Press Story

The new 'Energy Company Obligation' (ECO) scheme will only scratch the surface of Britain's fuel poverty problem and may see the Government backslide on its carbon reduction commitments, according to a new report from the think tank IPPR.

From next year, ECO will oblige energy suppliers to improve the energy efficiency of fuel poor homes in order to tackle fuel poverty and reduce carbon emissions. It will replace existing policies (the Carbon Emissions Reduction Target and the Community Energy Savings Programme) by subsidising higher-cost measures which won't be available under the Green Deal.

IPPR's new report shows that while there are currently 2.7 million fuel poor households in England alone, ECO will take just 125,000 to 250,000 households across the whole of Great Britain out of fuel poverty by 2023. As a result, over 2 million fuel poor households will be left out in the cold.

The report warns that fuel poor households that do not receive support may be pushed further into fuel poverty by the policy. This is because ECO is likely to increase the cost of energy efficiency policies above the £50 cost that CERT and CESP puts on bills each year. The report shows that costs could rise because of uncertainties in the delivery of the programme including how the solid-wall insulation supply chain develops and how many households take up the Green Deal. While the ECO could cost less than CERT and CESP, as low as £20 per household, it could also cost more, up to £116 on the average bill.

The report shows the UK could also miss its carbon targets because of the ECO's focus on a narrow range of measures. The programme presumes that all outstanding loft and cavity walls will be insulated by the Green Deal - but if this presumption proves incorrect, the UK's total carbon savings will be far lower than deemed necessary by the Committee on Climate Change.

To ensure more fuel poor households can benefit from the programme, IPPR's report recommends that the efficiency of the scheme should be improved by piloting a new area-based approach to tackling fuel poverty and involving local authorities to a greater extent.

To reduce the risk of high costs and guarantee that carbon reductions are achieved, the report says that the Government should conduct a near term review of which energy efficiency measures should be included in the ECO.

Will Straw, Associate Director at IPPR, said:

"The Government's ambition with the new Energy Company Obligation is the right one. Improving the energy efficiency of Britain's housing stock is the most cost effective way to tackle fuel poverty and bring down carbon emissions.

"Nonetheless, ECO, working alongside the Green Deal, will barely scratch the surface of Britain's fuel poverty problem and may not deliver what is needed for emissions reductions. The policy will be paid for through consumers' energy bills and there are a number of uncertainties about the current cost of the programme. The Government must do more to ensure that their policy is as cost effective as possible. Funding local authorities to get involved and piloting a new area-based approach are both ways of improving the scheme. Focusing on low-cost improvements, like loft or cavity wall insulation, may also be needed."

Notes to Editors:

IPPR's new report - Energy efficiency: Who pays and who benefits? - will be available from: http://www.ippr.org/publication/55/10051/energy-efficiency-who-pays-and-who-benefits

The report says that the Energy Company Obligation marks a radical change from previous obligations that have been placed on suppliers:

It is the first suppliers' obligation to specifically aim to tackle fuel poverty. All energy bill payers will bear the cost of the policy because suppliers will pass on their costs. Only certain types of household, however, stand to benefit from efficiency improvements.
It will oblige suppliers to deliver high cost energy efficiency improvements, such as solid wall insulation, rather than low cost improvements, like loft or cavity wall insulation.
Low cost improvements will mainly be delivered by the Green Deal, which will be introduced alongside the Energy Company Obligation. The Green Deal will enable households to install measures at no-upfront cost, with payment taken directly from the savings that households make on their energy bills. Green Deal financing will not cover high cost measures or be appropriate for fuel poor homes, which is why the Energy Company Obligation is needed.

The report says the Energy Company Obligation, combined with the Green Deal, will result in just 125,000 to 250,000 households being taken out of fuel poverty by 2023. But the number of households in fuel poverty is far greater than this. In England alone the number of fuel poor households under John Hills' new definition is around 2.7 million - or 10 to 20 times the ECO audience. IPPR estimates that £17.5 billion of investment would be needed to lift all households out of fuel poverty in England. At the current level of expenditure this would take over 32 years to achieve if all available resources were spent in England.

The report says the Energy Company Obligation, combined with the Green Deal, will achieve just 26 per cent of the emissions reductions achieved by current obligations on suppliers and only 40 per cent of the savings that could be achieved through low cost measures like loft insulation top-ups and cavity wall insulation. The Committee on Climate Change has stated that failure to install all available loft and cavity wall insulation within the decade will result in the UK missing its legal emission reduction targets.

Contact:

Tim Finch, 07595 920899, t.finch@ippr.org