Budget 2018: We can meet the 5th Carbon Budget, boost GDP & lower consumer bills - What's not to like Chancellor?
The Executive Director of the Mineral Wool Insulation Manufacturers Association (MIMA), the industry trade body for non-combustible insulation, writes in advance of #Budget2018 calling for a national programme of improving energy efficiency in homes which would also have health and wellbeing benefits.
Simply investing to meet the Clean Growth Strategy’s goal of all homes achieving an Energy Performance Certificate rating of C by 2035 (meeting England’s fuel poverty target for 2030 along the way) through a programme of improving energy efficiency as an infrastructure priority, will deliver significant returns for the Chancellor, Philip Hammond. Most importantly there will be huge benefits for the health and wellbeing of UK citizens and our homes and buildings across the UK.
I stress investment here because we need exactly that – precisely £1.7bn public investment (an additional £1bn to the existing £0.7bn we invest now) needs to be geared towards unlocking £3.5bn of private investment (mostly from homeowners). This, combined with a pragmatic approach will ensure successful delivery.
In a nutshell the approach is:
- Investing for the longer-term: confirming energy efficiency as a national infrastructure priority, ringfencing funding and establishing clear delivery governance arrangements
- Well designed incentives: testing and rollout of multiple incentives for better off households designed to maximise their contribution – e.g. lower Stamp Duty for efficient homes, 0% interest loans
- Regulation: minimum required energy performance rating tightens towards an Energy Performance Certificate rating of C for rented housing by 2035; minimum standards for owner-occupied housing introduced by 2025
- Localised delivery: local authorities and/or other trusted institutions with strong local knowledge play core role in tackling fuel poverty, creating demand for energy efficiency and growing local supply chains
- Building consumer confidence: the highest quality and safety standards are adhered to across the programme
Revenue benefits for the Exchequer:
The investment in funding and incentivising take-up of energy efficiency measures by governments is self-financing. The increased economic growth we get leads to higher tax intake, cumulatively £51.1bn by 2030 or £1.27 per £1 invested throughout the whole period (in discounted terms).
Economic stability and growth:
Overwhelmingly as a result of energy efficiency improvements in insulation, heating, controls and appliances, residential electricity and gas demand were in 2017 13% and 21% lower respectively than in 2004 and with this approach we would see that trajectory continue.
Cambridge Econometrics modelling estimates a return of £3.20 per £1 invested in energy efficiency measures by government. In relative terms, as a result of the energy efficiency investments, GDP will be 0.6% higher in 2030 (£13.9bn). A major driver of this is a 26% reduction in imports of natural gas by 2030, improving the balance of trade.
Productivity and jobs
For the sector, Cambridge Econometrics estimates a net increase in annual employment of up to 108,000 over the period 2020-2030, with most jobs created in the services and the construction sectors. There is also considerable potential to improve productivity in the construction sector – if general RMI (repair, maintenance and improvement) work in housing routinely incorporates energy efficiency upgrades, the value added would routinely exceed the marginal cost of doing so.
Lowering bills and fuel poverty
For consumers, this approach minimises cost to consumers of decarbonising heat supply, regardless of technological avenue pursued and a programme to 2035 can avoid £4.3bn of electricity network investment (present value). An average household would see energy bills £270 lower at today’s energy prices. It also removes energy inefficiency as a cause of fuel poverty, and reduces the risk of reduced educational attainment from fuel poverty and cold homes.
Health & environment benefits
For the Health Secretary, Matt Hancock this approach avoids the health impacts from cold homes, which costs the NHS £1.3bn per year in England alone and reduces the health impacts of poor housing, estimated to cost the NHS £2.5bn per year.
For the respective Environment and Energy Secretaries, Michael Gove and Greg Clark, the environmental and climate benefits are massive. The present value of CO2 savings from this programme to 2035 has been estimated at £34.4bn and the present value of air quality improvements from this programme to 2035 has been estimated at £4.1bn. Fifth Carbon Budget and air quality – tick!
And take note Housing Secretary, James Brokenshire: total energy bill savings across the housing stock of £7.2 to £8.6 billion per annum once comfort taking has been accounted for) cannot be ignored. The Chancellor should know that this approach delivers value for money and is consistent with investment required to meet the 5th Carbon Budget at least cost- it keeps the costs of meeting the 5th Carbon Budget to a minimum and meets fuel poverty targets.
Finally too tricky to put into practice? No! This can be done with relative ease in both legislative and operational terms as it can in part be delivered by an energy supplier obligation (ECO), requiring little to no legislative change from ECO arrangements. Relevant regulatory frameworks are already largely in place, requiring no new primary legislation and incentives to renovate homes unlikely to require legislation. What are we waiting for, Mr Chancellor?
The Mineral Wool Insulation Manufacturers Association (MIMA), is the industry trade body for non-combustible insulation. MIMA represents four of the leading insulation companies in the UK - Isover Saint-Gobain, Knauf Insulation, ROCKWOOL and Superglass.