefit. In other words, we value and measure energy efficiency in our society in ways that bear no relationship to how we actually behave.

Why does this matter?

In Scotland, we are proud of our world leading efforts at developing a low carbon economy. If we examine what is intended to deliver our emissions reductions over the next 5-10 years, from homes and communities or from business and the public sector, we find that enhancing energy efficiency is at the heart of Government intentions. Examples such as building standards, the Energy Company Obligation (ECO) and the roll out of smart meters are all designed to deliver a more efficient energy system. Slide3

And how are we doing?

We have made good progress in some areas over recent years. Between 2005 and 2013, domestic consumption of electricity per household fell by over 15%. Commercial use of electricity fell even further, by 25%, while overall consumption of heat energy fell by around 10% over the same time period. Indeed, the Government’s ambition to deliver 12% reduction in overall energy use by 2020 is already partially met, with over 9% reduction to date. But while progress has been encouraging, many of the easier measures have been completed. We need a further step change to deliver the major economic, social and environmental benefits of an efficient energy system. Slide4

Where next for Scotland?

At present, Scotland has been wildly successful at delivering renewable electricity – now rising towards 50% of total Scottish consumption with a 100% consumption target by 2020 – but much weaker at delivering sustainable heat and transport energy. Too often, we have been working in energy silos, despite acknowledged inefficiencies across the whole energy system: heat wasted from power stations; excess renewable generation being dumped because of grid constraints whilst costly transport fuels are still being imported; not effectively linking local energy supply and demand. Slide5 Steps are being made – through for example the Local Energy Challenge Fund – to pilot projects with smart grids to manage demand; use of thermal stores to avoid wasting energy. Evidence suggests that creating local energy systems – at human scales – leads to much better engagement by people around issues such as efficient energy systems.

In summary:

  • Stop focusing on “energy efficiency”: instead make it aspirational.
  • Value it properly: include non-energy benefits like time saved or hassle reduced
  • Measure it properly: include other productivity gains. For example the time saved by a smart phone app (e.g. for enabling better mobility within a city) is the benefit to people, not just saved energy costs.
  • Build local energy systems that resonate at the scale of communities or cities.

Of these actions, the existing powers devolved to Scotland can be used for the first three. For the latter – tackling whole energy system inefficiencies – powers over some of the key energy demand measures, such as the Energy Company Obligation, would enable a nuanced response to specific challenges facing Scotland’s communities.

This blog is drawn from a talk Andy Kerr gave at the cross-party Scottish Parliamentary Group on Renewable Energy and Energy Efficiency (SPREEE) AGM in October 2014.

Download Andy’s presentation slides: SPREEE AGM presentation – Energy Efficiency – Oct2014

[1]http://www.scottish.parliament.uk/S4_EconomyEnergyandTourismCommittee/Inquiries/WWF_Scotland(1).pdf

[2]http://www.theccc.org.uk/wp-content/uploads/2014/03/1871_CCC_Scots_Report_bookmarked.pdf

[3] See for example http://www.homepages.ucl.ac.uk/~ucft347/Kesicki_MACC.pdf

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