1. EEC3 – The Way Forward Presentation to NIA Annual Conference 12 December 2006 By Iris Rooney, Defra

2. Summary Context Energy Review Role of EEC EEC3 Initial Consultation Supplier Obligation Role of Insulation Industry

3. Context (1) Demand for household energy services rising on average 1.5% (0.6MtC) per annum Currently offset by improvements in energy efficiency of about 1% per annum Energy use in household sector needs to fall by approx 1.8% to be on track for 2050 goal. Requires action on multiple fronts - new and existing buildings, technology and behaviour

4. Context (2): Household Carbon Emissions Households were responsible for 27% of UK carbon emissions in 2004 By fuelBy end use

5. Addressed the 2 major long term challenges in UK energy policy: -climate change & reducing carbon emissions -secure, clean energy at affordable prices Commitment to competitive energy market Aim is to set right regulatory framework to enable the market to move in the right direction to meet long-term challenges Energy Review (1)

6. Energy Review (2) – Energy Efficiency & the Household Sector New homes - long-term goal of carbon neutral developments Product Policy - transform markets Improved information - better billing & In-House displays + smart metering trials Distributed Generation - consented developments Existing Homes - EEC3 and supplier obligation post-2011

7. Role of EEC (1) EEC1 delivered 0.4MtC pa in 2010 £600m investment in energy efficiency For every £1 spent by suppliers, householders benefited by £9 50% of EEC1 and EEC2 activity targeted at Priority Group

8. Role of EEC (2) EEC2 already making significant contribution to increased carbon abatement targets – expected to deliver 0.62 in 2010 At the half way point, suppliers have achieved 76% of the target Insulation activity accounted for 88% of these savings

9. Role of EEC (3) Targets will be increased by 50-100% over EEC2, delivering 0.9MtC to 1.2MtC Unlimited carry-over of activity from EEC2 to EEC3 Use experience gained from EEC3 and money announced in Budget 2006 for smart meters trials to inform developments of post-2011 approach

10. EEC3 Initial Consultation (1) Successful passage of the Climate Change and Sustainable Energy Act presented new opportunities Consider smooth transition to the 2008-11period Inform Statutory Consultation in spring 2007

11. EEC3 Initial Consultation (2) – Key Themes A.Climate Change and Sustainable Energy Act B.Transition to 2008-11 C.Equity Issues D.Opportunities for trading

12. A. Climate Change & Sustainable Energy Act Move to carbon emission reductions target instead of the current energy efficiency target More options for delivery of carbon savings & reduced consumption of energy from grid: -Eligibility of microgeneration measures -Eligibility of other measures affecting consumer demand

13. Climate Change and Sustainable Energy Act (2) Explore scope for greater innovation Possible approach of “ring-fencing” a limited proportion of each supplier’s target that could be met by unproven measures or trials

14. B. Transition to 2008-11 EEC3 will be 50-100% bigger than EEC2, with unlimited carry-over Energy suppliers encouraged to make full use of transitional arrangements to start on EEC3 work early Possibility of setting the scores early for individual measures under EEC3

15. C. Equity issues Need to consider: -impact on low-income customers -cost-effectiveness in terms of carbon and fuel poverty objectives -what is technically feasible Implications of directing different levels of activity to the priority group

16. Equity issues (2) Potential for new mechanism to offer suppliers flexibility in meeting their priority group target Need to consider any approach in the light of the need to reduce carbon emissions and the impact of priority group consumers

17. D. Opportunities for Trading Findings on work on trading reported – views invited Trading of retrospective measures has been suggested, but this is constrained under EEC Possibilities post-2011 include tradable targets defined in terms of absolute carbon or energy demand

18. EEC3 - Next Steps EEC3: -Summary of consultation responses in January 2006 -Continuing discussions with stakeholders -Statutory consultation in Spring 2007

19. Supplier obligation (1) Early announcement in the Energy Review to give market long term certainty SO will need to incentivise all measures if we are to achieve 60% savings by 2050 – including cost- effective measures like insulation Formidable work programme ahead to determine the shape. Defra in the lead

20. Supplier Obligation (2) Process will include: Liaison throughout with key stakeholders, including the insulation industry Short update in Energy White Paper Call for evidence around May 2007 Formal consultation end 2007 Website coming soon …

21. Insulation Industry (1) Government needs your support to deliver its challenging carbon and fuel poverty objectives Insulation remains a cost-effective way of achieving large-scale carbon reductions

22. Insulation Industry (2) You have made a major contribution to the success of EEC to date and effectively met the challenge of increasing demand We expect insulation to play a major role in EEC3 Look forward to the industry’s continuing constructive input to the development of EEC3

23. Contact Details EEC3 Consultation can be found at EEC3 - Iris Rooney at iris.rooney@defra.gsi.gov.ukiris.rooney@defra.gsi.gov.uk