Comment: Cutting demand is the blind spot in Britain’s great energy debate

By Jan Rosenow

There is a lively debate about Britain's energy future. In the last months we've seen controversial discussions about fracking, the potential support for nuclear power and the impact which environmental policies have on energy bills. It is striking that the energy debate is dominated by supply-side issues. Do we build more offshore windfarms or do we invest in shale gas? Should we provide support for a new nuclear power plant at Hinkley Point? What is the cost of hitting the EU targets for renewables? Do energy companies make too much profit?

All of these are important debates, but it seems that one key area is missing: The potential for energy demand reduction is barely mentioned. Energy efficiency improvements can potentially provide energy services at a lower cost than new energy supply: the cheapest energy is the energy we don't use. Amory Lovins, chairman and chief scientist of the Rocky Mountain Institute, famously coined the term ‘negawatt' to capture the concept and value of energy not used. Leading commentators agree that energy efficiency improvements are the first and most important step in the pathway to a low carbon economy. The International Energy Agency (IEA), the McKinsey Global Institute and Professor Nick Stern all point out that energy demand reduction is the most effective and cheapest option to reach our carbon targets. Analysis for the UK Committee on Climate Change by Ricardo-AEA provides a similar assessment of the situation in Britain.

One area with a large potential for energy demand reduction is our housing stock. Greenhouse gas emissions from domestic buildings amount to a quarter of all UK emissions, providing a strong environmental rationale for action. Furthermore, poorer and more vulnerable members of society with poor quality housing are penalised with higher bills and less healthy living environments. International fluctuations in energy prices – which in turn affect everyone's ability to pay for energy – provide an added incentive to explore ways of reducing our energy use.

There has been impressive progress in the energy efficiency of UK housing. Energy efficiency has worked: In 2011, households consumed 17% less energy compared to 2000 with gas consumption dropping by 20%. Independent analysis by the Centre for Economics and Business Research showed that the observed reduction of energy demand for household heating is clearly the result of energy efficiency policies such as the Carbon Emissions Reduction Target (CERT). Similar trends can be found in industry where energy demand has fallen by almost a quarter from 2000 to 2011.

The new EU energy efficiency directive will hopefully provide a stimulus for increased activity on energy efficiency reduction and the government has made a commitment in the recent energy efficiency strategy to do more. Earlier this year David Cameron announced that he would make Britain "a world-leader in energy efficiency". All of this is encouraging and hopefully we will see energy efficiency to gain much more momentum in the great British energy debate. So far this message is underplayed in the public debate. What is needed is the next leap forward on energy efficiency. It would enable us to meet our EU renewables targets at a lower cost, reduce the investment needed for new energy supply and deliver jobs.

Jan Rosenow is senior consultant on energy and climate policy at Ricardo-AEA.

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