Energy Efficiency and the Clean Growth Strategy

Charles Walker Excerpts

Thursday 8th March 2018 Westminster Hall

[Mr Charles Walker (in the Chair)]

I thank colleagues for being here today. There are some terrible weather conditions across the country, which I think will suppress attendance at this debate. Some colleagues had to get back to their constituencies before they got cut off, or the rail links got cut off. I call Antoinette Sandbach to move the motion.

[Antoinette Sandbach (Eddisbury) (Con)]

I beg to move,

That this House has considered energy efficiency and the clean growth strategy.

It is a pleasure to serve under your chairmanship, Mr Walker. I am grateful to the many of my colleagues from both sides of the House who helped me to secure this debate, not least to the hon. Member for Birmingham, Selly Oak (Steve McCabe).

This is an important debate, and I hope that it will spur Members to action, not just today but in the future. This is the first debate of its kind in several years, and it is important to ensure that we keep energy efficiency at the top of the political agenda. This week the energy price cap Bill, the Domestic Gas and Electricity (Tariff Cap) Bill, received its Second Reading. The Bill is a vital step to protect consumers while we reform the market in the short to medium term.

I want to propose a long-term solution for energy efficiency improvements and suggest how to make best use of the time we will have bought with the energy price cap Bill to address energy efficiency. In my remarks, I will outline how far we have come and discuss the challenges we face, before proposing a couple of solutions to return us to a better low-carbon path. I plan to talk generally about the state of energy efficiency, but where I am more specific I shall be addressing domestic energy efficiency. Other Members, I am sure, will focus on other areas, but I shall leave that contribution to them.

It is important to outline how far we have come in building a low-carbon economy and in improving energy efficiency over the long term. That is testament to the commitment of successive Governments, and I am proud to say that we are now a world leader in the green economy. Since 1990 we have cut emissions by 42%, faster than any other G7 nation. We have outperformed the first carbon budget, of 2008 to 2012, by 1%, and we are on course to outperform the second and third carbon budgets by 5% and 4%, respectively.

All that achievement has not come at the cost of economic growth. Emissions dropped by 42%, but the economy grew by 67%. In 2016, 47% of electricity came from low-carbon sources, which was twice the rate of 2010. Household energy consumption has fallen by 17% since 1990, despite a rise in the number of home appliances. More than 430,000 people work in low-carbon businesses and the supply chain. All that work has resulted in bills being roughly £490 lower than they would have been without the energy efficiency improvements made since 2004.

Clearly, significant progress has been made over the past three decades. I applaud Ministers and Members of all parties for their commitment to tackling climate. What is more, we have taken those steps without damaging our economy, the idea of which was originally dismissed by some as simply not possible.

Despite such progress, there is still more to do. Progress on energy efficiency has slowed. Between 2012 and 2015 the annual investment in energy efficiency fell by 53%; and in the same period there was an 80% reduction in improvement measures, with the Committee on Climate Change warning us that that will decline even further by 2020. Fuel poverty remains a stubborn problem that we must continue to address. It is all very well giving assistance with bills, but a long-term solution—insulating houses—is surely the way forward.

As of 2014, 2.3 million households in England were in fuel poverty and 41% of the households in the lowest income decile were fuel poor; 56% of fuel-poor households lived in properties built before 1944. To my mind, those issues make it an urgent requirement of the Government to do a housing survey in England: 60% of fuel-poor households lived in inefficient properties with an E, F or G energy performance certificate rating, and 14% of households in rural areas were in fuel poverty, which is higher than the national average. Those rural households cannot access the efficiencies of dual fuel billing, and that is important, because many are off grid. Many cannot access the warm home scheme measures, which often involve whole streets. The low-hanging fruit has been picked, but the more challenging households, in particular in rural communities, have not been addressed.

The clean growth strategy is a welcome addition to the debate. I support its proposals to combat fuel poverty and to promote energy efficiency, but I hope that the Minister can be more specific about the Government’s plans today than they were six months ago. The Committee on Climate Change assessment of the clean growth strategy found that three actions were expected to deliver, six actions had delivery risks, or were rated amber, and seven proposals were without firm plans, or rated red.

It has never been more important to tackle climate change and to decarbonise the economy. However, the potential rewards have never been so great. A building energy performance programme could save households £270 a year on bills. Over the long term that would save even more than the current proposed cap on energy bills, and it would also make a large contribution to hitting our climate change goals. Bringing every household up to an EPC band C by 2035 would save 25% of the energy used by the UK, which is the equivalent of six nuclear power stations the size of Hinkley Point C. The net economic benefit of such a programme would be between £7.5 billion and £8.7 billion, according to macro- economic analysis by the UK Energy Research Centre, and that figure does not include the wider secondary benefits in growth, jobs or health. With cold homes in England costing the NHS an estimated £1.36 billion, such a programme would have a considerable impact on health budgets, as well as on the wider economy.

The economic and social case for increased energy efficiency measures seems unarguable. We must focus on how to deliver them. Throughout recent history, we have seen that the fight against climate change is most effective when Government and private industry work together. The Government can lead the charge, but we need to harness the innovation and energy of the private sector to truly succeed. That is why I want to suggest one way in which the private sector can step up. It is one way for the Government to make a change that can expedite energy efficiency improvements. Mortgage providers should give people more incentives to purchase energy efficient homes.

In essence, if people make savings on their energy bills they will have more money to service a larger mortgage, and that should be taken into consideration when banks make their lending decisions. We know that in 2014, 51% of fuel-poor households were owner-occupiers, with only 33% in the private rented sector. Were the EPC rating of a house to be included in a lender’s affordability calculation, people could borrow up to £4,000 more in many cases. Under such a system, an EPC A rating would allow people to borrow £11,500 more than an EPC G-rated house. I recommend to hon. Members who are interested in this proposal a report by the Lenders group, which said that energy bills were a sizeable part of borrowers’ essential expenditure, and were therefore a component of the affordability calculation that warranted being made more sophisticated.

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[Antoinette Sandbach]

Given the new Thornton campus in Cheshire, which is specialising in geothermal, may I suggest that on the way to Southampton from Scotland my hon. Friend call in to see some of the leading research that is being done at the University of Chester on the opportunities for geothermal and how we can roll that out much further across the country?

[Mr Charles Walker (in the Chair)]

Mr Graham is now going to make some progress.

[Luke Graham]

I thank my hon. Friend for her kind intervention and, again, invitation. I would certainly be keen to visit both places, as my constituency arrangements allow.

Scotland has been at the forefront of every major industrial development in the UK, from the industrial revolution in the 18th and 19th centuries, to oil and gas in the 20th and 21st, so it has undoubtedly contributed to the UK’s emissions over the years, but it has fantastic potential, through infrastructure and existing expertise, to be the leader on the clean growth strategy in the UK, and to drive the UK as a global leader in economic growth through emissions reductions. I urge the Minister to put the entire UK at the centre of the Government’s clean growth strategy in the months and years ahead.

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[Claire Perry]

The hon. Gentleman and I debate Acorn and St Fergus frequently. I will double-check the numbers, but my understanding is that the UK Government have put in £1.6 million and the Scottish Government have committed a welcome £100,000. We are absolutely keen to support those projects and we continue to be a major investor in all sorts of levels of carbon capture and storage; I will address CCS and its future in my closing remarks. I will double-check those numbers and write to him, but I am confident that we have already committed several multiples of what the Scottish Government have to that project—and quite rightly.

[Mr Charles Walker (in the Chair)]

We are all looking forward to the Minister’s closing remarks.

[Drew Hendry]

I have not even got to the bulk of my speech, but I will try to speed up. I was getting to the end of my responses to hon. Members’ comments, which I was certain we had time for.

I will finish on a positive remark about the comments made by the hon. Member for Ochil and South Perthshire. I am pleased to say that geothermal investigation has been embraced around the Chamber. I am sure that he will support the delivery of the Scottish Government’s ambition for accelerated clean growth in Scotland.

To aid the debate, I will cast aside some of my notes. As we have heard in this debate, much more needs to be done on energy efficiency. In my meetings with energy companies and climate change activists, they all agree on one principle: not enough is done for energy efficiency in our homes and businesses across the nations of the UK. Old housing stock is part of that huge challenge.

On new housing stock, I was struck by the comments in an intervention about new heating systems and new ways of looking after buildings that can reduce costs for people. When I was the leader of the Highland Council, I was pleased to be involved in a Highland housing fair, which adopted a housing development model from Finland. Some houses on that scheme were so innovative that it was reckoned that they would have average energy costs of about £2 per year, so it can be done with the right will. They have been sold now, so someone who wanted to see them would probably have to knock on the householder’s door. It was a good project, and the Minister might want to consider more innovation like that.

I will skip a page of my notes. We welcome the industrial energy efficiency accelerator, but we look for more detail from the Minister. We want to see how that will move forward.

My conclusion will not be too lengthy, but I will touch on some things that are happening in Scotland. Energy efficiency has been mentioned several times; it is fundamental to Scotland’s meeting its ambitious climate change targets. The Scottish energy efficiency programme route map—I am sorry to tell the hon. Member for Wells that its name is now SEEP rather than HEEPS—will be published in May 2018.

Last December, the Scottish Government published their energy strategy, which will strengthen the development of local energy projects, empower customers and support Scotland’s climate change ambitions, while tackling poor energy provision. Our ambition to improve the energy efficiency of Scotland’s buildings is central to our efforts to tackle fuel poverty.

On 28 February, the Scottish Government’s Cabinet Secretary for the Environment, Climate Change and Land Reform published the “Climate Change Plan, Third Report on Proposals and Policies 2018-2032”, which details how the Scottish Government will meet their emissions target of 80% by 2032. With the Climate Change Bill, Scotland is sending a message that it is the place to do low-carbon business, which seems to be endorsed around the Chamber.

Energy efficiency is fundamental to Scotland. Heating and cooling Scotland’s homes and businesses costs £2.6 billion a year, and accounts for just under half the country’s greenhouse gas emissions. In June 2015, the Scottish Government announced that they would take long-term action to reduce the energy demand of residential services and industrial sectors by designating energy efficiency as a national infrastructure priority. Again, something that has been called for in the debate has already been done in Scotland. That was subsequently confirmed in the Scottish Government’s “Infrastructure Investment Plan 2015”.

Would you believe, Mr Walker, that I am going to cut my remarks considerably short? I wanted to go into a lot more detail about what is happening in Scotland, but given the response in the Chamber today, there is plenty of incentive for the Minister to look at that in detail.

As the Member for Inverness, Nairn, Badenoch and Strathspey, it would be remiss of me not to mention a wonderful development: the Scottish Government’s dualling of the A9 between Perth and Inverness. The A9 is set to become the world’s—well, Scotland’s—electric highway because of the Scottish Government’s investment in ensuring that it has rapid charging points all the way along. It will be a real boon for the electric vehicle proposition in Scotland, and it is just the start of much more work that will be done there.

The debate has been very constructive, and I thank the hon. Member for Eddisbury for introducing it. There is still an awful lot of work to be done, but hopefully the debate has given the Minister a bag full of ideas to take forward and develop in future.

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[Dr Whitehead]

I surely do. On the basis of what the Committee on Climate Change says, the current ECO commitment falls way short of the levels of treatment we need if we are to get anywhere near our 2035 targets. Even the £1.8 billion figure that has been cited will not cover a complete series of treatments for houses in the UK. I suggest that making our treatments much more efficient—by doing them on an area basis, for example—would allow us to get much closer to our target for the same money. We can probably agree that £1.8 billion will be the sort of money that will get us there, but an efficient approach could get us so much further, which I would completely support.

As the hon. Members for Eddisbury and for Wells and my hon. Friend the Member for Birmingham, Selly Oak emphasised, enveloping energy-efficient homes area by area needs to be funded from the infrastructure budget. It may not look like big boys’ toys, but it is absolutely an infrastructure project and ought to be treated as such by the Government. That would have a number of advantages for costs of capital, borrowing and all the rest of it; as the Minister says, we could make even more houses efficient for the same investment.

I appreciate that I have gone on rather longer than I intended, but let me briefly say a few words about the speeches of my hon. Friend the Member for Redcar (Anna Turley) and the hon. Member for Ochil and South Perthshire (Luke Graham). They both drew attention to the role that CCS can play, as did the hon. Member for Wells—or rather for HEEPS. I thoroughly endorse that line of thinking on CCS, but I must point out that as far as the clean growth strategy is concerned, £100 million will not get us anywhere near our CCS target, just as our ECO commitment will not get us anywhere near our energy efficiency target.

I congratulate Teesside on its comprehensive approach, in which my hon. Friend the Member for Redcar has been centrally involved. Teesside could be an absolute exemplar for the rest of the country in its combination of intensive industry with CCS and its by-products. That is very important for realisation of the clean growth strategy and we need to incorporate it in all our future clean growth plans.

I congratulate all hon. Members on their contributions to the debate. They all faced in exactly the same direction, acknowledging the importance of energy efficiency in homes, for a variety of reasons including climate change and fuel poverty, and the prominence that we need to give it in our policy debates. If this afternoon’s debate has hastened that process, we will have done a very good job between us.

[Mr Charles Walker (in the Chair)]

I have let speeches go on longer than is conventional because we have had plenty of time. We have had two mammoth speeches from the SNP and Labour Front Benches. I know the Minister could speak for 55 minutes if she wanted to, but if she felt that she could just match them at 25 minutes, I am sure we would all appreciate it.

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[Claire Perry]

My hon. Friend is absolutely on the money, but I would like to do both. I do not want it to be sequential. I cannot remember which of my hon. Friends talked about energy as a service. I thought it was my hon. Friend the Member for Ochil and South Perthshire, but as I say that, I think it might have been HEEPS—my hon. Friend the Member for Wells. He is never going to live that down.

If someone running a small business is trying to do payroll and deal with potential changes in the regulatory structure for export, are they really going to sit down and think about energy efficiency? They might—I agree with my hon. Friend the Member for Eddisbury that if someone has installed an energy efficiency measure in their home and has seen a material change, they might do that—but they might not. What incentives can we create and what market structures are already there that can help those businesses to focus on their energy efficiency? Many of the challenges in the rented sector that apply in the homes market also apply in an even greater way in the energy market. It is a real challenge that many firms occupy premises where energy is just part of the service bundle they receive, so it is not within their control to install such measures.

We are consulting later this year on a package of measures to help businesses improve how productively they use energy. We are focused on trying to do things that work, and that work locally.

Many Members referenced green mortgages and finding a way to finance such initiatives. There has been some excellent work, such as the “Levering economics for new drivers to energy reduction and sustainability” project. My hon. Friend the Member for Wells talked about being asked about utility bills. Actually, the way the market works now is that, whether someone is in a home rated A or G, they input the same number, which is crazy.

Work is already under way on mortgage lenders who might pick up on the fact that someone could save £700 on their energy bills by having a better energy performance certificate. The green finance taskforce that I set up with the Treasury last year will be reporting shortly. One of its strands of work is how we get green mortgages to be a proper retail offering. Some lenders have taken steps to support energy efficiency improvements. Last November, Barclays launched the first green bond from a UK bank, on the back of the work that the taskforce was doing. That is being used to fund domestic assets, which it plans to use to refinance mortgages for the most energy-efficient properties. That is a testament to the data available and the bank’s desire. It is common sense to reward that sort of behaviour.

I have talked a little about the savings and what we are doing. Now I will mention briefly the most vulnerable households, which have come up often, especially given the recent cold snap. As my hon. Friend the Member for Eddisbury said, it was really cold in many homes. Turning up the heating was an option for many of us, but we might not have realised that others who do so feel extremely worried about what their bills will look like.

I want to reassure colleagues that the warm home discount programme—£140 a household—continues to operate. Winter fuel payments are being paid, and the cold weather payment was triggered by the cold snap. It is absolutely right for the Government to continue to support the most vulnerable and to help them make improvements to their homes. Such people do not necessarily have financial choice. I was therefore pleased that we committed £3.6 billion to ECO. Going forward, that will upgrade more than 1 million homes. We will extend that out to 2028 with funding at least at current ECO levels.

I take the point about the landlord challenge. The problem, frankly, is that 95% of landlords have four properties or fewer—they are us. We asked them to sign up to something that at the time we had underpinned with a green finance offer, but now they are potentially required to raise capital to do it. We have to do things that are fair and proportionate if we want the country to come with us. The measure is still incredibly important. We do not want people living in the least fuel-efficient homes and we are determined to do something about that. In fact, compared with 2010, there are 835,000 fewer homes rated E, F or G in the UK, so we are making progress at the least efficient end of the market.

I hope that I am not trying your patience, Mr Walker, but I have two more quick points to make. The first is on smart meters. I think we are on the cusp of something really exciting with smart meters. We are absolutely in the world’s vanguard by offering every household a smart meter by 2020. I accept the concerns about technology. People say, “Why would I install one of these when I’m going to get a better one?” The point is that if someone installs one now, they get all the benefits immediately of understanding what their energy consumption looks like, and can work out ways to cut their bills. Furthermore, they will automatically be upgraded through the technology that we are putting in place to the next generation, so when they switch suppliers they will not lose any of that functionality. That is a vital step forward.

More needs to be done to work on the consumer proposition. I am desperate to put in a smart meter, but not to take a morning off work to do so. It is really difficult to find the time, which is a problem that many people face. We will be working with industry and the organisation rolling the meters out to see how we can make them more consumer flexible, and how we provide incentives, because plenty of money is being spent on advertising them. We are on the cusp of something very exciting.

I also wanted to mention fundamentally changing the way in which we build and think about homes in the construction process. It is astonishing that the way in which we build homes has not changed much since the 1890s: we build the foundations, and then get the trades in. We can build really high-quality modular homes—homes that are built off-site and installed—in a far more effective and resource-efficient way. We are working closely with the construction sector to see what we can do to turbocharge that.

We can also do retrofits in a modular way. Nottingham City Council and Melius Homes are taking a prefabricated approach to retrofit homes to 2050 standards, and improve their energy performance. A lot of innovation is happening in this area that I am extremely keen to support. That is how we create a new market for what needs to happen, while rightly focusing on building regulations. All colleagues will be aware of the challenge in the post-Grenfell world of ensuring that there are no unintended consequences to what we do with building regulations. We are working very closely with our colleagues in the relevant Department, and have reconstituted the inter-ministerial clean growth group, because so many of these challenges span across Government.

There is a huge amount more to do. We have heard lots of sensible ideas today, many of which are extremely attractive and that we want to take away. All of us want to get the costs and consumption of energy down, reduce carbon emissions, make our homes warmer, and make the transition to low-carbon energy less risky. This is not an either/or question; in order to meet our carbon targets, and to create a housing stock that is fit for the future, we absolutely need to do this. That is why the clean growth strategy is so important, and why the industrial strategy has clean growth as one of its four major pillars: things that we know that we can lead the world in, and that have to be done.

It has been a pleasure in today’s debate, as in so many others in this area, to work with colleagues across the House who are so committed to this agenda, and have so much knowledge and interest in it. It will really help us to accelerate the work going forward, so I thank hon. Members for the opportunity to respond this afternoon.

[Mr Charles Walker (in the Chair)]

I think colleagues were almost heading for the door, but we have up to two minutes for the proposer of this great debate to wind up.