Warmer, healthier, low-carbon homes

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1 July 2014 Warmer, healthier, low-carbon homes Friends of the Earth s vision for UK energy efficiency policy A large-scale, publicly-funded, energy efficiency programme is a four-way win. It s great for the economy, great for the environment, great for energy security, and great for struggling households. It is the only way to end the scandal of fuel poverty-related excess winter deaths in the long term, and to protect all domestic consumers from the rising cost of gas. It is also the only major infrastructure project which can create jobs in every constituency across the country. It is hard to think of a better candidate for government infrastructure spending in the next parliament. Careful design, and a joined-up package of funding, policy, and regulation will be vital for the success of the programme. None of these elements will, alone, be sufficient to achieve the kind of ambition needed. Our proposals below describe a comprehensive energy efficiency scheme providing grants for lowincome households, and attractive loans for the able-to-pay, backed up by strong subsidies and, ultimately, regulation to drive delivery. We propose that the scheme is rolled out street-by-street in local areas, and delivered by local authorities and other trusted providers. Such a scheme would reduce the average consumer bill by around 300 per year, taking millions out of fuel poverty and making energy more affordable for many more. Friends of the Earth is calling for energy efficiency to become the UK s number one major infrastructure priority. We call for a publicly-funded energy efficiency programme which, by 2018, is insulating one million homes per year to a high Energy Performance Certificate band C, including at least 500,000 low-income homes. By the end of the next parliament four million homes should have been treated, including two million low-income homes, and the UK should be well on track to achieving a target of bringing all lowincome homes to EPC C by 2025, and all UK homes by Our proposals are supported by a wide range of environmental, fuel poverty, and business groups. The economic benefits of our proposed scheme are huge, including the creation of well over 100,000 jobs and considerable tax receipts to the Treasury. The insulation industry is champing at the bit, ready and able to take on the challenge. More information: Sophie.neuburg@foe.co.uk /

2 Key Recommendations - Energy efficiency should become the UK s number one infrastructure priority - All three major political parties should commit to a large-scale, longterm, publicly-funded energy efficiency programme starting in the next parliamentary term - This programme should combine grants for low-income households and attractive loans for the able-to-pay - The programme should be designed to insulate: o At least four million homes to EPC C by 2020 o All low-income homes to EPC C by 2025 o All UK homes to EPC C by Energy efficiency should be rolled out in an integrated, area-based way to maximise area-level savings and increase take-up - Grant and loan offers should be backed up by regulations, namely o Progression of a robust, enforceable minimum standard in the private rented sector to EPC C by 2026 o A minimum standard in the social housing sector of EPC C by 2025 o Regulation of the minimum energy efficiency standard at which a house can be sold, for instance EPC C by Funding for delivery of the programme should be devolved to local authority level, and local authorities should be given ultimate responsibility for ensuring that the energy efficiency of the housing in their borough is increased. 2

3 Why do we need a major, publicly-funded energy efficiency scheme? A large-scale energy efficiency programme is overwhelmingly in the national interest. It would: Increase energy security by significantly reducing our reliance on gas and gas imports Create 130,000 jobs, across the country, by (this compares to only 64,000 potential jobs from shale gas by ) Boost GDP, and increase VAT income to the Treasury. Evaluation of the German KfW energy efficiency loan scheme suggests that for every 1bn of public funds invested, 3-4bn are returned to the German treasury 3. Save the average home 300 per year on their energy bills, bringing households out of fuel poverty Reduce the UK s carbon emissions in a cost-effective manner recommended by the Committee on Climate Change. The CCC s recommendations on energy efficiency include insulating all uninsulated lofts and cavity walls, and 3.5m solid walls, by Create considerable NHS savings the Chief Medical Officer has stated that every 1 spent on energy efficiency could create 42p in NHS savings over the lifetime of the energy efficiency measure; this is thought to be a very conservative estimate. In 2011, up to 7m households were seriously struggling to pay their fuel bills in the UK, spending over 10% of their income on heating 5 ; by 2016, this figure is expected to have risen to over 9m in England alone 6. Despite having some of the lowest energy prices in Europe, the UK has high levels of fuel poverty compared to other comparable EU countries 7. Even those who might be able to afford to stay warm are suffering a family in a typical uninsulated 3-bedroom home wastes around 653 per year on heating 8, money which is almost literally leaking out of our roofs, walls, and windows. The Climate Change Act requires the UK to reduce its greenhouse gas emissions by 80% by Domestic buildings make up around one quarter of the UK s total emissions, so emissions reductions in the domestic sector will have a major role to play in enabling us to hit our carbon targets. 1 Cambridge Economics/Verco (2012) Jobs, Growth and Warmer Homes 2 United Kingdom Onshore Operators Group (2014) Getting Ready for Shale 3 KfW research (2011) Impact on public budgets of KfW programmes in the field of energy-efficient building and rehabilitation 4 Committee on Climate Change (2013), 4 th Carbon Budget Review, part 2 5 Source: Research by CSE for Consumer Focus 6 Hills Fuel Poverty Review (2012): Getting the Measure of Fuel Poverty 7 Association for the Conservation of Energy Factfile: The Cold Man of Europe 8 Association for the Conservation of Energy/Energy Bill Revolution (2014) Burning Cash Day: 14 th February 3

4 However, the government s energy efficiency policy is failing on a grand scale, and rates of insulation are far below those recommended by the Committee on Climate Change 9. The Green Deal loan scheme, with a paltry 1, live deals since its start in January 2013, has by no means lived up to expectations. Insulation levels under the Energy Company Obligation (ECO) are so low that it will take 32 years to ensure every low-income household is warm 11. Since ECO is funded through electricity bills, the financial burden is spread between all households, regardless of their ability to pay. Households with electric heating, who are at considerably greater risk of being in fuel poverty, pay disproportionately more. Despite these considerable drawbacks, the ECO is the only funding currently available to insulate low-income homes, and the government proposals to cut it without any replacement will only exacerbate fuel poverty. This is not a problem that can be solved by taking small steps, or simply by redirecting alreadyexisting funding. Achieving the necessary levels of energy efficiency to end fuel poverty and reach our climate change targets requires a strong, long-term policy framework, and significant government support. What would a major energy efficiency scheme look like? A successful, UK-wide energy efficiency scheme would: - Focus on whole-house retrofits up to Energy Performance Certificate C - Provide fully-funded grants for those on low incomes - Provide attractive loans, and strong incentives, for higher-income households - Be backed up by regulation to ensure take-up - Take a cost-effective area-based approach targeting all tenures and income levels simultaneously - Be delivered by local authorities and electricity distribution network operators Finance: Grants, and attractive, zero-interest loans Householders on low incomes will never be able to afford to meet the upfront cost of insulating their own homes. It is inappropriate to expect these people many of whom may be struggling to stay out of debt to borrow money for this purpose. The only way to end the scandal of cold homes for those on low-incomes, is with fully-funded grants. It is, however, entirely appropriate to offer loans to better-off households. Loan schemes can be highly successful if well-designed. In Germany, the KfW bank gave out almost 250,000 lowinterest energy efficiency loans to households in By contrast, the government s Green Deal pay-as-you-save scheme has had very low take up for a number of reasons, including high 9 Committee on Climate Change (2013), 4 th Carbon Budget Review, part 2 10 DECC (June 2014) Green Deal and Energy Company Obligation Monthly Statistics 11 IPPR (2012) Energy Efficiency: Who pays and who benefits? 12 KfW Presentation, 2013 Promotional programmes for energy efficiency in the housing sector, at 4

5 interest rates, and a complex customer journey. In addition, for many UK households, despite rising energy prices, energy efficiency is simply too much hassle and not attractive enough to be a priority. A better-structured, initially zero-interest loan package should make it considerably more attractive, turning energy efficiency into something of a financial no brainer. To reduce the total cost of the scheme, we would suggest that 0% interest loans are available only until 2020 to stimulate initial uptake, and are then replaced by 2% interest loans thereafter. 2% interest is, under normal inflation, effectively a no-interest loan, and still constitutes an excellent deal, without such a high level of public subsidy. To drive uptake, a loan scheme must be accompanied by strong incentives which really motivate people, including but not restricted to stamp-duty and council tax rebates. In order to make a major home insulation scheme effective and fair, it is vital that struggling, lowermiddle-income households do not fall through the gaps. Therefore, between low-income households receiving a full grant, and truly ableto-pay households being offered attractive loans, there should be a sliding scale of grant and loan funding combinations, dependent on household income and the cost of retrofitting a particular home. The grant and loan schemes must be properly integrated in order to overcome the administrative hassles of dealing with two schemes at once which seem to have caused the very low take-up of Green Deal/ECO blended finance options currently available. Integrated, area-based roll-out for all tenures and incomes Figure 1: A 'sliding scale' between grants and loans for lower-middle-income households A truly effective energy efficiency scheme for all tenures and incomes would be rolled out on a street-by-street basis throughout the whole country, with tailored funding packages offered to households as appropriate. In the first instance, each household in an area would be offered a free home energy efficiency assessment. A comprehensive scheme of energy efficiency measures would then be offered to the household, along with a funding package ranging from 100% grant funded, to 100% low-interest loan-funded, depending on household income and the total cost of retrofit. This would allow low-income homes most in need of help to be easily identified, while driving uptake for loans in the able-to-pay market. Studies have suggested that area-based schemes tend to be most efficient, and most effective, for a number of reasons 13. A programme which insulates a whole area at once can achieve economies of scale and boost the local supply chain, reducing costs and increasing economic 13 As discussed, for instance, in IPPR (2013) Help to Heat 5

6 benefits, in ways that aren t possible with a cherry-picking approach targeting particular homes. Area-based schemes have also been shown to increase uptake as householders are more likely to accept the support offered and embark on an energy efficiency project if they see their neighbours and friends benefiting from one. This, in turn, reduces marketing costs, as well as reducing the risk of negative reactions from local residents enduring disruption from things such as scaffolding in their street, without being offered any of the benefits. An integrated approach which aims at all types of home at the same time eliminates the significant cost of identifying particular types of households. In addition, it reduces the risk that households eligible for full grant funding feel stigmatised, as they might with a more targeted approach. Although the ultimate aim of the programme will be to insulate every home in the UK, it will not be possible to achieve this all at once. Therefore, the area-based programme should begin in areas with higher levels of social deprivation, so that those who are most likely to be struggling to pay their fuel bills have a greater chance of being helped early on in the scheme. Devolved funding, and trusted local delivery agents An effective, ambitious energy efficiency programme needs a delivery mechanism which is utterly different from the current one. Energy suppliers are inappropriate delivery agents for energy efficiency. Reducing the amount of energy their customers need to buy is directly against suppliers business interests. Therefore, it is highly unlikely that they will be able to deliver home insulation in the most effective, or cost-efficient way. By contrast, tackling fuel poverty, increasing the disposable income of residents, and creating new jobs in the local area are directly within local authorities remit and consistent with their interests. Ensuring that cold homes do not make people ill is also consistent with the new duty on councils to improve the health of their local population, conferred on them by the Health and Social Care Act Local authorities are trusted brands within communities, and they have a good knowledge of the particular characteristics of the housing stock, and residents, of their borough. This makes them good choices for key agents in the delivery of area-based energy efficiency programmes. Strong involvement of local authorities in these programmes also gives the best opportunity for them to be co-ordinated with other local schemes, such as those related more directly to health and well-being, and local regeneration. Therefore, our recommendation is that funding for energy efficiency is devolved, in a ring-fenced manner, to local authority level, and that councils are made ultimately responsible for ensuring that the energy efficiency of the housing in their area is increased. Despite their many strengths, not all local authorities currently have the skills, or the human resources, to deliver an energy efficiency programme in the best way possible. It is important, therefore, that sufficient support is provided, perhaps directly by the Department of Energy and Climate Change, or by a specialist agency set up to run the overall energy efficiency scheme. Devolved funding should be accompanied by statutory duties not only to ensure an increase in energy efficiency, but also to use local suppliers, and give local community groups the opportunity to become involved with delivery wherever appropriate. 6

7 Ensuring take-up through long-term regulation in all housing sectors A strong regulatory framework would include: A minimum energy efficiency standard for social housing of EPC C by 2025 Progression in the minimum standard for private rented homes to EPC C by 2026 A minimum energy efficiency standard for a home at point of sale, of EPC C, by 2030 It may be hoped that as energy prices continue to rise, having a more energy efficient property might increase its sale or rental value, which could act as a powerful motivator. However, this is by no means a given, particularly in the context of a housing supply crisis. Therefore, grant funding, an attractive loan option, and strong incentives, need to be backed up by long-dated regulation. In the owner-occupier sector, we are proposing that regulation is brought in to make it illegal to sell a home with an EPC rating below C, by 2030 or shortly after. Bringing in this regulation in the next Parliamentary term gives homeowners plenty of notice to ensure that work is done in time. In the social housing sector, where average energy efficiency is somewhat higher than the private sector, we would suggest that the target to bring all low-income homes up to EPC C by 2025 is supported by a legal requirement on social landlords to take up the grant funding available to bring all social housing up to EPC C by The need for robust energy efficiency regulation is, perhaps, the most urgent in the private rented sector (PRS), which is a rapidly growing part of the housing market. Compared with other sectors, it has the highest proportion of the most energy inefficient homes (those in EPC Bands F and G). This contributes directly to very high levels of fuel poverty in this sector. Traditionally, younger and lower-income people have been more likely to live in private rented accommodation, but as more and more people are priced out of the house-buying market, a greater constituency are forced to live in homes owned by landlords who have little incentive to improve their condition. Therefore, the need for regulation in this sector is, if anything, greater than that in the owner-occupied sector. The Energy Act 2011 placed a duty on the Secretary of State to introduce a minimum standard for private rented housing from 2018, and it is widely understood that this minimum standard will be EPC Band E. However, the regulations are currently in danger of being rendered ineffective by a variety of loopholes proposed in the secondary legislation. In addition, while taking a home out of the realm of dangerously cold homes, EPC Band E by no means constitutes a warm or energy efficient home, and many households will still struggle seriously to afford their fuel bills even if the regulations are effective. 7

8 If the next government is serious about ending fuel poverty, and about significantly improving conditions for home-renters, they must strengthen regulations in the private rented sector and take practical steps to ensure that they are enforced. The minimum standard should progress to EPC Band C by 2026, with sufficient notice given to landlords for them to react effectively. As well as this, it is vital that local authorities are provided with sufficient, ring-fenced funding to fulfil their statutory duties in enforcing the standard. An obligation on electricity distribution network operators (DNOs) We strongly believe that the cost of energy efficiency should be funded through taxation rather than through energy bills, and that energy suppliers are inappropriate delivery agents for insulation schemes. However, a carefully-structured obligation on DNOs to reduce demand in electrically-heated homes in network-constrained areas could reduce the cost to taxpayers of a publicly-funded efficiency programme without increasing costs to consumers. In contrast to electricity suppliers, whose business rests on selling energy, DNOs have a great deal to gain from a reduction in their consumers electricity use. Lowering electricity demand reduces strain on the network, and can delay the need for, and/or significantly reduce the costs of network reinforcement. In some areas the network benefits of electricity efficiency are great enough to make demand-reduction work effectively cost-neutral 14. Therefore, we suggest that an obligation is put on DNOs to install energy efficiency measures in electrically-heated homes where this would create network cost savings equal to or greater than the cost of installing the measures. Integrate with a roll-out of green energy to bring homes up to EPC B In many cases, an older home will require installation of onsite energy generation in order to reach an energy efficiency rating beyond EPC C. While energy efficiency is much more effective if conducted through a whole house retrofit with all measures being installed at the same time, microgeneration such as solar panels can be added afterwards more easily. There is considerable scope to combine, or closely follow, the roll out of energy efficiency with that of microgeneration equipment at the local level. This would increase the carbon savings possible, and would allow homes to be brought up to EPC B, the level at which housing is considered to be fuel poverty proof. 14 This has been recognised by Ofgem, which is now encouraging electricity networks to trial domestic demand reduction technologies in their Low Carbon Network Fund Projects: 8

9 What should a major energy efficiency programme deliver, and what would it cost? To meet the twin challenges of unaffordable bills, and carbon emissions from the UK s housing stock, high ambition is vital, and it must be backed up by significant and long-term investment. An energy efficiency programme on a sufficient scale to help meet our legally-binding climate change targets, and to take millions out of fuel poverty in a reasonable timeframe, would ramp up quickly from 2015, delivering retrofits to EPC Band C to one million homes per year by The scheme would then grow further, in order to bring all homes occupied by low-income households up to EPC C by 2025, and virtually all homes in the UK by (See table in Annex A below for further detail) This may seem like a startling level of activity for an insulation industry which has been all but decimated by recent changes to energy efficiency policy. However, it should be noted that in 2012/13, a staggering 1.65m major energy efficiency measures were installed under national programmes 15. Support for a ramp-up at the level we suggest, and assurances that it is achievable from an industry point of view, have been gained from a number of key energy efficiency industry players 16. Modelling from Verco 17 and ACE 18 suggests that the lowincome part of the scheme might cost 8.3bn by 2020, and a total of 24.7bn by The whole scheme, bringing virtually every home in Britain up to at least EPC C, is estimated to cost an average of 4bn per year up to 2025, and around 1.5bn per year after 2025 once all low-income homes are insulated. This is based on the first 2m able-to-pay households taking loans before the end of 2019/20 at 0% interest, and the rest, 2% loans thereafter. The whole scheme is estimated to cost around 49.4bn over the 20 years to The macroeconomics of energy efficiency Research by Cambridge Econometrics for the Energy Bill Revolution campaign found that the macroeconomic and stimulus effects of a major programme of energy efficiency were superior to the four other typical Government policies it modelled: a) Increases in general current spending programme b) increases in general capital spending programme c) VAT reduction d) A fuel duty cut. The programme modelled was the recycling of carbon tax revenue to insulate 9.1 million homes. The authors found the following benefits: Short run: A positive impact on GDP of up to 0.2%, creating up to 71,000 jobs in the construction industry and extended supply chains by The authors note: investment in energy efficiency has the added and persisting benefit of also reducing natural gas imports. If households spend less on energy imports, they are able to spend more on other products and services energy security is also improved. Long run: the modelling suggested 129,400 jobs would have been created by 2027, over 24,000 more than a general programme of Government investment. The authors conclude that this extra employment benefit comes from shifting [spending] from imported energy to domestic goods and services these extra jobs arise from a permanent improvement in the country s gas self-sufficiency. Cambridge Econometrics /Verco (2012) Jobs, Growth and Warmer Homes 15 Association for the Conservation of Energy/Energy Bill Revolution (2014) Eco and the Green Deal 16 Assurances include explicit support by key players for the Energy Bill Revolution asks, and a number of these organisations signing a letter to Lord Deighton, Infrastructure Minister, calling for a major energy efficiency programme on this scale. 17 We have used calculations by Verco for Citizens Advice of the cost-per-home to bring homes up to EPC C, through grant funding and through subsidised loans at 0% and 2% interest. 18 We have used calculations by the Association for the Conservation of Energy of the number of low-income households in the UK living in homes with and energy efficiency rating below EPC C. 9

10 By comparison to this, the government s pipeline for publicly-funded infrastructure is worth 100bn in the five years to Modelling for the Energy Bill Revolution campaign (see box right) compared typical Government capital spend on infrastructure, such as roads, with its proposed extensive programme of energy efficiency with the latter demonstrating the strongest macroeconomic impact. The table in Annex A sets out the a progression of the scheme to 2035, and the indicative annual costs of bringing all homes up to an EPC Band C, with 0%-interest loans available up until 2020, and 2%-interest loans thereafter. A well-structured obligation on distribution network operators, detailed above, could further reduce the costs to the taxpayer of insulating the UK s 2.3m electrically-heated homes without increasing consumer bills. It will be important that targets, while firm, do not get in the way of delivery. Yearly budgets and area boundaries must be flexible enough to ensure the scheme can be rolled out in the most efficient and practical way. For instance, given that the programme will start with areas of higher social deprivation, it is vital that the proposed balance between low-income and able-to-pay homes does not dictate what happens on the ground. In practice, any household wishing to take up an energy efficiency package for which they are eligible, must be able to do so regardless of whether that year s targets for that housing type or area have been met. How to pay for an energy efficiency scheme? We set out four ways in which public funding for a major energy efficiency programme could be secured, some of which would work in concert with one another. Elevate energy efficiency to be the UK s priority infrastructure project A comprehensive energy efficiency programme should be the UK s next and highest priority candidate for infrastructure investment, sending it to the top of the UK infrastructure pipeline. The Government s pipeline of publicly funded infrastructure is worth 100 billion to It includes 70 billion on transport, dominated by roads (see below), rail enhancements and a large chunk of the 43 billion (and rising) HS2 project; 20 billion on building schools; and 10 billion on science, new housing and flood defences. The eight most expensive road schemes in the pipeline that are due to be started after 2015 come to a total of 10 billion. These include: the M4 Relief Road ( 1.3 billion); the East London Thames crossings (at least 1 billion) a new Lower Thames Crossing (up to 5 billion) the proposed M54/M6/M6 toll link road, a 300 million, 3.2km road that costs just under 1000 per cm of tarmac Data provided by the Campaign for Better Transport, November

11 Housing is already a defined category in the Government s pipeline. Of the 5.5 billion allocated to additional capital expenditure in the 2012 Autumn Statement, the largest single category was for housing ( 770 million in 2013/14, and 940 million in ) billion has been pledged to build affordable homes between and Well-insulated homes also reduce energy demand, impacting other infrastructure needs, such that for new electricity generation. Capture the savings energy efficiency brings to broader Government activity A major programme of home insulation brings benefits far beyond the considerable carbon savings. So, public funding for energy efficiency does not just have to come from the climate and energy budget. As examples: Public Health: There are an estimated 7,000 excess winter deaths per year as a result of cold homes, and children living in cold homes are more than twice as likely to suffer from respiratory problems 21. In 2009 the Chief Medical Officer reported that every 1 spent on insulation could save the NHS 42p 22 - illustratively, that implies an ultimate potential saving to the NHS, under a 4 billion / year programme, of 1.68 billion for each of those years. Employment: the employment potential of a major programme of home insulation is illustrated in the box above on p8. Many of these jobs will be local and diffuse across the nation, bringing reductions in unemployment and, therefore unemployment benefits payments. Each unemployed person costs the Treasury 8,000 per year in lost tax revenues and benefits 23, so the illustrative 71,000 jobs a scheme could create in the short run could save the Treasury over 500 million per year. Gas imports: Heating homes is one of the single largest contributors to UK energy consumption. The Government estimates that the total net cost of all forms of energy import to the UK was 25 billion in ; Reuters estimates that the cost of UK gas imports will increase by ( 6.8 billion) by Reduced fuel use is estimated to have saved the UK 1.2bn in avoided fossil fuel imports during the mild winter of 2013/ This annual reduction would be permanent with an effective energy efficiency scheme. Reducing costly gas imports would also benefit the UK s balance of trade, and contribute significantly to energy security. 20 Parliamentary briefing paper, Infrastructure Policy, October 2013: 21 University College London, The Health Impacts of Cold Homes and Fuel Poverty, May 2011, 22 Chief Medical Officer s Report, 2009, at 23 University of Bristol, Costs of Unemployment, February 2009, 24 Parliamentary briefing note SN04046, Energy imports and exports, August Reuters, UK overseas gas imports to surge to $11 billion by 2015, September 2013, 26 Blog by Grant Wilson in The Conversation 11

12 VAT receipts to Treasury: A major energy efficiency scheme has the potential to generate significant income for the treasury. Evaluations of the KfW energy efficiency and building schemes in Germany suggest that for every 1bn of public funds invested in energy efficiency, 3-4bn are returned to the Treasury 27. Earmarking revenues from new or existing taxes on bads Three specific examples of revenue streams that could be used: Carbon taxes use revenues from UK sales of permits under the EU Emissions Trading Scheme and its UK top-up, the Carbon Price Floor. Together these instruments increase the costs of electricity production from fossil fuels and lead to increases in consumer bills in the short-term. They are expected to bring in a combined 2.6 billion in 2014/15 28, rising thereafter; over the next 15 years they will deliver an average 3.6bn/year to the Exchequer. The Environmental Audit Committee has called for money raised from taxing pollution to be used for green purposes increasing the visibility and the coherence of green taxation 29. Oil and gas production taxes in 2012/13, direct receipts to the Exchequer from the production of North Sea oil and gas totalled 6.5 billion 30. Revenues vary year by year, dependent on the level of production and the tax rate levied. In , tax receipts were 12.3 billion. While Friends of the Earth wants to see tax revenue from this sector decline as the economy sharply weans itself off oil and gas, it makes sense to use its revenues to help insulate homes, thus reducing the need for using the fuels in the first place. These taxes should be increased with perverse tax breaks removed. Financial transactions tax (FTT) an FTT designed along the EU-11 s model (0.1% on shares and bond trades, 0.01% on derivatives) would deliver an estimated 20 billion/year 31. Campaigners are calling for this revenue to be used internationally to fight poverty and climate change half internationally and half domestically. Friends of the Earth is continuing to call on the UK to follow the lead of other European countries and adopt the tax, and in so doing, generate a new revenue stream, some of which could be used to support energy efficiency. 27 KfW research (2011) Impact on public budgets of KfW programmes in the field of energy-efficient building and rehabilitation 28 HM Treasury, Definition of environmental tax published, July 2013, 29 Environmental Audit Committee, Budget 2011 and green taxes, July 2011, 30 HM Revenue & Customs, Statistics of Government revenues from UK oil and gas production, August 2013, 31 IPPR, New Priorities for British Economic Policy, March 2013, 12

13 Borrowing to invest A programme with the myriad benefits of energy efficiency does not necessarily only have to be paid for by finding the money from something else. All parties are committed, where necessary, to borrowing to support investment. There is a strong case for publicly funded action on climate (within which we include energy efficiency) to be supported through general public spending for investment. If necessary, it is legitimate to increase long-term borrowing to pay for it. As academic Matthew Lockwood points out, the marginal impact of this extra borrowing would be extremely small in the long-run: With public sector debt standing at approximately 1,350 billion at the end of 2012, an additional 5 billion a year would mean adding some 0.4 per cent to the stock of debt per year. The government can currently borrow for a 30-year period at a rate of around 3 per cent, implying a debt service of some 150 million a year. This is equivalent to 0.34 per cent of current public debt servicing cost, or 0.1 per cent of the deficit. Conclusions The average household energy bill nearly doubled between 2004 and 2012, largely due to the rising price of gas. Millions of households are seriously struggling to pay their fuel bills; a family in a typical uninsulated 3-bedroom home wastes around 653 per year on heating 32, money which is almost literally leaking out of our roofs, walls, and windows. The only way to deal with this problem in the long term, is through a highly ambitious energy efficiency scheme with a secure funding stream provided by Government. Careful design, and a joined-up package of funding, policy, and regulation will be crucial for success. The benefits of such a scheme are enormous, including the creation of large numbers of jobs, considerable tax receipts to the Treasury, a considerable reduction in excess winter deaths and NHS costs, and a significant increase in energy security. Ambitious energy efficiency is vital for the UK to reach its legally-binding carbon emissions reductions targets in the cost-effective manner recommended by the Committee on Climate Change. The proposals discussed in this paper are supported by a wide range of environmental, fuel poverty, and business groups. We call on policymakers to elevate energy efficiency to the UK s number one infrastructure priority. No other major investment can deliver such significant, and varied, benefits all over the country. 32 Association for the Conservation of Energy/Energy Bill Revolution (2014) Burning Cash Day: 14 th February 13

14 Annexe A Table showing suggested progression of the UK energy efficiency scheme up to 2035 Year Low income homes to EPC C Able-to-pay homes to EPC C Totals Grant-funded 0% loans to 2020; 2% loans post-2020 No. insulated Total cost, bn No. insulated Total cost, bn Homes insulated Overall Costs, bn 2015/16 150, , , /17 200, , , /18 500, , ,000, /19 500, , ,000, /20 650, , ,300, /21 700, , ,350, /22 750, , ,400, /23 850, , ,500, /24 800, , ,450, /25 800, , ,450, /26 0 1,000, ,000, /27 0 1,000, ,000, /28 0 1,000, ,000, /29 0 1,000, ,000, /30 0 1,000, ,000, /31 0 1,000, ,000, /32 0 1,000, ,000, /33 0 1,000, ,000, /34 0 1,000, ,000, /35 0 1,000, ,000, Totals 5,900, ,000, ,000, Numbers may not add due to rounding. Assumptions made in calculating the above figures: - Average cost of bringing a low-income home up to EPC C = 4071, with a 10k cap on costs - Average cost of a 10-year, 0% loan to bring an able-to-pay home up to EPC C = Average cost of a 10-year, 2% loan to bring an able-to-pay home up to EPC C = An 120 free energy efficiency assessment has been added to the cost of each retrofit - Annual programme running cost is 80m, which has been added to the yearly cost. Other supporting information - Per-home costs calculated by Verco for Citizens Advice - Numbers of low-income households below EPC C calculated by Association for the Conservation of Energy - Numbers of able-to-pay homes below EPC calculated by FoE using the latest English Housing Survey and Scottish House Condition Survey data. 14