Royal Commission on Environmental Pollution

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Contents

Introduction

1. Sustainability and energy: a framework

2. Facts, trends and scenarios

3. Layer 1: Energy efficiency

4. Layer 2: Reduce energy impacts

5. Layer 3: Living within limits

6. Layer 4: Energy-independent quality of life

7. Comparing the layers

8. Suggested areas for the Commission to focus on

Appendix: Kyoto

Lists of tables and boxes

References

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INTRODUCTION

This paper was produced between January and March 1998 for the Royal Commission on Environmental Pollution as background for its study of energy and the environment. It was researched and written by Roger Levett and Riki Therivel of CAG Consultants with Jane Carlton-Smith.

The paper aims to provide the Commission with a clear and uncluttered 'map' of the main interpretations of sustainability / sustainable development which are affecting policy and their implications (both common and contrasting) for the energy sector. The paper's main focus is the UK. The analysis and comments refer to the UK unless otherwise stated. However neither energy nor sustainability can be understood at the level of one country in isolation, so implications for the rest of the world (and the UK's role in it) are discussed wherever necessary. The paper was based on a literature and internet search and the team's own previous work.

The text includes a number of boxes which give short definitions and explanations of key concepts. The authors apologise in advance if some of them seem to labour basic points. We have deliberately erred on the side of 'overexplaining' since lack of clarity (and sometimes deliberate confusion) have often made sustainability appear far more complicated, mysterious and confusing than it actually is.

1. SUSTAINABILITY AND ENERGY: A FRAMEWORK

This chapter sets up a framework, used in the rest of the report, for classifying different definitions of sustainability and considering how they relate to the energy sector (see Box 1).

1.1 Definitions of sustainable development

The two most widely quoted definitions of sustainability are the Brundtland Commission's (World Commission on Environment and Development 1987):

"Development that meets the needs of the present without compromising the ability of future generations to meet their own needs",

and that by the World Conservation Union (1991):

"Improving the quality of life while living within the carrying capacity of supporting ecosystems".

Both definitions are moral precepts. Whether they should be followed is ultimately an ethical question outside the scope of this report, which concentrates on the practical question: if these precepts were followed, what they would entail for the energy sector?

Energy is very widely agreed to be a central issue for sustainability because:

• Energy supply involves use of natural resources, either finite or renewable;

• Several of the most contentious global and international environmental issues - climate change, acidic emissions, radioactive wastes and accident risks - are largely due to energy;

• Most forms of energy use produce environmentally harmful pollution and wastes;

• Energy installations (both traditional and 'alternative') may damage local environments;

• Services based on energy make a major contribution to quality of life;

• Many forms of energy extraction and use also cause substantial damage to human health and quality of life;

• Energy forms a major part of all developed and developing economies.

However a wide range of different and sometimes conflicting energy policies and programmes are advanced in the name of sustainability. This may reflect the view that the classic definitions (quoted above) have been so widely popular partly because they are ambiguous and can support varying interpretations. Certainly they raise some big issues of contention relevant to energy:

• What are the needs of the present? Who is to say? How are needs distinguished from lesser demands or preferences? Is it possible to satisfy all needs of all people - and if not, how do we decide which needs, and whose, take precedence?;

• Will future generations have different needs? How can we predict what needs people not yet born will have?;

• What constitutes quality of life? Who is to say?;

• No path of development will affect all peoples' quality of life evenly - so whose quality of life should take precedence; and how will such precedence be decided and implemented?;

• What are environmental carrying capacities; can they be measured objectively and accurately? (See box 2);

• How can we decide which carrying capacities matter (to avoid paralysing all human action); why should even these 'important' carrying capacities take absolute priority over other policy objectives?

Moreover not all the contention is due to honest differences of opinion. Huge commercial and geopolitical consequences ride on what sustainability means, nowhere more than in the energy sector. Unsurprisingly, interpretations tend to correlate to vested interests:

• Oil exporting countries and companies whose profit depends extracting fossil fuels tend to argue that doing so is sustainable - or at least that it is too early to be sure it is unsustainable;

• Nuclear power station owners present their industry as the sustainable answer to fossil fuel;

• Climate scientists argue that the workings of climate change are both complex and mysterious enough to require huge research efforts to unravel, but also clearly grave enough to justify paying for it;

• Technologists emphasise the potential of technical fixes to resolve sustainability problems;

• Advocates of free trade blame market barriers and interventions for failures to adjust, while critics of the free market economy indict it as the main driver of unsustainable behaviour;

• 'Have' and 'have-not' countries come to different conclusions about what fairness means.

1.2 Representative interpretations of sustainability

Rather than try to argue for a single 'correct' definition, this paper seeks to show the energy implications of a range of current interpretations of sustainability. At least 150 definitions of sustainability are in circulation (Pezzey 1991). To keep the process manageable this paper groups them into a handful of 'schools' of interpretation - broad overall outlooks which between them can capture the main features of the range of views on offer.

The classification shown in Table 1 makes no claim to be a comprehensive or rigorous taxonomy. It is a sweeping simplification of one of the most complex, loaded and many-dimensioned policy debates of our time. It is intended simply as a tool to make relevant features clearly and conveniently available for a particular purpose.

Sustainability is almost universally agreed to be in some sense about the interaction of environment, society and economy. However, the different ways these are understood provides a convenient basis for defining and distinguishing these schools of interpretation.

Table 1: A map of interpretations of sustainability

First, we distinguish views by how strongly environmental considerations should influence or constrain human activities - notably, for present purposes, energy related activities. Views range from 'light green' - focus on reducing and ameliorating unnecessary waste and pollution, through 'mid green' - concern to reduce humankind's environmental impacts overall - to 'dark green' - the view that the environment's capacity to support human activities is limited, measurable and currently exceeded; that living within these limits should be an absolute constraint on policy, and requires drastic reductions in current consumption, notably of fossil fuels.

Second, we can distinguish views on how they treat the relationship between the economy and society. At one end of this scale is the view that economic development, growth and consumption are good and desirable without qualification, and that a prime duty of politics is to allow free markets to deliver them with the minimum of interference. The 'middle' part of this scale brings in the ideas that markets need to be managed, that the kind of economic activity matters as well as its volume, that quality of life is more than standard of living, and that public policy should constrain and define markets rather than the other way round. The 'far end' of this scale argues that quality of life is quite distinct from material consumption; that measures of economic activity do not tell us anything meaningful about quality of life, and that markets are as often the problem as the solution.

Table 1 uses these two scales - 'light green' to 'dark green' and 'market primacy' to 'quality of life primacy' - as axes on which we can plot different views of sustainability.

1.3 Selected interpretations

The analysis in the paper concentrates on the four boxes shaded in Table 1 because between them they encompass most of the ideas, actions and proposals current in 'mainstream' debate in the UK in early 1998. These four also show a logical progression: each successive one helps address problems thrown up by the previous one, but raises further questions for the next. Each of them largely builds on the previous ones, adding an extra layer of ideas and kinds of action rather than starting from scratch. For this reason they are presented and referred to as successive 'layers' in the paper, especially in chapters 3 to 6 which explain and explore each of them in more detail.

The four layers also roughly reflect the historical development of policy debate over the last 20 years. However it would be a mistake to impute too much order and tidiness to the process. The new Government's clearest policy statements on sustainability and energy reflect the outlook of the third layer, and the most recent ones (notably Department of the Environment, Transport and the Regions 1998) give some hints of the fourth, but much of current discourse and practice are still based exclusively on the first and second. The fourth has however been well articulated and understood in some intellectual and political circles at least since the early 1970s (see for example Chapter 2 of Reid 1995), and draws on strands of social thought which go back 100 years to the Arts and Crafts movement.

1.4 Interpretations not discussed further

The empty 'top right' of the map

The two axes in Table 1 are logically independent, and it is be possible to define views at any point on the 'map'. Soviet style communism would fall in the 'top right' of this table: strongly critical of free market capitalism but with no sense of environmental scarcity or responsibility. However most positions currently seriously argued are on or near an 'L' shape. Since the decline of the centrally planned economies, dissent from belief in free markets has tended to come together with 'dark green' environmental views. There are 'greens' who are not red, but since 1989 few 'reds' who are not also green.

'Muddling through'

The 'muddling through' box is arguably the one nearest to the 'centre of gravity' of current UK politics and practice. It may therefore seem surprising that it is not one of the interpretations chosen for detailed discussion. The reason is that this box is not so much an 'interpretation' as a muddled amalgam of elements borrowed from those adjacent to it. Its elements can be more clearly explained as part of the different coherent interpretations to which they logically belong. This provides a basis or orientation for the discussion in chapter 10 of the range of current practice and the Commission's potential input.

Contrarian views

At the top left of Table 1 come 'contrarian' views. These are a range of positions, not all consistent with each other or held by the same people, characterised by denial either that there is any genuine problem of sustainability or that it warrants any specific response, at least in the foreseeable future.

'No problem' contrarian views include the following:

• It is too soon to say there is a problem, or the evidence is ambiguous or insufficient. For instance, global warming is not occurring, or is occurring more slowly than predicted, or is an artefact of over-enthusiastic analyses of limited data (Pearce, F 1997);

• The ecosystem has always changed and always will; current changes are just part of the normal pattern; (Lowe 1998 presents evidence that dramatic climate change is normal, although without drawing any contrarian conclusions;) humans are, after all, part of the natural order so it makes no sense to distinguish 'natural' from 'unnatural' change;

• Sociological conspiracy, eg "The IPPC [intergovernmental Panel on Climate Change] is dominated by guys from the bottom of the heap, such as geographers" (Pearce, F, 1997). The obvious professional motivation for climate researchers to interpret the available evidence in ways that maximise both importance of climate change and the uncertainty about it was noted in Bohmer-Christiansen, 1995;

• Even if there is a sustainability problem, there are big safety margins within which we can make necessary adjustments

'No action required' contrarian views include the following:

• Technology will fix it. Modern industrial society has proved spectacularly good at inventing and spreading new technologies to meet needs and solve problems not even imagined a generation earlier. On the last 200 years evidence there is every reason to be confident that we will develop the technologies needed to deal with any environmental threats that actually come about without economic development even faltering in its stride;

• Markets will fix it. If and when environmental changes seriously impinge on human welfare, escalating costs for environmental goods will lead automatically to market adjustments to conserve them (provided governments refrain from their usual bad habit of getting in the way). Market demands for environmental protection will create business opportunities to which inventors and entrepreneurs will respond by creating the relevant goods and services;

• The 'earth system' will adjust to accommodate human impacts. Contrarians can already observe that many climate scientists now conclude that the greenhouse effect is weaker than had been previously predicted because acidic emissions partly counteract it; they point to the huge complexity and self-regulating capacity and argue that there is more reason to expect 'damping' (negative feedback) than 'runaway' (positive feedback) change.

Technically these views fall outside the remit of this paper since they are clearly 'anti-sustainability'. In recent policy discussions they have been widely condemned as eccentric, disingenuous or both. This does not, of course, mean they are untrue. The fact that some contrarian scientists and commentators are lavishly funded by fossil energy producers does not necessarily mean they are wrong. What are now highly respectable 'environmental limits' views were dismissed in the same way when first articulated in the 1970s. So it is worth summarising and keeping in mind the main 'contrarian' critiques, if not to discuss them in detail.

Ecocentrism

All the views mentioned so far are anthropocentric - concerned with the environment as basis of, or contributor to, human wellbeing (however broadly or narrowly this is defined). To (as it were) the 'far right' of Table 1 lies the 'ecocentric' position that the planet has value not only as a source of human gratification but in itself. This view has to grapple with the logical difficulty that if we avoid projecting human values onto the natural world it is not at all clear what basis we can have for saying that the ecosystem itself 'prefers' or 'wants' ecological stability or protection of any particular species, habitats or places.

Indeed if we try to deduce the planet's own 'preferences' from the only available evidence, its record of behaviour before human intervention became significant, we can hardly avoid concluding that it has a pronounced taste for periodic cataclysmic ecological convulsions which transform the character of its surface and wipe out vast swathes of its inhabitants, and that even between these its characteristic state is continual fidgety oscillation and adjustment rather than stable balance. (For example see Lowe 1998). This provides scant reason to claim the planet itself has any objection to the changes humans may currently be causing. Invocations of the beauty or spirituality of particular places or landscapes strike non-ecocentrists not as glimpses of the majesty and value of nature in itself but simply as expressions of a rather superior form of consumer preference.

However, whatever its justification, the passion with which many people identify with and defend particular places, species or environmental qualities is real enough. It is an important driver and energiser of at least some members of the sustainability movement (although many others are exasperated by the assumption that you can not be a real environmentalist if you do not yearn to wander through remote wildernesses hugging the trees.) So although ecocentrism is, like contrarianism, technically outside the scope of sustainability, it needs to be kept in mind as an important part of the context of sustainability discussion.

2. FACTS, TRENDS AND SCENARIOS

2.1 Global context

Table 2: Shares of world energy consumption and production, 1993

In general, OECD countries consumed more than half, but produced only slightly more than one third of all commercial energy in 1993, demonstrating their dependence on imported energy supplies (World Resources Institute, 1996); the UK however is currently only partially dependent on imports of primary electricity and coal.

Global energy production increased by 40% between 1973 and 1993, while consumption rose by 49%. Consumption in OECD countries remained more or less constant and in developing countries increased almost three-fold (World Resources Institute, 1996). Growth in consumption per capita, as shown in Table 3, has been more gradual.

Table 3: Energy consumption per capita

Source: adapted from BP Co plc (1997) p 40

Liquid fuels, primarily petroleum, continue to dominate world commercial energy production (40%) and oil dominates the international trade in energy because of its ready portability. More than 65% of oil resources are located in the Middle East. Natural gas now supplies 23% of global commercial energy and Russia holds the largest reserves, with about one third of the world total and more than ten times USA reserves (World Resources Institute, 1996).

2.2 UK energy production

Fuels used for the production of primary energy vary considerably throughout the world as shown in Table 4.

Table 4: Fuel mixes for primary energy production in 1994

The UK is far less dependent on coal than many of its European partners or the USA, is highly dependent on fossil fuels from the North Sea oil and gas fields and is likely gradually to phase out the contribution to primary energy production by nuclear generation (28% of the electricity generated in the UK in 1996). Even now, the proportion of primary production from nuclear energy is much lower than the European average; by contrast, Japan is almost solely reliant on nuclear energy as a source of primary production.

Another way of analysing UK fuel dependency is to look at the fuel used in electricity generation on an energy-supplied basis, as shown in Table 5.

Table 5: Changes in types of fuel used for electricity generation

Source: DTI (1997c) p 133

Table 5 shows the response to 1990s CO₂ emission forecasts and targets, namely the "dash for gas" and the effects of full implementation of the latest (and last?) nuclear power station to be built. Given that coal used in power stations represented 77% of total coal consumption in 1996 (contrasted with 26% in 1960), this confirms the decline of the UK's historic dependency on coal, set in the context of other developed countries in Table 3.

The UK's dependency on fossil fuels has reduced from 97% of primary energy supply in 1970 to 88% in 1995, but is still 9th highest of 27 OECD countries, although 17 of them depend on fossil fuels for >80% of primary energy supply) (DTI, 1997a).

In 1996, 28% of electricity generated in the UK was from nuclear power stations. Total nuclear generating capacity represents about 17% of total UK capacity (DoE, 1996), but since capacity most often exceeds demand and nuclear power is "last off the grid", the nuclear industry receives preferential supplier status. Its contribution to primary energy consumption was about 9.5% (DTI, 1997a), compared to almost 25% for OECD countries as a whole (Parks, 1997).

Nuclear prospects

The European Commission (1996) predicts that nuclear electricity will increase by 1% between 1990 and 2005 as plant under construction comes into use, but that nuclear energy supplies will show less growth than any other source in the period to 2020, averaging about 0.5% per annum, unless their contribution to the reduction of CO₂ emissions gives rise to international policies to expand the nuclear sector.

In 1995, the government believed that "nuclear power's future role in the UK's electricity supply will depend on it proving itself competitive while maintaining rigorous standards of safety and environmental protection" (DTI, 1995). Also in 1995, DTI Energy Paper 65 commenting on electricity supply projections and demand for fuels: "nuclear fuel inputs move in line with capacity, declining post-2000 and forming only a very small proportion of total fuel inputs in 2020 (around 3-4%)".

The UK has no plans to increase the contribution made by nuclear electricity generation. According to McLaren et al (1998), "the UK industry is both economically and politically dead in the water". Observer Business (1998) states that "no new nuclear stations are planned for the foreseeable future" and Sizewell B is due for decommissioning in 2035. British Energy (which owns the eight most modern nuclear stations) is attempting to diversify overseas and invest in non-nuclear generation. In the US, it announced an alliance to acquire and manage under-performing nuclear stations, including the Three Mile Island plant and it recently announced its interest in doing a deal to take over 19 nuclear reactors in Canada. Perhaps the clearest indication of its perception of its future in the UK is that it has signed a joint venture with Southern Electric to build 20 small, gas-fired power stations for big users of electricity, currently delayed by the Government moratorium on new gas-fired generators.

Within the electricity pool, prices are about 2.3p per kilowatt hour (kWh); a radical overhaul of the market could lead to pool prices falling below 2p per kWh, leading to major losses for British Energy (who need 2.1p per kWh to break even, contrasted with 1.7p per KWh for gas and coal-fired stations).

Mike Parker and John Surrey of SPRU (Parker, M and Surrey, J 1995) describe the pro-nuclear bias in British energy policy from 1979 to 1992: its underlying objectives were to break the power of the miners' union, to demonstrate the failure of public ownership and to build a series of large nuclear reactors even though the need and the economics were difficult to establish. In spite of this government support for nuclear power, only one new reactor has been ordered and built since 1979 and the possibility of any further nuclear stations being built is extremely remote.

High level wastes, although small in volume, contain over 95% of all the radioactivity in wastes from nuclear establishments: production of such wastes decreased by 20% between 1986 and 1987, but increased by 38% from 1987 to 1994, reflecting an increase in nuclear power generation and fuel reprocessing (DoE, 1996).

Since 1993, overall primary fuel consumption in the UK has been fully met by indigenous production. Consumption slightly exceeds production for coal and primary electricity, while more petroleum and natural gas are produced than consumed (DTI, 1997c). Net imports of coal and electricity are more than offset by the trade balance for petroleum and its products.

2.3 UK energy use

In the UK, consumption per head of population is 2.5 tonnes of oil equivalent (toe, a standard measure of energy content) of primary energy (eg from coal, oil, natural gas, etc) each year (DTI, 1997c), slightly below the European average. Consumption as measured by final energy demand has remained much the same as in the early 1970s, before the first oil crisis, currently amounting to just over 150 million toe per year (DTI, 1997b).

Fuel use in different sectors in shown in Table 6.

Table 6: Sectoral fuel use (%)

For the transport and domestic sectors, there has been little change in the share for some time, while for industry the share of gas has remained the same, with electricity's share increasing at petrol's expense.

The sectoral shares of final energy consumption (65% of gross inland consumption of fuels) in the UK in 1996 are shown in Table 7.

Table 7: Sectoral shares of UK final energy consumption in 1996

Source: DTI (1997c) p 10

Road transport accounts for 80% of the transport demand, which increased by 87% between 1970 and 1995 (DTI, 1997a).

Energy consumption by sector has shown great changes in the 25 years to 1995:

• Road passenger energy consumption has nearly doubled (DoE, 1996);

• Road freight transport consumption increased by >60% (ibid);

• Service sector demand increased by 26%, but output increased by >90% (DTI, 1997a);

• Residential energy consumption increased by over 20% between 1970 and 1993, with overall growth driven largely by an increase in the number of households (DoE, 1996);

• However domestic sector average energy consumption per dwelling fell by 15% (mainly due to reductions in heat loss from dwellings) (DTI, 1997a).

The UK falls midway in the range of household energy use per person in OECD countries, at about 0.7 toe per person in 1995, similar to the Netherlands and Hungary. In contrast with France and Japan, where comfort levels have risen, and Canada and the USA, where energy efficiency measures have taken effect, the UK, in common with Italy, has seen only a small increase in household energy consumption per person between 1970 and 1994 (DTI, 1997a).

2.4 Projected future energy use

DTI projections for increases in energy use by sector up until 2020 are shown in Table 8.

Table 8: Projected increases in UK energy use to 2020

Likewise, the transport sector remains critical to energy developments in the EU to 2020. As the major single contributor to growth in EU final energy demand and CO₂ emissions over this period, it will account for between 42% and 55% of incremental final energy demand and 48% and (effectively) 100% of CO₂ emissions, depending on scenario (European Commission, 1996).

2.5 Policy targets

Significant relevant policy commitments include:

• The Protocol to the Climate Convention of 11 December 1997 committed EC countries to reducing 6 greenhouse gases by 8% compared to 1990 levels by the year 2010. The UK also unilaterally aims to reduce emissions by 20% by then (see Appendix);

• The government aims to increase electricity production from renewable sources to 10% by 2010 (Guardian, 30.10.97) and the European Union has proposed a target of 12% of gross inland energy consumption from renewables by 2010, doubling the existing level (DTI 1997a);

• The Government target of 4000 MW (megawatts - a measure of rate of energy output or use) of combined heat and power (CHP - see box 6) generating capacity by 2000 was raised in the Climate Change Programme to 5000 MW.

2.6 Scenarios

In response to increasing concerns about global warming, the Climate Change Convention of 1992, and anticipation of the Kyoto conference on climate change of December 1997 (see Appendix) several reports have presented future scenarios on energy and sustainability. These scenarios are all based on different assumptions about future world population, rates of economic growth, and energy intensity, as well as different units of measurement (eg electricity, total energy demand, CO₂ emissions). However all involve some combination of energy efficiency, renewables, and nuclear power: in other words, a combination of demand reduction and pollution reduction. Here only their main conclusions are noted.

The World Energy Council (1993) postulated four scenarios (from "high economic growth" to "ecologically driven") and concluded that energy demand is likely to grow 53-82% between 1990 and 2020. Even under the "ecologically driven" scenario, demand was still predicted to increase by at least 30%. The report concludes that stabilisation of atmospheric CO₂ concentrations is "far out of reach" over the next few decades. (However Mclaren et al 1998 p 122 refers to a 1995 WEC scenario with a much more optimistic message)

In contrast, Greenpeace (Lazarus et al. 1993) suggest that efficiency improvements, a medium-term switch from coal and oil to natural gas, and a major long-term transition to solar, wind and biomass energy could achieve 20% reductions in CO₂ emissions among industrial nations by 2005, and zero net CO₂ emissions by 2100. Greenpeace's preferred "Fossil Free Energy Scenario" also postulates faster rates of GDP growth - and more CO₂ emissions - in southern than in northern countries, leading to greater equity between those countries.

The European Commission's Directorate General for energy (DG XVII) (European Commission 1996) analysed four scenarios: business as usual, "battlefield" (world reverts to isolationism, power blocks and protectionism), widespread use of market mechanisms, and consensual and cooperative international structures. Only the last of these resulted in reduced CO₂ emissions by 2020. The report noted that the transport sector will be the major contributor to the growth in energy demand to 2020.

Norgard and Viegand (1994) considered electricity demand in Western European countries based on two scenarios, both involving better energy efficiency: one of continued economic growth, the other of "saturation", where electricity demand would level off because people prefer other benefits over increased income and consumption. Under the first scenario, electricity demand would drop to 83% of 1986 levels by 2010, but eventually continued economic growth would counterbalance efficiency savings and consumption would rise again. Under the second scenario, demand would drop to 55% of 1986 levels by 2010 and remain there, allowing nuclear and coal-fired power stations to be phased out.

Boardman et al. (1997) postulate three scenarios for future energy-efficiency in appliances: strong Europe-wide support, weak European but relatively strong UK support, and weak European and UK support. They suggest that, with strong European support, 20.9TWh of electricity (£59 per household, 2.7 million tonnes of carbon) could be saved each year, whilst with weak support 3TWh electricity (£8.50 per household, 0.4 million tonnes of carbon) could be saved.

Owen and Bates's (1997) review of existing studies on the practical potential for reductions in carbon emissions concludes that energy consumption could be reduced by up to 30% through cost-effective energy-saving techniques. About 30% of UK electricity could practicably be supplied from renewables by 2010. Combined heat and power installations and the switch from coal to gas are important contributors to CO₂ reductions, and transport requires a completely new and integrated approach.

Some authors (eg Lenssen and Flavin 1996, Kemp 1994) argue that all of these scenarios are too pessimistic, and that there is room for more hopeful thinking. They suggest that technological advances might leap rather than crawl forward: for instance, that fission or hydrogen might become commercially viable much earlier than predicted.

An alternative non-technocentric form of optimism is offered by McLaren et al 1998. The argue that an 79% reduction in UK carbon dioxide emissions is achievable by 2050 'without imposing excessive costs or hardship on the British people', relying only on 'easily predictable advances in technology', and even assimilating an increase in fossil generation consequent on complete closure of nuclear generation by 2010. The savings come from improved domestic and industrial energy efficiency, reductions in both car use and car fuel consumption levels, and increases in renewable generation and power sat 'All that is lacking is the will to do it'.

In terms of the four layers set out in chapter 1 the World Energy Council and Boardman et al scenarios represent layer 1 (energy efficiency); Greenpeace and the EC layer 3 (living within environmental limits); and Norgard and Vegand and Mclaren et al layer 4 (energy-independent quality of life).

3. LAYER 1: IMPROVING ENVIRONMENTAL EFFICIENCY

3.1 Objectives

The basic objective of layer 1 is to increase the energy efficiency - or reduce the energy intensity (see Box 3) - of the economy. This can be seen (and has been justified) as simply one specific case of the general desirability of improving economic efficiency by extracting the greatest possible economic output from all factors of production in order to achieve a higher standard of living at the same cost, or the same standard at lower cost (Bauer 1996).

For instance, the 1986 'Get more for your monergy' campaign clearly presented the message: get more warmth, production, benefits out of the energy consumed. This predated any concern with sustainability. Indeed Ministerial speeches through the 1980s promoted energy efficiency as a hard-headed, practical, realistic contrast to the sentimentality and perversity of energy conservation. The environmental message was only added after 1992 when it was recognised that energy efficiency was one of the few programmes which made any positive contribution to the sustainable development ideals the government endorsed at Rio.

3.2 The UK's current performance

GDP growth has indeed become "decoupled" from growth in energy use. Energy intensity (see Box 3) has decreased both in the UK and abroad. The UK's energy intensity decreased by 36% between 1970 and 1996 for the economy as a whole, and was the 11th lowest out of 27 OECD countries. Energy intensity has fallen sharply since 1970 in the industrial and domestic sectors and by a moderate amount in the service sector and this mainly reflects improvements in efficiency.

'It [energy intensity] may have increased a little in transport, or at least in road transport (DTI, 1997a). The inexactitude is because DTI have not decided how to measure energy intensity in transport (clearly GDP as the unit of output is inappropriate) and DoE (1996) do not attempt a statement about the trends, merely stating that the increases in fuel use and volume of traffic (passenger-miles and freight-tonne miles) are about the same, showing little change in efficiency of fuel use, in marked contrast to the industrial and commercial sectors. Increased fuel efficiency from improved engine design in both transport sectors has been countered by the advent of catalytic converters, higher safety standards, higher performance and a fall in bus use and the average number of passengers per vehicle.

In the OECD countries, GDP and electricity consumption doubled between 1971 and 1994, whilst energy consumption increased by only 25%, suggesting a reduction in overall energy intensity as the share of total provision by electricity increased (International Foundation for European Studies and Projects, 1997). In the European Union, final demand energy intensity fell 24% between 1975 and 1990 but electricity fuel intensity increased by 7.1% (European Commission, 1996).

Energy intensity has been shown to increase as infrastructure and heavy industry develop, going through a peak and then a steady decline as the service sector grows. The energy intensity of most industrialised countries is decreasing; that of developing countries is smaller than industrialised countries but increasing. Intensity in the UK is expected to fall by 1.2-1.4% per year between 1990 and 2005 (although it rose from 1990 to 1993) and then by 1.3-1.7% per year between 2005 and 2020 (DTI, 1997a).

These figures are based on economic activities within national economies. These trends may be partly explained by the move of energy-intense heavy industry from developed economies to developing ones. For example Levett (1998a) asks: 'Does a reduction in the energy intensity of the UK economy, as reported in the first set of national sustainable development indicators, mean we are dematerialising the economy - or just deindustrialising the country, and importing instead of making goods whose energy intensity is unchanged, but is now chalked up to another country's account?' Until the scale of this effect is measured and reported, it would be unwise to conclude from these figures that the latest stage in the evolution of the developed economies is 'better' for energy intensity and should be emulated by developing ones. It may simply be that - yet again -the first economies to reach a new stage of development are succeeding in dumping its consequential disbenefits on those behind.

3.3 Technical responses

Layer 1 thinking emphasises the great potential of technical responses. The scenarios quoted in chapter 2 suggest that efficiency could be improved by between 30% and 80%. The Intergovernmental Panel on Climate Change (1995) says that 'numerous studies have indicated that 10-30% energy efficiency gains above present levels are feasible at little or no net cost in many parts of the world through technical conservation measures and improved management practices over the next two to three decades. Using technologies that presently yield the highest output of energy services for a given input of energy, efficiency gains of 50-60% would be technically feasible in many countries over the same time period.'

Much of this improvement is achieved through increased thermal efficiency (see Box 4).

Energy supply/generation

The ratio of primary to final consumption in the UK has hardly changed between 1970 and 1994 (DoE, 1996). It takes over 1.4 toe to produce 1 toe of final energy (for example electricity or oil products). That is, over 29% of primary energy is lost in conversion processes and the distribution network. Sharp improvements in the efficiency of electricity generation since the early 1970s (DTI, 1997b) have been offset by a rise in the proportion of electricity in final consumption.

More sophisticated sensors and controls, retrofitting better designed components and better management can slightly improve the thermal efficiency (see box 4) in existing plant.

However major advances come from replacement with more thermally efficient types of generation. For example typical thermal efficiencies include:

• traditional large coal fired power station: 35%

• new combined cycle gas turbine (see box 5): 65%

• neighbourhood level combined heat and power plant (see box 6) 80%

Owen and Bates (1997) report that the "dash for gas" - the rapid building of new gas-fired power stations by the privatised electricity supply industry to reduce costs compared to coal - has reduced CO₂ five times as much as all the UK's nuclear power stations put together.

Vehicles and the transport sector

Vehicle technology has improved dramatically over the last 20 years. Cars are now lighter (in relation to their carrying capacity and safety performance), more aerodynamic, and have more and better spaced gears which apply the engine's power more efficiently. Car engines are more efficient in terms of power output to fuel consumption.

These trends are likely to continue. For example Renault developed a prototype car which travelled 100 miles on a gallon of petrol, and which was exhibited by Greenpeace at various motor shows in 1994 (McLaren et al, 1998, p 110). General Motors announced the development of 'hypercars' (as described by Amory Lovins) with half the weight, half the drag and hybrid-electric drive. Numerous other examples of manufacturing initiatives led Lovins to speculate that 'hypercars' may ultimately save as much oil world-wide as OPEC now sells. All the technologies now exist to develop models with 100-200 miles per gallon equivalent (the upper range using hydrogen fuel cells) and zero or equivalent zero emissions (Lovins and Hunter, 1998).

The Partnership for a New Generation Vehicle - a joint effort of US government and the US Council for Automotive Research - is mentioned in Difiglio (1997).

Domestic appliances

The Government's consultation document on a revised UK strategy for sustainable development (DETR 1998) notes that 'Of the existing energy consumption [in domestic lighting and appliances] 30-40% could be saved by improving the technical efficiency of the products and the way that consumers use them. For example the most efficient washing machine on sale in the UK today is rated to use 140kWh a year (while the least efficient new machine is rated at 510 kWh). The average machine currently in people's homes consumes 270 kWh.' Consumption of a 350 litre fridge-freezer can vary from 400 to 900 KWh per annum (Hinnells in Boardman et al 1995)

Industrial processes and equipment

Industry can improve energy efficiency in three ways:

Generic energy efficiency technologies

Many 'standard' energy efficiency techniques are applicable across a wide range of industries and processes. These include:

• 'Soft start' and 'variable speed' electric motors and drives. With appropriate controls these can save typically 30% of energy consumption compared with simpler (and cheaper) single speed ones by matching energy use more closely to demand;

• Low energy light fittings, and careful lighting design to make sure each activity or area has the appropriate level of lighting and no more. New lighting installations can often reduce electricity consumption by over 50% while improving comfort and safety;

• Insulation and draught protection (for example plastic strip curtains over external doors which vehicles can easily push through but which reduce loss of warm air by as much as 90%);

• Monitoring, controls and timeswitches to avoid unnecessary energy use;

• Appropriate sizing. In the past, generous safety margins were often regarded as good engineering practice, especially in boilers. Cautious estimates of process loads, addition of some contingency for expansion, addition of a further 50% safety margin can easily leave older industrial boilers grotesquely oversized for their purpose, and operating most of the time at extremely low (and inefficient) load factors - especially where unforseen efficiency improvements have meant actual demands have reduced. Better sizing can sometimes halve energy losses even without any other technical improvements;

• Modularity. In many processes, heat loads vary so widely that no one boiler could both meet maximum demand and work efficiently at typical lower demand levels. To cater for this, many boilers are now split into two or more modules which are brought in and out of service to match demand. Different-sized modules give the greatest flexibility. For example a 100 kW, 200 kW and 400 kW module can between them match, in 100 kW steps, any maximum load demand from 100 kW to 700 kW;

• Plant - level combined heat and power. Processes with steady, predictable demands for both heat and power are prime candidates for CHP. Paper making is an outstanding example. Electricity can be bought in from the grid to 'top up' CHP output when necessary, and excess power 'exported' to the grid, although the difference between the 'selling' and 'buying' prices available to private generators give them an incentive to minimise the need for such trading;

• Using process wastes as a fuel source instead of a waste disposal problem.

(Obviously the savings achieved depend on circumstances including how bad the previous position was. The figures quoted are typical from the literature -see for example the DTI-sponsored journal Energy Management between 1986 and the present. Far higher ones have been achieved.)

Process-specific 'clean technologies'

There are many opportunities to achieve 'step' changes in energy consumption through adopting 'clean technologies' specific to particular processes. For example:

• A bakery saved over 50% of the energy previously used to dry plastic crates after watching by replacing an oven in which warm air evaporated the water with an 'air knife' - a concentrated narrow blast of hot air which blew most of the water off, and only had to evaporate a small residue;

• A manufacturer of reinforced concrete pillars halved the energy required to dry the concrete by passing low-voltage current through the steel reinforcing rods, effectively using them as giant heating elements.

Waste heat recovery

This is described separately since it falls between the two previous categories - it is a generic approach whose application needs to be tailored very specifically to different purposes - and also because it is important enough to merit more explanation.

Although it had been applied ad hoc for many years, heat recovery and reuse (see box 7) only became a precise applied science about a decade ago, with the collaboration between a Swedish process engineer, Professor Bodo Linnhof, and British 'green industry' specialists March Consulting Group to develop an approach called PINCH which enables a process engineer to systematically squeeze the most out of process energy flows by analysing heating and cooling requirements at different points in terms of both temperature and quantity of energy. (See Linnhof - March 1986)

Energy end-use: building fabric

The physical energy efficiency in buildings (of all kinds) can be increased through:

• insulating the outer skin of the building - the roof, walls, windows and floor - to reduce the rate that heat is lost, and therefore the rate energy has to be provided to maintain a given difference between inside and outside temperature;

• controlling ventilation to avoid unnecessary heat loss through draughts (while keeping enough turnover of air for health, hygiene and comfort);

• improving the efficiency of all energy-using building services, such as lights, boilers, domestic appliances and plant such as lifts and air conditioning.

3.4 Institutional responses

The most significant institutional change over the last two decades has been the privatisation and deregulation of the energy supply industry. This was promoted in the name of improving economic efficiency through bringing private sector management disciplines, access to private capital and (latterly, and still not completely introduced) competition. It has succeeded in reducing energy prices to consumers, although whether the broader consequences, including large scale job losses across all the gas and electricity as well as coal industries, catastrophic loss of livelihood in mining communities, substantial replacement of coal as the main fuel for electricity generation by gas (a much more versatile fuel, but with much shorter reserves) were a price worth paying for cheaper energy is debatable, even assuming (as layer 1 does but higher ones do not) that cheaper energy is a good thing.

The former Central Electricity Generating Board aimed to optimise thermal efficiency across the whole network through the system of 'merit order' - using the most efficient power stations first, taking into account the different start-up times, regional loadings, maintenance and repair requirements, need for some 'spinning reserve' so unexpected variations in demand could be met. The post-privatisation generation 'pool' attempts to mimic this through a pseudo-market bidding process, although (in so far as it works) it optimises cost rather than energy efficiency.

The 'dash for gas' has greatly improved thermal efficiency - but not nearly as much as would have been technically possible had the UK promoted combined heat and power.

3.5 Managerial responses

Responses to date

Gaskell and Joerges (1987) stated that "the fundamental objective of the present government's energy efficiency policy is to price fuel at 'realistic', long-run marginal cost levels. The emphasis on pricing policy is a result of a broader free market economic strategy. In the context of energy it is argued that pricing policies both encourage consumers to use energy more efficiently and make energy saving investments more cost-effective and attractive. Thus appropriately set prices are the signals to consumers to make optimum decisions on energy efficiency. In pursuit of this policy, electricity prices rose 5% above the increase in the industry's costs, and gas prices rose 10% above the rate of inflation during the period 1980-1982"

Consistent with this overall market-led philosophy, positive action on energy efficiency has since 1983 been largely framed in terms of identifying and removing 'market barriers' to the uptake of energy efficiency technologies. From October 1983 onwards Ministerial statements and publications repeatedly referred to the main kinds of barriers and their corresponding solutions listed in Table 9:

Table 9: Market barriers and solutions

Limitations to responses to date

Other 'market barriers' were widely recognised but never responded to with any great commitment. Examples include:

• The 'landlord-tenant problem': landlords have little incentive to invest in energy efficiency measures when they do not reap the savings because tenants pay the fuel bills. Meanwhile tenants resist spending money to improve someone else's building, especially when the payback period exceeds their lease. So neither invests, although both could benefit if the costs and savings were shared (for example through rent adjustments);

• The 'too busy' problem. More important (or simply urgent) calls on management time prevent companies tackling energy efficiency.

Moreover the measures mentioned have generally only been pursued in a half-hearted way. For example:

• The Energy Conservation Demonstration Projects Scheme / Energy Efficiency Demonstration Scheme / Best Practice Scheme - has been essentially the same scheme since 1982. It has been rebadged several times, with new logos and literature but progressively reduced grant levels. Other schemes such as the Energy Survey Scheme, which for some time paid companies half the cost of an energy survey by a recognised consultant, were discontinued;

• Most energy performance labelling schemes have been voluntary, largely ignored by sellers, and therefore of little use to buyers. A relatively determined and consistent effort to interest housebuilders and estate agents in energy rating of housing through the late 1980s was thrown away by the Government's imbecilic decision, in the name of 'competition', to refuse to choose between two incompatible methods of rating on offer. Even those companies sympathetic to the idea held back from committing themselves to see which method would win. By the time a method of reconciling the two methods was developed, the impetus had been lost;

• There has been little support (for example by way of grants or tax incentives) for implementing energy efficiency measures, only for pilot / demonstration projects. In consequence many of these have hardly been replicated despite demonstrating impressive results.

Arguably the most effective measures have been the few that do not fit this 'market barriers' model - old-fashioned regulation (notably the Building Regulations) and Homes Energy Efficiency Scheme grants. The Home Energy Conservation Act, which gives local authorities a statutory duty to make plans to improve domestic energy efficiency in all tenures working towards a 30% improvement target, may prove more influential still.

Potential for more action

Increased investment in simple energy saving measures could reduce CO₂ emissions by 14% (20mT CO₂) and consumer energy bills of £1.6 billion annually, and create up to 20,000 jobs (EST 1997).

Even within the framework of layer 1 a great deal more could be done. This section merely identifies a few opportunities.

Pass through of energy related costs to decision takers

Legislation governing property leasing could encourage (or even require) energy costs to be identified separately and passed through to tenants rather than bundled up into rents. This would encourage both sides to make investments - tenants because their energy costs would be visible and directly controllable; landlords because they would be able to charge higher rents for more energy efficient premises.

Information

Energy performance information could be made mandatory, consistent and conspicuous, for example through:

• a requirement for every house or flat offered for sale or rent to be energy surveyed and the survey report, energy rating, predictions of likely energy costs and recommendations for action to be included in a standard form in the particulars;

• standardised fuel consumption figures to be quoted in all car advertisements, not only the ones that choose to make claims about economy, and in type as big as the main text of the advertisement, not specially small;

• meaningful energy ratings to be displayed prominently on all energy using appliances. Effective energy labelling has unfortunately been set back by concentration of attention on the EU wide ecolabelling scheme, which has failed to achieve much impact because of controversy over the criteria to be applied to each product, lack of public resonance of a scheme in which all aspects of performance are reduced through opaque 'expert' evaluation to a single 'yes/no' decision and lack of industry interest in a scheme which only rewards the top 10% of products in each class.

Voluntary schemes have of necessity concentrated on celebrating the best. There is a need to 'name and shame' the worst to differentiate them from the average.

Financing energy efficiency

Some enlightened local authorities have established internal revolving funds which pay for energy efficiency investments and are replenished out of the savings made, and some specialist 'green' lenders, notably the Ecology Building Society and Triodos Bank, offer loans specifically for energy efficiency improvements (among other sustainable activities).

This approach could be applied more widely. For example the Government could underwrite the provision by building societies and other financial institutions of loans on preferential terms specifically for designated energy efficiency investments. Government has canvassed this idea with the institutions on and off since 1985 if not earlier, but there has never been sufficient will on either side to make it happen.

Energy efficiency as a 'safe' prospect for lending also underlies the following subsection.

Energy services

The best established 'energy services' approach is contract energy management - see box 8.

So far, contract energy management has only really taken off in large commercial buildings where the savings are often large, the technical issues straightforward, and a culture of 'outsourcing' (and the contractual expertise it requires) already established. The last point may be the most important: the one management responsibility CEM cannot take away from the client is negotiating the CEM agreement itself, and for clients inexperienced in contracting out complex services this might seem more daunting and risky than doing the energy investments in-house.

CEM as an industry has enjoyed healthy growth of around 20% a year in the UK. One leading contract energy management company, BP Energy, estimates that the potential UK CEM market is around £9 billion and that ESCOs (energy services companies, including but not exclusively CEM companies) have penetrated less than 1% of it: the fast growth and low penetration have led UK based ESCOs to concentrate on the UK market. Many UK ESCOs currently backed by large energy supply companies. This is an increasingly common trend in most countries. Internationally there are now about 20 active ESCOs with a total turnover of about $300 - $500. (World Energy Efficiency Association (undated).

However the principle of contract energy management could usefully be applied to any energy users where technical expertise, management time and finance are significant barriers to action. Two promising variants currently being considered are:

• 'Fridgesavers', a project initiated and piloted by the Lothian and Edinburgh Environmental Partnership (LEEP) and recently adopted as a national initiative by the Energy Saving Trust (Energy Saving Trust, 1997). This offers new energy efficient fridges at one fifth of the normal retail price to householders otherwise unable to afford to replace inefficient old ones, recouping the purchase price from the savings made on electricity bills, which are typically £30 per year. (Energy Saving Trust 1997a);

• Discussions involving the Energy Saving Trust and the Local Government Association about setting up ESCOs to install packages of energy efficiency measures in council houses. The costs would be recouped from a mixture of rent additions (constrained by a 'no losers' requirement to be politically acceptable), profits on 'bulk buying' energy at a discount, and grants.

3.6 Behavioural responses

Layer 1 assumes that individuals and organisations are (in general) economically rational: that they will change their behaviour and make investments to improve the economic efficiency of their use of energy provided they know enough about the technical options and their financial consequences. All the institutional and managerial responses discussed above are therefore based on some combination of removing barriers to investments and behaviour change, and providing better information about energy efficiency measures and their benefits. How far this assumption is valid is explored in the following section.

3.7 Issues

How far can energy efficiency take us?

In all the sectors described above, the level of efficiency improvement which is technically possible using the best current proven technologies is far greater than what is economically justified under current market conditions. This in turn is far greater than the levels of uptake actually achieved, even where there have been active policy interventions.

For example:

• Many demonstration houses have shown it is technically possible to virtually eliminate the need for space heating and reduce domestic energy consumption by a factor of 5 or 10;

• 'The [Government's] Green House Programme demonstrates the potential to achieve average CO₂ reductions of up to 50%' [in council housing] (Department of the Environment 1994);

• Depending on assumptions about paybacks, discount and interest rates, it might be economically optimal to reduce most households' energy consumption by around 20 - 30%

Moreover 'economically justified' can be interpreted in different ways, and improved technologies may well extend what is possible.

Very rough technically feasible efficiency improvement factors (relative to typical 1998 performance) include:

• Power stations - CHP and district heating - 2x

• cars - 3x

• equipment - enormously variable but often 2x or better

Therefore there is no simple, single answer to the question 'how far can energy efficiency improvements take us?'. Instead a range of estimates can be offered depending on what actions are taken, from 0%-10% if we rely on market forces, maybe 10%-30% if we address all identified 'market failures' systematically, and 60% or even higher if we apply best current technologies systematically.

How far should we take energy efficiency?

Layer 1 only promotes energy efficiency in so far as it is connected with economic efficiency. This is often the case. For example EST (1997) argues that for every £1 spent on energy efficiency, electricity consumers save about £5. However lower energy prices - a result of privatisation as discussed above, increase economic efficiency but retard energy efficiency by reducing its financial benefits.

There are also perverse incentives:

• Lovins and Hunter (1997) point out that under some contractual arrangements architects and similar professionals who work harder to eliminate the need for costly high-energy equipment are rewarded by lower fees;

• Guy and Marvin (1996) found that gas and electricity suppliers were willing to pay for putting supply infrastructure into new business parks provided they could expect to sell enough energy to recoup the investment. This gave developers an incentive to avoid achieving such high levels of energy efficiency that they would have to pay for supply infrastructure themselves.

Efficiency improvements do not necessarily reduce consumption

Improvements in efficiency can easily be swamped by increases in economic activity (Gouldson and Murphy 1997). For instance, Trainer (1995) notes (albeit in a rather extreme scenario):

"If the economy of rich nations were to grow at 4% per year until 2060 their annual output would be 16 times what it is now. If all expected 11 billion people were to have such living standards then total world output would be 220 times as great as it is now . . . Hence even major conservation achievements can be quickly reversed if there is any significant commitment to growth. Total energy demand could be prevented from rising in the long-term only if the energy needed to achieve a unit of output were to constantly fall at the same rate at which output constantly rose". Also, projections of past world trends suggest 900-1100 million motor vehicles in 2010, compared with 675 million in 1990 (Walsh 1996).

Similarly, overall energy use in transport is increasing despite the technical efficiency improvements noted earlier. Reasons include a fall in the average number of passengers per car, peoples' desire to own bigger, heavier (and therefore thirstier even if more efficient) cars for reasons of safety and prestige (DoE 1996). Projections of past world trends also suggest that there will be 900-1100 million motor vehicles in 2010, compared with 675 million in 1990 (Walsh 1996).

Lenssen and Flavin (1996) estimate that, to hold carbon emissions to about the current level in 2025 and then cut them substantially, energy efficiency would need to double over the next 40-50 years.

(Of course this is a criticism from outside 'layer 1' which is not itself concerned with quantity of energy consumed.)

What is holding back energy efficiency?

Despite the clear financial benefits of energy efficiency, energy consumption has increased in the UK. Repeated promotional drives from Energy Efficiency Year 1986 onwards have obstinately failed to take off (despite huge bills from Saatchis.) It appears that appealing to rational decision taking 'isn't working' (to use another celebrated Saatchis slogan.) The only energy campaigning slogan people still remember is the oldest of them all,'Save it!' It may be significant that this was a conservation not an efficiency message, couched in moral rather than self-interested terms (and moreover invented by a Department of Energy information officer rather than an advertising agency.)

Levett (1996) argues that 'the reason why the Energy Efficiency Office is still, 13 years after its launch, plaintively pointing out that most businesses could cheaply and easily save 20% of their energy bills, and why most companies are still not doing it. . . is not at all mysterious . . . Any company has to concentrate limited money and management attention on the small number of possible activities which are most important for the future of the business, and most businesses will have more urgent priorities than the environment.

Managers of a successful, prospering business will give more attention to developing new products and markets, and managing expansion, than to making small savings on energy . . . Managers of an unsuccessful faltering business will generally have far more pressing worries and demands on their time than small scale resource and environmental impacts, and will be uninterested in investments which will only pay back over a future the company may not have.

This is the same 'heads I win / tails you lose' logic which makes VAT on domestic fuel ineffectual as an environmental tax. Householders wealthy enough to respond by investing in energy efficiency improvements generally feel they have better things to do with their leisure than fuss about saving a few extra pounds on their fuel bills. Conversely the many people for whom any increase in fuel costs poses a serious problem cannot afford to do anything about it - other than putting up with a colder house.'

Conclusion

There are huge technical opportunities to increase the efficiency of energy generation and use. We are currently far from achieving even the small proportion of these which are clearly and unambiguously worthwhile for financial savings. But even if they were systematically exploited, this would not necessarily reduce or even stabilise energy consumption. Whether this is a problem, what can be done about it, how far we should pursue efficiency measures, and how they can be implemented, are questions raised by this 'layer' which later ones address.

4. LAYER 2: REDUCING ENERGY IMPACTS

4.1 Objectives

At its simplest, the objective of layer 2 is to reduce energy consumption in order to 'protect the environment', and to save energy as a valuable natural resource. This very vague and general formulation motivated the energy conservation movement in the 1970s. Since then the objectives have become sharper and more differentiated as our understanding has improved of which kinds of energy activities cause which sorts of environmental damage. (See for example Eyre 1998).

The seminal 1972 Club of Rome 'Limits to growth' report (Meadows et al, 1972) based its arguments on predictions that continued exploitation would lead to our simply running out of non-renewable resources including fossil fuels. The fossil fuel industries' success in finding new sources and reserves to replace those used (see box 9) has rather undermined the credibility of these arguments.

However while 'source' arguments were losing their force, concerns were increasing about 'sink' problems - that is, the impacts of human activities such as energy use on the environments which receive the wastes and byproducts. This began with concerns about the impacts of energy activities on local environments - through air pollution, damage to landscapes and vegetation, noise and infrastructure (which ironically led to power stations being sited in unpopulated areas, reducing opportunities for CHP!) These kinds of concerns still dominate traditional methods of environmental assessment, notably Environmental Impact Assessment, which date from the 1980s. However over the last decade concern has broadened. The dominant concerns are now 'transboundary' pollutants (notably acid rain), nuclear waste / accidents and - probably the biggest of all - climate change due largely to emissions of carbon dioxide and other 'greenhouse' gases when fossil fuels are burned.

4.2 The UK's current performance

For climate change policy it is greenhouse intensity (see box 10) rather than energy intensity (see box 3) which matters. Likewise it is sulphur and nitrous oxide intensity which matters for acid rain).

UK emissions of CO₂ decreased by 17% to 554 million tonnes per annum between 1970 and 1993. In relation to economic output, emissions almost halved (DoE, 1996). During this period, world carbon intensity reduced by about 9%, and in the OECD by 34% (IEA, 1997).

However in 1994, UK emissions from fossil fuels were higher than the average for the 15 EU member states and the European Economic Area, with the UK 7th highest at 9.4 tonnes CO₂ per capita. EU member states account for ~15% of world total CO₂ emissions from fossil fuels (Eurostat, 1996,); the UK's contribution (from all sources, mainly burning of fossil fuels) to global man-made emissions is ~2% (DoE, 1996).

For 24 OECD countries who are members of the International Energy Agency (IEA) (ie all but Iceland, the Czech Republic and Mexico) the respective increases in GDP, Energy and CO₂ are shown in Table 10.

Table 10: Increases in GDP, Energy and CO₂ in IEA countries, 1960-1995

Between 1990 and 1995, only 6 of these countries, including the UK, had achieved a decrease in energy-related CO₂ emissions (IEA, 1997). Projected increases from 1990 emissions levels up until 2010 are shown in Table 11.

Table 11: Projected increases in energy-related CO₂ emissions

4.3 Technical responses

Efficiency

All the energy efficiency techniques from layer 1 are still relevant to layer 2. Moreover layer 2 begins to answer one of the main questions posed by layer 1, how far should we take efficiency measures? The answer is: far enough to at least offset increases in energy demand caused by economic growth (in combination with the other measures discussed in the rest of this chapter.) This will often mean going much further than cost-effectiveness would dictate. The institutional and management responses discussed below are largely concerned with making this happen.

Reducing carbon intensity of primary energy

Conservation also calls for a further kind of technical response: reducing carbon intensity of primary energy. This can be achieved in three main ways:

Shift to lower-carbon fossil fuels

Because of different chemistry, different fossil fuels release different amounts of CO₂ per unit of energy - see Table 12.

Table 12: Carbon intensity of different fossil fuels

This means that (for example) simply switching from coal to gas in power stations of the same (in)efficiency would reduce greenhouse impacts by 44%. (New stations are invariably also more thermally efficient, increasing the advantage).

Such shifts can make a substantial contribution to sustainability (Ketting 1995). The 'dash for gas' in the 1990s - the rapid building of new gas fired power stations following electricity privatisation - was one of the two main reasons the UK (unlike most countries) achieved stabilisation of 'greenhouse' emissions. (The other was the collapse of manufacturing industry.) However it would be misleading to see this as an achievement of privatised industry, still less one of government policy. The 'dash for gas' was driven purely by commercial considerations of cost and control. It was simply a lucky accident that gas happened to have lower carbon intensity as well as being cheaper.

Shift to renewable energy sources

The main renewable energy sources relevant to the UK are described in box 11.

In this paper 'renewable energy sources' refers to the preceding list. However the definition of 'renewables' is partly pragmatic and political:

• Geothermal energy is technically finite, but conveniently considered with the renewables because it is more like them in environmental impacts and exploitation than either fossil or nuclear;

• Fossil fuels are, in literal terms, renewable: the processes of fossilisation of organic material are continuing. But their creation is so slow they are for practical purposes better treated as finite

• Peat is also being created, but very slowly. It has been suggested that peat should be treated as a renewable resource when hand cut for local domestic heating, but as nonrenewable when mechanically cut for power generation, whisky distilleries or horticulture;

• Proponents of nuclear power argue for it to be treated as a renewable because, like the sources listed above but unlike fossil fuels, it has negligible greenhouse impacts. However this argument disregards the accident risks and future waste management responsibilities imposed by nuclear power, which are unlike the downsides of any other energy source, and lead most commentators (including this paper) to treat it as a separate category from either fossil or renewables.

A World Energy Institute (1996) study projects that "new renewables" (excluding hydro-electric and nuclear power) could contribute between 4% and 12% of global energy supplies by 2020.

Different countries have contrasting approaches to renewable energy. Australia has only 10 solar homes despite suitable climate, while Japan plans to have 70,000 by 2,000, and the US 1 million by 2010 (Hilton 1997). Shell UK are investing $500 million in renewable energy over the next 5 years.

Nuclear power

Nuclear power presently provides about 17% of the world's electricity, avoiding emissions of up to 2.3 billion tonnes CO₂ annually. It has been argued (eg Vautrey 1997; World Energy Council 1993) that only large-scale nuclear programmes will enable many countries to meet future electricity demand while complying with proposed limits on CO₂ emissions.

However there are great concerns about the radioactive wastes, possibility of accidents and leaks, and links to weapons manufacture linked to nuclear programmes (eg Greenpeace 1997). Accordingly, nuclear energy generation is projected to play only a minor role in most European (and Western) future energy scenarios. However Parks 1997 predicts extensive use of nuclear power in Asia and the Far East over the next 25 years, and a renaissance in the nuclear power programmes in some Western countries.

Possible new technologies

In addition to the three established options just discussed, various other potential technologies have been advocated, including:

• New forms of photovoltaics;

• Possible future development of nuclear fusion (although even 'believers' do not expect it until 2030 or later);

• Hydrogen fuel cells. Of 5 basic ways to design fuel cells, only 2 work at room temperature and only 1 - alkaline cell - is robust enough for everyday use. Alkaline cells, however, have low power-to-weight ratio. Iceland considering converting its fishing fleet to hydrogen (The Economist, 16.8.97, "Clean Living in Iceland: Iceland's Hydrogen Economy"). However earlier deferred hopes led to the saying 'hydrogen is the fuel of the future - and will always be so'.

4.4 Policy / institutional responses

'Internalising externalities'

The main institutional question for this layer of sustainability action is how to reconcile the need to reduce consumption with a free market in which the sustainable options - serious efficiency improvements in generation and use, development of renewable sources, expansion of nuclear (if this is indeed a sustainable option) - are often much more expensive than 'business as usual.'

One approach to this question has been much advocated and researched over the last decade: 'internalising externalities'. Many commentators (eg Pearce 1993, 1994, Pearce and Maddison 1996, Awerbuch 1996, European Commission 1995) have argued that environmental problems happen because markets do not (or do not adequately) reflect the environmental consequences of decisions, such as pollution. These environmental costs are called 'externalities' precisely because they fall outside the market price system.

The idea of 'internalising externalities' is to bring these costs back inside the market system, so that the usual interaction of supply and demand can optimise the trade-off between environmental and other costs and benefits. This approach holds out the immensely beguiling promise of assimilating environmentalism painlessly into mainstream neoclassical economics. Its advocates -notably Professor David Pearce of University College London - were for this reason among the first environmentalists to gain significant influence over the Thatcher government.

Internalising externalities requires two steps. First, money values have to be assigned to the externalities. Second, 'economic instruments' - taxes, charges, subsidies and such like - have to be applied to bring these external costs to bear on decision takers. The following subsections discuss these in turn.

Monetary valuation

The first step is to calculate externalities. Perhaps the most pertinent study of monetary valuation for the energy sector was the ExternE study carried out by the European Commission (1995). This attempted to calculate the monetary impacts of different forms of energy production (coal, nuclear etc.) on a range of receptors (eg public health, crops, building materials). A range of models were used, including:

• emissions from different technologies;

• dispersion patterns of these emissions;

• dose-response functions (that is, estimates of the physical effects of pollutants) for emissions at different concentrations;

• monetary costs of the impacts calculated from the dose-response models.

The project concluded that:

• The most important impact of fossil fuel use is in global warming and public healthl

• For nuclear fuels, global damages are dominated by the fuel reprocessing stage;

• For renewables, most impacts are local, and, further, that "if they are sensitively located, the environmental external costs of renewable energy generation are smaller than those of 'conventional' generation" (EC DGXI 1995).

Analysing the same data Eyre (1997) suggests that, taking environmental and social costs into consideration, combined cycle gas turbine (see box 5) power stations are best; but if the need for diversification requires other energy sources, then wind energy looks like a good option, much better than nuclear or coal.

Methods for applying 'true environmental costs'

Assuming externalities can be calculated, a number of means are available to bring them to bear on decision takers.

Taxes and price increases

Elementary market theory predicts that the more expensive fuel is, the less of it people will use. Weizsacker (1994) has showed evidence for this by mapping fuel prices versus fuel consumption in different countries. In the US, the energy crisis helped to reduce energy use by 6% between 1979 and 1986, while GDP rose 19% (Lovins and Hunter 1998). Countries maintaining high energy prices have fared better economically than those with low prices (Weizsacker 1994).

On the other hand, Boardman (1994) argues that richer households simply absorb price increases without changing behaviour. (The present authors' experience provides anecdotal support for this. During sustainable development training sessions and conference presentations between 1995 and 1997 we have asked over 1000 local authority members, officers and interested members of the public whether they had taken any action to reduce energy use or improve energy efficiency as a direct result of the imposition of VAT on domestic fuel. Under 2% said they had.)

Recent public opinion surveys suggest that the British public strongly favours hypothecation of taxes - that is, earmarking the proceeds of the tax for spending relevant to the activity being taxed - for example current proposals for taxing office car parking to subsidise public transport.

Levies

Levies are, in effect, hypothecated taxes which pass direct from source to application without becoming mixed up with general taxation. Two important levies have been applied to energy suppliers over recent years: the 'Non-Fossil Fuel Levy' and the 'E-factor'.

In the UK, renewables have been subsidised since 1989 through the Non Fossil Fuel Obligation, as a form of pump-priming until they become economically viable. The fourth round of the NFFO, which was announced in early 1997, is due to run 20 years and finance enough renewable electricity projects to power more than 1 million homes. Problems with earlier rounds included periodic nature of announcement of Renewables Orders, administrative procedures for assessing the eligibility of projects bidding under the NFFO, obtaining planning permission, making arrangements with local REC/PES for connection to distribution network, need to define alternative market once NFFO contracts run out (Williams and Limbrick 1995).

In 1994-95, £2.3 million was raised by a levy on electricity sales to tariff (ie domestic and smaller commercial) customers under the 'E-factor'. The money provided core funding for the Energy Saving Trust, and subsidised condensing boiler and residential CHP projects run by the trust. However widespread E-factor use has been suspended, as it has been argued by the gas regulator that it is not her role to raise taxes on gas consumers. The Select Committee on Trade and Industry (first report 1997) recommends that "the Government accept responsibility for raising any levies on gas consumers to fund energy efficiency measures".

Subsidies

Subsidies can promote "good" forms of development. However they are not economically efficient, can give wrong price signals to customers, and can also promote "bad" development (Eyre 1997). They are currently out of fashion, perhaps partly due to the apparently perverse effects of many current subsidies, such as those for company cars and nuclear power.

Governments in Western Europe subsidise users of fossil fuels by about £10 billion per year. Recent work by the OECD suggests that removing support for the coal industry in particular could cut CO₂ emissions from rich countries by hundreds of millions of tonnes per year (Economist 14.6.97). The low (5%) level of taxation of domestic energy compared to the 17.5% on most other goods and services (including energy efficiency products and services), the lack of taxation of aviation fuel, and duty-free shopping for air passengers can all be seen as perverse subsidies for energy consumption.

4.5 Management responses

Energy management

Since the early 1980s, and with encouragement from the (then) Energy Efficiency Office, energy management has become established as a distinctive technical / managerial discipline with a range of standard techniques, training, qualifications, periodicals and professional bodies. It involves the following activities:

• Energy survey - a physical examination of the buildings, activities or processes in question, and monitoring of their current energy consumption, to identify opportunities for energy saving. Depending on the context, this might involve anything from a quick 'walk-through' noting obvious opportunities (windows that do not close properly, radiators without any controls) and a look at past energy bills, to an elaborate 'stake-out' using infrared cameras, thermostatic probes, detailed heat and power metering and computerised recording and analysis;

• Researching options. As with the survey, this can range from listing simple standard responses - draught strips, low-energy lights and thermostatic radiator valves - with rule-of-thumb costings and paybacks, to a sophisticated study of process-specific technical options with sensitivity analyses;

• Setting objectives and targets;

• Negotiating and implementing an action programme (including securing the support and cooperation of users and obtaining funding and senior management support - the motivational and promotional aspects of the job are often at least as important as the technical ones, a fact that not all energy managers understand or welcome!);

• Monitoring performance against targets, changing / updating action programmes, and re-surveying as needed.

This is of course simply an application to energy performance of the standard 'management loop' of review - plan - act - monitor which forms the core of all 'management by objectives' processes. Treating it as a separate discipline (rather than simply a branch of operational management or facilities management) implies there is something 'special' about energy compared to an organisation's other costs - which is why it is treated as a response to level 2 rather than level 1. In many companies energy managers have now broadened their remit into energy and environmental managers.

Energy efficiency advice and support

The gas and electricity supply industries were given duties to "promote" and "provide information" on energy conservation at privatisation. As predicted at the time, these requirements have proved pretty ineffectual and cosmetic, given that the supply companies have virtually no commercial incentive to help customers use less of their product.

The Home Energy Conservation Act 1995 requires local authorities to implement strategies for improving domestic energy efficiency in all sectors by 30% over a 10-15 year period. Government and the Energy Saving Trust provide pump-priming assistance for innovative approaches and disseminate advice and best practice. Over 2.5 million low-income, disabled and elderly households have been given grants under the Home Energy Efficiency Scheme. The new government's Environmental Task Force has energy conservation as a priority area (House of Commons Hansard Written Answers, 18.11.97.) However the Energy Saving Trust is scheduled to take a 50% cut in funding (House of Commons 16.12.97) as a result of the new government's acceptance of the previous one's public expenditure commitments.

Making energy conservation profitable for energy suppliers

In the US, 'demand side management', a bold and creative experiment in making it commercially advantageous for energy supply companies to reduce demand, appears to be coming to a disappointing end.

Originally defined broadly, 'demand side management' (DSM) became focused on increased efficiency, load management and conservation, with the emphasis on reducing need for electrical energy and/or generation capacity (Gellings, 1996). It started with the energy shocks of the 1970s. The 1973 oil embargo resulted in an overnight quadrupling of oil prices. There were concerns about availability and security of supplies. Energy conservation became a matter of business survival (Sioshansi, 1995).

However when the 'easy wins' had been achieved and energy prices fell in the 1980s, the economics of DSM looked less compelling and utilities could no longer be expected to undertake DSM promotional practices, give incentives, rebates and so on, unless the costs were recoverable. In the late 1980s, regulators in some states responded by making DSM profitable for the utility companies. One of the key mechanisms was provided by the power the state regulatory commissions had to scrutinise utility company investment programmes and only allow the companies to pass on to consumers (in fuel charges) those investments which the regulators were satisfied were in consumers' interests. This power originated as a consumer protection measure (since US energy utilities are - or were - regional monopolies.) It is the main reason no new nuclear power stations have been built in the US since the late 1970s: it was