Blog: Energy efficiency deserves a place in any stimulus package

Professor Karen Turner and Dr Fiona Riddoch from the University of Strathclyde Centre for Energy Policy outline why new thinking shows energy efficiency investment can cut costs, improve health and boost the economy.

On 6th September 2016 Nicola Sturgeon announced a stimulus package to support the Scottish economy following the EU referendum result, including a welcome £20 million investment in energy efficiency measures. The inclusion of energy efficiency investment in the Scottish Government’s stimulus plan reflects a new perspective. Economic thinking around energy efficiency is changing. As the wider impacts of energy efficiency are explored, multiple potential benefits emerge- from job creation to reduced pressure on the NHS. Our research at the University of Strathclyde highlights the benefits of the lasting economic stimulus triggered by improving energy efficiency.

It has long been recognised that insulating, upgrading and renovating buildings creates work and jobs during the upgrade process. By putting money into building projects, this investment stimulates the construction sector in turn.

But new thought on energy efficiency takes a broader view of the economy, beyond the initial building project. It first recognises that further benefits are delivered through the supply chain for building and insulation materials. Once the project is complete, the building is less costly to run. Some of those saved costs will of course be spent, going back into the economy, further boosting jobs and growth. However, crucially, reduced energy bills will release household disposable income to spend on other things, which will have lasting economic expansionary effects.

The new thinking does not stop there. There is mounting evidence of links between warm dry homes and mental and physical health. A well refurbished, energy efficient house is an environment which keeps people more healthy, meaning the NHS will also benefit from reduced pressure on its resources.

Our research at the University of Strathclyde Centre for Energy Policy explores the ‘multiple benefits of energy efficiency identified by the International Energy Agency, including in macroeconomic expansion, improved public budgets, energy delivery, and improved health and well-being.

We focus on the detailed nature of benefits for the Scottish and UK economies of successful energy efficiency policy initiatives. Our research has shown that there are lasting potential benefits for the economy resulting from increased real disposable income energy bills fall. This leads to spending-led economic expansion, resulting in increased employment, investment and household incomes, and adding to the benefits of the energy savings that are often the initial focus of policy actions. If all UK households were to improve their energy efficiency by around 5 per cent, we estimate that this would add up to a lasting GDP boost of up to 0.1 per cent. These findings support the Scottish Government’s inclusion of energy efficiency investment in an economic stimulus package.

A key lesson from our research is that policy makers should be sure to consider the resulting and, crucially, lasting economic expansionary effects of energy efficiency in helping to recover the costs to public and private purses alike.

There are several organisations working to promote a strong energy efficiency policy for Scotland and which are advocating the new energy efficiency thinking to Scottish policy makers. The Existing Homes Alliance (EXHA) and Energy Action Scotland see that there are many reasons to improve all inefficient homes. Our own research highlights the benefits of the lasting economic stimulus triggered by improving energy efficiency.

The Scottish Government is currently developing a new energy efficiency programme for Scotland (SEEP), but it has yet to outline exactly what this programme will deliver. One vision for this programme has come from the Existing Homes Alliance, who call for all homes to be brought up to at least an Energy Performance Certificate rating of  ‘C’ by 2025, an ambition that they say would eradicate fuel poverty and achieve Scotland’s climate targets. To deliver this, a programme of grants and incentives, backed by regulations, would be needed.

Doing more on energy efficiency is likely to bring bigger benefits, provided that measures implemented via Scotland’s new energy efficiency programme are carefully crafted and outcomes are sufficiently monitored.

  • Professor Karen Turner, Director, and Dr Fiona Riddoch, Senior Knowledge Exchange Fellow are both from the Centre for Energy Policy, University of Strathclyde International Public Policy Institute.

A version of this article appeared in the Herald on October 13.  

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