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Are we failing to understand the wider benefits of energy efficiency?

 

You’d think that during this period of austerity energy saving would be top of the agenda. There are a number of benefits that come from energy efficiency improvements and they deserve much greater attention. Following the release of a new Energy Saving Trust report which considers the multiple benefits of energy efficiency, we took this opportunity to look at the extent to which these benefits are taken into account in the policy making process.

 

Energy efficiency improvements to your home help you to stay warm and comfortable and spend less on your energy bills. But beyond this direct payoff, energy efficiency has a number of other positive effects for individuals as well as for the wider economy.

Economic growth and jobs, physical and mental benefits, and a reduced risk of the lights going out are all effects of energy efficiency. By identifying, understanding and measuring these we may be better able to design and maximise positive social impact, as well as building the case for both public and private investment in energy efficiency.

 

So what are the benefits of energy efficiency?

Our latest report “Capturing the “multiple benefits” of energy efficiency in practice: the UK example”  looks at three areas in which energy efficiency has been identified as having non-energy benefits for society: macroeconomic development, public spending and individual health and wellbeing.

Joe Payne – member of our Data Insight team and the leading author of the report - believes that the benefits of energy efficiency are under-represented in policy making:

“There is growing recognition of the wider benefits of investment in energy efficiency. But there are a number of reasons why policy impact assessments struggle to recognise and value these, that highlight challenges to the case.”

 

1. Wider economic benefits

Increased investment in targeted sectors and reduced costs for households and business can have positive economic impacts including growth and job creation. In 2013 it was estimated the energy efficiency sector was already worth more than £18bn and supporting around 136,000 jobs.

It is easy to see how investment in energy efficiency can stimulate the economy in different ways. When a household installs solid wall insulation they provide, often local, employment to the installer and manufacturer (among others). In doing so they also reduce their energy bills enabling them to spend the money they save on goods and services in other areas of the economy.

 

2. Public spending

The impact of energy efficiency on public balance sheets is a combination of factors such as the cost of programme design, investment and implementation, together with the impact on social welfare spending, and tax revenues.

While investment in energy efficiency typically requires a large outlay up-front, once you take into account the effect on tax revenue and net public spending impacts energy efficiency can become self-financing over the lifetime of the measures. A Cambridge Econometrics study for Energy Bill Revolution[1] estimated that for every £1 invested in energy efficiency, tax revenue increased by £1.27.

 

3. Health and Wellbeing

The potential benefits for public spending extend to health spending too. The total cost to the NHS of cold homes has been estimated to be around €1.94 billion per year[2]. Living in cold homes has been shown to cause or aggravate a number of physical health problems, including cardiovascular and circulatory conditions, respiratory problems and arthritic and rheumatic illnesses. And there may be a greater health risk from cold amongst vulnerable groups - the elderly, young children, and those with a long term illness or disability. Ill health, poor housing conditions, and difficulty paying bills have also been linked with stress, anxiety and depression.

 

So why are these benefits still relatively unknown?

Gathering robust, consistent evidence to quantify these benefits remains a challenge. While a wide range of health and wellbeing impacts are regularly observed in programme evaluations, health outcomes result from many complex factors and it is difficult to generalise the impact of one intervention.

Yet even if a more robust monetised case were available, there may be other challenges to incorporating these at a national policy level. Many of the described impacts affect public spending, for example on welfare (reduced unemployment benefits) or health services, but these can be spread across a number of different public budgets making co-ordination challenging.

We should also question what other narratives are necessary – both to encourage governments to make energy efficiency a public spending priority, and also to encourage householders to privately invest in insulation as a home improvement. Encouraging a more comprehensive view of the impacts of actions will help us to build a positive story that uses both quantitative as well as qualitative values.

 

Moving forward

The Energy Secretary Amber Rudd says the government is committed to energy efficiency, but with the scrapping of the Green Deal and ongoing uncertainty over the future of ECO beyond 2017 it is uncertain how this sentiment will translate into action.

Yet there is a mounting case that energy efficiency has high value for money as a public investment, prompting calls from many organisations for the UK Government to follow in the steps of the Scottish Government and recognise energy efficiency as a national infrastructure priority. And when the estimated benefit-to-cost ratio is compared against many other infrastructure investments, for example HS2, energy efficiency performs favourably.

The lack of robust empirical evidence remains a challenge going forward. On top of that the current political climate of economic austerity makes a large front-loaded public investment difficult to digest for many policy makers.

Admittedly, greater inclusion of the wider benefits into decision-making will take time, require more evidence gathering and improved evaluation methods, and a shift in political thinking may even be necessary.

That said the increased attention in the value of energy efficiency and the recognition it is gaining is undoubtedly a positive step forward, and the number of innovative pilots taking place at the moment - around the interaction between health and energy efficiency - is also encouraging news. There is definitely progress on the way and it is very welcome. We just hope that more people can get as excited about it as we do!

 

[1] Cambridge Econometrics and Verco (2014): Building the Future: The economic and fiscal impacts of making homes energy efficient. Final Report for Energy Bill Revolution, London.

[2] Age UK (2012): The cost of cold: Why we need to protect the health of older people in winter; Age UK, London.

 

Joseph Cosier is the policy officer for the Energy Saving Trust.
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