Autumn statement: energy consumption target to impact buildings and industry

Siobhan Cross, Nicole Livesey and Michael Watson of Pinsent Masons were commenting after Jeremy Hunt unveiled a new target to reduce energy consumption from buildings and industry by 15% by 2030, against 2021 levels, in his autumn statement.

Limited detail on the plans were set out in the autumn statement paper the Treasury issued to accompany the chancellor’s speech. It confirms that the intention is for the target to be delivered through a combination of public and private investment and a range of “cost-free and low-cost” measures aimed at reducing energy demand. A new energy efficiency taskforce (EETF) is being set up to lead on the delivery of the new target.

The Treasury said: “The government is announcing a new long-term commitment to drive improvements in energy efficiency to bring down bills for households, businesses and the public sector with an ambition to reduce the UK’s final energy consumption from buildings and industry by 15% by 2030 against 2021 levels. New government funding worth £6 billion will be made available from 2025 to 2028, in addition to the £6.6 billion provided in this parliament. To achieve this target, a new EETF will be charged with delivering energy efficiency across the economy.”

Climate and sustainability expert Michael Watson said the ambition and long-term nature of the commitments was to be commended but warned of the challenges ahead.

“Previous initiatives have been challenging to implement and it will be a case of learning the lessons from those initiatives and what worked and what didn’t to ensure this ambition is achieved,” Watson said.

“Critically, any initiative such as this requires a combination of regulatory change and compulsion on the one hand, and financial incentives and support on the other: both are important. Whilst it may be a difficult message in times where government is focussed on spending restraint, generally in the early stage of implementing an initiative like this the ‘carrots’ of financial support and incentives often have the most impact – crowding in participants to generate a vibrant and competitive market in energy efficiency and enhancing innovative behaviour. Once the market expands and is proven to be effective, support can be scaled back,” he said.

Nicole Livesey, who specialises in advising manufacturing businesses, said that, from an industry perspective, the target will be challenging but not unexpected.

“Many businesses will already have initial plans in place to achieve greater efficiencies, but it will be important to ensure that any government support is clear and easy to access,” she said. “Heavy industry, in particular, will continue to need support focussed at investing in new technologies, processes and alternative sources of energy.”

Real estate expert Siobhan Cross said the new £6bn of funding pledged by the chancellor from 2025 to 2028 for energy efficiency in residential, business and public sector buildings is welcome, but warned it “falls far short of what is likely to be required”.

“In its June 2022 progress report, the Climate Change Committee said that the committed £2.5bn funding for the public sector alone was half what was required for the 2022 to 2025 period,” Cross said. “The failed Green Deal scheme and Home Improvement Grant scheme show the importance of well-conceived and implemented fiscal support which provides the policy certainty required to enable supply chains and investment in the required skills to develop and it is to be hoped lessons learned will inform any new support schemes.”

UK policy and regulation is likely to be developed to underpin the new target, according to the Pinsent Masons experts. Cross said new regulation to support energy efficiency in certain properties is eagerly anticipated by businesses in particular, and called on government to accelerate its plans for reform.

“If the EETF is serious about energy efficiency, it would do well to start by ensuring long-delayed proposals for regulation for increased energy efficiency in the residential and non-residential rented sectors through requirements for Energy Performance Certificates (EPCs) with required minimum ratings are progressed, as well as the proposed Performance Based Ratings regulation for larger owner occupied and rented commercial and industrial buildings,” Cross said. “The property industry is largely supportive of these measures and awaits the certainty the regulations would provide.”

Even with such reforms, however, there would remain a “huge policy gap” around energy efficiency of owner-occupied residential and smaller commercial and industrial buildings, said Cross. She said measures detailed in the 2021 heat and building strategy could be implemented to address this.

Cross said: “The heat and building strategy suggested some mandatory minimum energy efficiency standards might be introduced for these buildings, again based on EPC ratings with targeted support for SMEs. The consultation on this promised by the end of 2021 has not yet happened. It also envisaged green finance being unlocked for residential property.” 

The EETF should also carefully consider the policy options for financing energy efficiency improvements for buildings set out in the Climate Change Committee’s recent letter to the chancellor, which include government-backed loans and other tax and regulatory measures, Cross said.

“The use of energy in buildings contributed 20% of the UK’s emissions in 2021 and there has been little change in this figure over the last decade,” she said. “Energy efficient buildings are essential for decarbonised heat systems to work effectively. If the current energy crisis prompts an overdue recognition of the importance of tacking energy efficiency in buildings with the urgency it requires in this critical decade that is to be welcomed. Government needs to go further and faster on this issue than it has done in recent years.”

Michael Watson said the new target to reduce energy consumption from buildings and industry by 15% by 2030 plays into the UK’s wider climate obligations.

He said: “Such an initiative must be welcomed – it is at the heart of accelerating the delivery of UK climate targets as enshrined in law and reiterated at COP27. We know how challenging the energy transition is and how long the move to clean energy will take. Reducing consumption and usage of energy through energy efficiency support must be accelerated at the same time. The most energy efficient buildings will be less at risk of being stranded assets as the burden of high energy costs and increasing regulation increases. Mitigation and adaptation are both equally important.”