Is UK policy making industries more energy efficient? – A discussion of existing evidence and industry comments

Panel: 3. Matching policies and drivers: Policies and Directives to drive industrial efficiency

This is a peer-reviewed paper.

Authors:
Tamaryn Napp, Grantham Institute for Climate Change, Imperial College London, United Kingdom
Ajay Gambhir, Grantham Institute for Climate Change, Imperial College, United Kingdom
Mirabelle Muuls, Grantham Institute for Climate Change, United Kingdom

Abstract

Untapped energy efficiency remains, but barriers prevent uptake: Many industries have already significantly improved their energy efficiency; yet studies show that cost-effective energy efficiency improvements of 10-20% still exist (AEA 2010). Despite obvious cost benefits, companies are not adopting these technologies. Effective policies are necessary to address these market failures and enable adoption of these technologies. It is uncertain whether current UK policies are achieving this goal.

UK policy landscape for industry is complex, overlapping and untargeted: Energy-intensive industries are subject to a range of climate change policies. Many fall under the Climate Change Levies (CCLs) and Agreements (CCAs), Carbon Reduction Commitment (CRC) and the EU ETS. Additionally, they are indirectly affected by policies impacting the electricity sector, such as the EU ETS, Renewables Obligation and carbon price floor. Despite industry’s significant share of UK CO2 emissions – 21% in 2009 (DECC 2011) – policies do not target this sector specifically. Heavy industry is lumped together with the power generation sector under the EU ETS, and light industry with the buildings and retail under the CCLs.

The industrial sector differs sufficiently from other sectors to require directed attention: Industry is highly diverse. Many efficiency improvements are process specific; it is crucial that firms are at the forefront of R&D in their own processes. Firms also need to maintain competitiveness in an international market. The allocation of free allowances attempts to address this problem, however this relies heavily on accurate and up-to-date benchmarking of firms. It also encourages complacency in qualifying firms. Martin et al. (2010) found that companies that narrowly missed qualifying were significantly more active in clean innovation compared to those that narrowly qualified.

Through a combination of literature review, primary research across a large sample of industrial respondents, and structured interviews with industry, this paper assesses the efficacy of climate policies, giving rise to a number of reflections for future policy design and implementation.